To be sure, I am not saying that Microsoft and Intel are going to go away tomorrow. Their fiscal muscle is enough to put even Popeye to shame. And monopolies (even quasi-monopolies) take forever to fade.

But for the first time they are facing a challenge that is much more profound and broader than they have ever faced in their monopolistic lives: competition and changing tastes. How they deal with these changes is going to write the next chapter of their corporate history.

PC sales horror show

But let’s take a step back. The signs of crumbling came last week when research companies like IDC and Gartner shared data that showed double digit percentage declines in PC sales during the first quarter of 2013. To be sure, the first ninety days of the year are relatively slow for sales of consumer goods, considering that people go on a buying binge during the holiday season, but still a 14 percent year over year decline during the quarter is not something to skim over. It was so bad that even downward trend defying Apple PC sales are expected to head south.

Many media reports blamed the Windows 8 operating system for this debacle, but this is the fourth quarter in a row we have seen PC sales sagging; we can’t blame the new operating system. The reason why media and analysts continue to make that correlation is because we have in the past made that correlation: new Windows equals big PC sales, almost like clockwork every three or four years. Except now it is not true because our relationship with PC (as we knew it) has changed.

The new personal

It has been just about six years since Apple’s iPhone launched and changed our expectations of computers and our relationship with technology. It became more intimate and personal than either Intel or Microsoft had imagined. It wasn’t as that the companies were unaware of mobile phones, or that iPhone was the first smartphone — Nokia and Palm had been selling them for quite a few years — but the iPhone and later Android phones became truly “personal.”

They made us spend less and less time on our PCs. They were always there, and even when the PC sat on the table, the phone in your hand was more fun and easy to use. And then three years ago came the iPad (and later other tablets) to take away even more of our attention from the PC. And when the iPad launched, I knew my PC was going to become less important. The iPad was my slate of imagination.

In the end, an increasing number of people are finding that they don’t need a whiz-bang PC anymore and they don’t need to upgrade because they can do a lot of things on their iPad or Kindle Fire or Samsung Android tablet.

The signs of this change were obvious to anyone who was paying attention. When Apple dropped “computer” from its name, the late (and then chief executive) Steve Jobs pointed out that it was a sign of the times and where the world was going. Here is what I wrote then:

Apple is making the phone do all things a computer does – surf, email, browse, iChat, music and watch videos. Nary a keyboard or mouse in sight, and everything running on OS-X. While I am not suggesting that this replaces our notebooks or desktops for crucial productivity tasks, the iPhone (if it lives up to its hype) is at least going to decrease our dependence on it.

The future is here

Six years later, the world has really changed for the twin gods of the PC. Unlike Apple and Google, who have hitched their bandwagons to wireless devices, Microsoft and Intel are still weighed down by the legacy of their past. I mean, it is hard for Microsoft to look beyond the profits from Windows and Office. It will always look at the future through the lens of those two products. I have been suspect of Intel’s ability to come out ahead as well.

Intel, too, is so married to the idea of selling more expensive PC chips and silicon for servers that it doesn’t know how to readjust its focus and its fiscal models around a world that wants lower priced chips for a different and always shifting market. Since then the world has embraced the little pocket marvels with amazing speed and that in turn has unleashed a new cellphone economics. The mobile chips are getting faster and faster. And thanks to demand that far strips the demand of classic PC devices, they are getting cheaper.

The mobile phone market is so big that it has attracted all sorts of chip makers into the business: Qualcomm, MediaTek and Nvidia are some of the players in the mobile chip business that are relentlessly flooding the market with faster, cheaper and more powerful chips. They are being helped by ARM Holdings, which keeps beefing up its chip technology and expanding its possible uses by focusing on not making chips, but instead licensing chip designs to others like Qualcomm.

Intel has to react to these guys; not to Advanced Micro Devices, the perennial also-ran that was always weighed down with an anemic balance sheet and an inability to compete even when it had better chips. And we all know, Qualcomm is no AMD. MediaTek knows how to play the mobile chip game better than anyone else. What does Intel have to show for its mobile efforts?

Change is hard

A lot of noise – press releases, product releases and a handful of devices. Sorry, but I remain resolute in my belief that the company’s DNA is making this transition to anywhere computing very difficult. That inability to change is reflected in the company’s current dilemma over the chief executive position. In an article this week, The New York Times detailed the likely replacements for outgoing CEO Paul Otellini.

Analysts say the two top contenders to be Intel’s next C.E.O. are Brian Krzanich and David Perlmutter, who are close to Intel’s core business. Mr. Krzanich, Intel’s chief operating officer, oversees its fabrication facilities. Mr. Perlmutter, the chief product officer, oversees chip design. Renee James, the head of Intel’s software group, is considered a more remote chance to run what has long been a hardware company. And Stacy Smith, Intel’s chief financial officer, is well liked inside and outside the company, but like Mr. Otellini, lacks an engineering background, which diminishes his prospects.

Regardless of who becomes the new Intel chief, the problem is that they were all weaned on the classic PC business, one that is changing with the rise of smartphones and tablets and lower power anywhere-computing devices.

That said (and as my wise colleague Kevin Tofel continues to remind me), Intel is doing relatively well with its Atom lineup of chips and he feels it is one of the reasons why Microsoft RT on ARM devices is facing challenges.

The full Windows 8 tablets that run on Atom processors priced at the same price as RT devices (and with the similar battery life) should give Intel some hope. However, their addiction to the PC-style model and hefty margins that come from being almost monopolistic are going to challenge Intel in the future. As I wrote in the past, companies are defined by their corporate DNA and that determines their outcome.

Microsoft too has similar challenges as it grapples with the idea of competition and a world it doesn’t and can’t control anymore. More on that another day, but in closing, I would like to repeat what I said at the start of this piece: the companies that spearhead the talk of disruption and innovation are the ones who are afraid to disrupt themselves.

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The 76.3 million PCs that did ship between January and March this year were down a whopping 14 percent from the same quarter a year ago. It’s leading the analysts at IDC, who have been monitoring the PC market since 1994, to call it “the worst quarter” it’s seen.

And, no, it’s not a blip: it’s the fourth quarter in a row that PC shipments have declined.

The numbers show that people still buy PCs, but not in the quantities of the past. Instead, many people — both businesses and individual consumers — are making the purchase of cheaper, more portable tablets their priority right now.

All the big PC makers are affected. Lenovo, which is the second-largest PC maker by volume, was the only one of the top 5 firms who didn’t see double-digit units sales declines during the quarter — it pulled even with the same quarter a year ago. Not terrible, but certainly not good.

Even Apple, which was able to buck the industry trend of the last year and grow Mac sales until the last quarter of 2012, is seeing its laptop and desktop shipments drop off. IDC doesn’t release global numbers for Apple, but in the U.S. its shipments dropped 7.5 percent from the same quarter a year ago. (However, if you look at data from competing analyst firm Gartner, it shows U.S. Mac shipments on an opposite trajectory during the quarter — up 7.4 percent year over year. The reason for the discrepancy isn’t clear; its PC numbers overall weren’t as far off: down 11 percent versus IDC’s 14 percent.)

What Apple has going for it is its prescience in seeing this shift to smaller mobile computing coming (and of course helping it along). So when people are opting not to buy a more expensive laptop or desktop, it has the iPad to offer.

Apple competitors in the PC business have been slow to adjust to this new reality. And even for those who are trying to offer a good tablet experience, it’s not going that well. Microsoft’s attempt to stanch the bleeding with Windows 8 is faring poorly, IDC says:

“At this point, unfortunately, it seems clear that the Windows 8 launch not only didn’t provide a positive boost to the PC market, but appears to have slowed the market,” said Bob O’Donnell, IDC Program Vice President, Clients and Displays. “While some consumers appreciate the new form factors and touch capabilities of Windows 8, the radical changes to the UI, removal of the familiar Start button and the costs associated with touch PCs have made PCs a less attractive alternative to dedicated tablets and other competitive devices. Microsoft is going to have to make some very tough decisions moving forward if they want to help reinvigorate the PC market.”

This post was updated with details from Gartner’s report at 5:11 p.m. PT.

Image courtesy of Flickr user Alyssa L. Miller via Compfight cc

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Gaining distribution deals such as this helps increase the odds that BlueStacks will find success. The company says that organically, about 5 million consumers have manually downloaded the Android player app on their own. However, over 100 million pre-installs are on computers thanks to partnerships with computer manufacturers and component builders.

Why even bother with smartphone apps on a PC? Because the market for such apps has exploded and because consumers are engaging more with their mobile devices. BlueStacks illustrates the appeal:

“With the BlueStacks App Player, Lenovo’s end users can now enjoy the same great apps on PC that they already are addicted to on their smartphone. And with BlueStacks unique ability to link the smartphone to the PC via the cloud, Lenovo’s end users can seamlessly sync their favorite apps, data and SMS text messages between their smartphone and PC.”

The latter part of that quote is important and oft-overlooked detail when thinking about how smartphone apps relate to the traditional computer. We want access to all of our information regardless of what device we’re using. Personal data synchronization at the app level is becoming increasingly desired and it sounds like BlueStacks is moving in that direction.

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Watch as a Samsung Galaxy Note 2 is paired with an external monitor, wireless mouse and keyboard and a full sized-USB stick:

A few thoughts struck me as I watched this over the weekend after it surfaced on Chris Pirillo’s Google+ stream. Although I’ve followed the computer industry from my early days growing up in the late 1970′s, the video introduction reminds me how far we’ve come since then; especially in the last decade.

The computing power in our pocket is hundreds, if not thousands, of times greater than that of desktop computers from my teenage years. My Samsung Galaxy Note 2 has 2 GB of RAM, a 1.6 GHz quad-core chip and a 1280 x 720 screen, for example. Compare that to my Commodore 64 from 1983 (which I still have): a paltry 64 kB — 39 or so which was usable — a 1.023 MHz chip and 300 x 240 resolution on a computer monitor. Surprisingly, the price for both is roughly the same, not adjusted for inflation; the C64 cost around $600 or a little less than what I paid for my no-contract Galaxy Note 2!

While the Android mobile interface isn’t optimized for a large external monitor, it appears easy enough to navigate and use on a bigger screen. And the right applications make all the difference. The ability to run multiple videos or browser tabs on a single screen while taking a Skype call, for example, is certainly something most would equate with a PC, not a smartphone. The gaming examples are PC-like as well. No, they don’t provide a cutting-edge PC experience, but they’re getting closer in many respects: graphics shading and texture, for example, as well as high frame rate support from today’s mobile. Add in the ability to use a wireless game controller and the experience is even better.

Am I recommending that people trash their computers and replace them with a smartphone? Not at all. I’m simply noticing where the smartphone is at when it comes to this possibility. Although I will admit that after watching the video, I’m giving the $99 Samsung Smart Dock a second look for my own Galaxy Note 2. It’s obviously not needed to use the handset in a PC setting, but with three USB ports and a full-sized HDMI interface, it makes it easier to take advantage of the smartphone hardware for computing use.

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With the PC market dwindling, AMD has little choice but to look elsewhere, and servers might be its saving grace. While it’s a tough overall economic environment for chipmakers, Intel’s third quarter financial results from last week show that the data center is at least still a growing market. Intel reported that its PC revenue was $8.6 billion, down 8 percent year-over-year while its data center group revenue was $2.7 billion up 6 percent year-over-year. Yes, that’s a smaller base compared with PCs, but it’s still growing.

On Monday afternoon, AMD sent out an email inviting reporters to an event featuring CEO Rory Read, Lisa Su, senior vice president and head of AMD’s global business units, and a “special guest.” Given that ARM is hosting is developer conference in Santa Clara, Calif. that week, and that AMD’s invite notes that this meeting will involve discussion of its “ambidextrous strategy,” I’m hoping that it is finally biting the bullet and taking a higher-level ARM license that will give it the ability to design chips for servers — something I predicted it would do back in February when it purchased SeaMicro.

AMD’s big, fat strategic shift

AMD has already started tiptoeing down this path with the creation of the Heterogeneous Systems Architecture Foundation back in June. It joined up with ARM to create an organization that will bring heterogeneous computing — i.e., computing that doesn’t just use x86-based chips — to the mainstream. It also has licensed a lower-end ARM-based core for use in security. So taking it further with the license of a Cortex A15, or higher-end server-capable chip, isn’t going to shock investors at this point. It may even hearten them.

AMD data by YCharts

AMD has a history of innovation that has been stymied by Intel and its own execution troubles; sometimes both. AMD brought 64-bit computing to the x86-based architecture in desktops and servers, introduced its HyperTransport technology to improve scaling of multiple cores ahead of Intel and even foresaw the importance of graphics chips for both consumer and corporate computing back in 2006 when it purchased ATI. Unfortunately it also failed to go big in mobile. AMD did purchase Alchemy, a low-power MIPS-based chip company back in 2002 as part of mobile bid, but in 2006, it got out of that business.

In a similar vein, Intel has its own ARM-based Xscale unit during that time that it later sold to Marvel. But even after the launch of the iPhone and netbooks (remember netbooks?) AMD stuck to its plan to steer clear of mobile computing. And that was a huge mistake. AMD recently said it would lay off about 15 percent of its staff, and also reported lower-than-expected sales.

Some of the blame can be laid on AMD for not embracing mobile, but there’s a larger upheaval occurring in the chip sector where industry segments that were once clearly delineated have begun to merge (like smartphones and computers) while the hegemony of the x86 architecture with its two primary competitors has waned. So there’s competition between more players and more architectures across a wider spectrum of devices. It’s happening clearly in consumer devices, but it is about to happen in servers.

The ARM servers are coming!

Calxeda’s ARM-based server chip.

At this point, AMD has — with its SeaMicro purchase — systems design expertise and IP to use an ARM-based chip inside a server built for cloud computing and big data jobs. It has credible x86-based processors as well as GPU-based systems designed for high performance computing. Bringing in an ARM license and experienced ARM engineers means AMD could build machines that mix and match the most popular architectures for different styles of computing. Yes, it will compete with many more players than Intel: already Marvell, Cavium, Calxeda and other chip companies are targeting specialized chips for the server market.

Just last week Calxeda launched a roadmap that brings 64-bit ARM-based computing to servers in 2014, and says it will have ARM servers in production environments by the end of the year, while other vendors such as HP and Dell are launching ARM-based servers. I expect more news at the ARM conference next week, but the momentum around the technology is clear. After years of dithering, it’s time for AMD to bet it all on heterogeneous compute, even when it comes to its server business. Will it be enough?

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Emil Protalinksi at The Next Web  wonders if Windows 8 can provide a bounce to this market, and market researcher IDC was also cautiously optimistic about tepid growth in announcing Thursday poor third-quarter PC shipment results across the board.

But if there is one at all, I don’t think it will be big, nor long lasting. For better or for worse, we’re coming to — or in some cases have passed — the tipping point for mobile vs. desktop. As of late 2010, smartphone sales started surpassing those of traditional computers. And IHS iSuppli’s own forecast for tablet sales this year, which really didn’t exist in meaningful numbers until 2010, says they’ll jump 90 percent to 124 million sales, or just over 35 percent of total PC sales this year.

Some in the PC market have ignored this shift; that’s why I called the top computer companies five biggest losers in January last year. They’ve watched their sales figures erode as two things have happened: Apple has continued to buck the trend by generating Mac sales growth and computing activities are migrating away from traditional computers.

Ridiculous or reality?

Right about now, I suspect many readers are thinking, “Ludicrous! We still need PCs at work and to get specific tasks done that no smartphone or tablet can do. To say the PC is dead is simply ridiculous.” To that, I say, yes… and no. I’m not suggesting the PC is dead. I am suggesting, however, that the PC is dying and the numbers have shown all the warning signs of it getting replaced for the past few years.

More importantly, those readers still shaking my head over this thought are likely long-time PC users. There’s a whole new generation of the world’s population growing up now that uses a tablet or smartphone as their primary computing device. Don’t believe me? The numbers don’t lie: A recent survey of 7,700 teens shows that 40 percent of them have a tablet and 43 percent have an iPhone. Surely, some have PCs too, but are they primary computing devices?

I can’t extrapolate much from my own kids but it’s telling to me that they only turn to PCs in rare instances these days: To play online Flash games and occasionally for multiuser video chat. Outside of that, it’s all iPad, iPod or Android phone for games, email, and even schoolwork. I don’t think their usage patterns are outside of the norm for their generation, but again, I won’t read too much into their activities.

But that brings me back to Windows 8 and the overall PC market. Windows 8 is expected this month. Now is the time when people should be talking about it as Microsoft builds buzz. But try an experiment to see if that buzz is where it should be.

Which is owning the conversation: PCs or mobile devices?

In your circle of friends, family, co-workers and the like, tune in to their tech talk. See if they’re more excited about the possibility of an iPad mini, the latest Android phone, an Ultrabook, or a new Windows 8 device, for example. Sure, you’ll find some talking about the latter two, but I don’t think you’ll find the majority of the conversation revolving around PCs. The new mobile world order is about smartphones and tablets, not the legacy activities that require us to be attached to a laptop or desktop computer.

One could argue that the poor economic climate is hurting higher priced PCs as consumers and businesses choose to buy less expensive mobile devices. That’s a fair point. As the global economy heals, however, I don’t expect PC sales to rise with it. Our mobile devices are more capable than ever before and becoming more capable every day. Thank the maturity of apps, faster mobile broadband networks, use of the cloud and improved mobile chips for these and future advances.

Schools, enterprises, and consumers alike are moving on to the always-connected, do-anything-anywhere experience that smartphones and tablets provide. And as more do so, the stodgy old PC as we’ve known it for 25 or more years is getting left behind.

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But in an interview with The Seattle Times, CEO Steve Ballmer hinted that, with its new tablet, Microsoft is aiming to compete on features more than price. Ballmer said the “sweet spot” would be between “$300 to about $700 or $800.”

“I think most people would tell you that the iPad is not a superexpensive device. … (When) people offer cheaper, they do less. They look less good, they’re chintzier, they’re cheaper.

If you say to somebody, would you use one of the 7-inch tablets, would somebody ever use a Kindle (Kindle Fire, $199) to do their homework? The answer is no; you never would. It’s just not a good enough product. It doesn’t mean you might not read a book on it….”

The Verge points out that the company could still offer a lower price with a subscription to Microsoft’s Xbox Music service, but Ballmer’s comments seem to indicate that the vendor is planning to present Surface as a higher-end, highly functional device.

In the interview, Ballmer also said that while Microsoft was born as a software company, over the next five to ten years, the company will retain its core capability in software but evolve into more of a “devices-and-services company.”

“[That] is a little different,” he said. “Software powers devices and software powers these cloud services, but it’s a different form of delivery…. Doesn’t mean we have to make every device. I don’t want you to leap to that conclusion. We’ll have partners who make devices with our software in it and our services built in.”

Ballmer also defended the company’s so-called “stack-ranking” management system, which was called out as destructive and demoralizing in a damning Vanity Fair article in August on “Microsoft’s Lost Decade.” (In the system, supervisors are forced to place employees into tiers based on performance.)

While Vanity Fair said former Microsoft employees maintain that the system led to a counter-productive corporate culture, Ballmer said it rewards top talent and nudges lower performers to get with the program.

“I think you always want to have a system that has a chance to recognize people who are doing a great job, a good job, and helping people who are still doing maybe even a decent job, but they’re not doing as good a job as the other folks,” he said. “It helps to let those people recognize where they stand.”

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Generally any new over-the-top messaging app launch makes operators cringe as it represents another potential blow to their lucrative SMS revenues. That’s not the case with MightyText, founder Maneesh Arora explained. Every message sent using the service uses the operator’s SMS infrastructure, meaning carriers collect their messaging revenues no matter where the text originates, Arora said.

“We’re actually routing all messages through the phone,” Arora said. “Android is so open and powerful it allows you to do that.”

A behind-the-scenes smartphone client downloadable from Google Play copies every text as soon as it hits the device and then instantly forwards it over the phone’s data connection to MightyText’s servers. A browser extension, available for Safari, Chrome, Firefox and Internet Explorer, then spits out the message on your computer screen.

The return path works the same way. You type a message into your browser and select a recipient from your synched contact list, and MightyText rushes it to the device over the IP channel. The app software then deposits that info into an SMS, which the phone sends like any other text message. Arora said making the service as near real-time as possible was key, and MightyText’s aim is to produce no noticeable lag between an SMS showing up on the phone and a PC screen.

MightyText is billing the app as an iMessage for Android users, but in truth it has a far broader scope. iMessage only works between Apple devices and relies on a user’s Apple ID. MightyText relies on something far more universal: a mobile phone number. What’s more, it uses an Android user’s existing phone number, not an alternate one such as Google Voice. And since it accesses the SMS client on the device, messages aren’t sent through an unrecognizable proxy number.

Arora said MightyText has one beta customer that leaves his smartphone plugged in at home in the U.S. when he travels to India. He then text messages his friends and colleagues overseas from his laptop browser, incurring no roaming charges.

Speaking of beta customers, MightyText has an awful lot of them — 250,000 to be exact. Those users are sending a 2 million messages a day and those totals are rapidly growing. Opening the service up to the public at large will part those flood gates further.

Arora said MightyText is looking to grow its user base before it starts looking at revenue opportunities. “First let’s show massive consumer demand,” he said. But he acknowledges that a big potential revenue channel will be the operators.

MightyText is a really a service the carriers should have developed themselves as a way to keep their text messaging services relevant. Some operators have tried to expand the boundaries of their SMS services to the IP realm, most notably Rogers Communications in Canada. But others like AT&T and Verizon have chosen to protect their SMS revenues by simply requiring customers to buy expensive unlimited texting plans.

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Relatively speaking the iPad and iPhone are considered to be bulletproof consumer electronics devices. Sure, both have had issues in the past — the iPhone 4′s “antennagate” and iPad’s wireless problems come to mind — but the overall experience remains rock solid. A Changewave survey from earlier this month, for example, showed that 98 percent of all new iPad owners were either “very” or “somewhat” satisfied with their iPad purchase. And by the growing number of iPhone sales, it’s reasonable to think Apple’s handset is meeting or exceeding expectations as well.

So what’s the potential problem that PC makers should be concerned about? If consumers are happy with their first Apple product, they’re apt look to the company for additional hardware. Think MacBooks, iMacs, Airport routers and so on. And here’s the kicker for these first timers on an iPad or iPhone: Bits of the iOS look and feel are already part of Mac OS X Lion and will be expanded in Mountain Lion. When you add in the iCloud sync for Reminders and Messages that works on both iOS devices and Mac computers, the higher priced Apple laptops and desktops become even more compelling. Or even worse: Folks may consider not buying a PC at all and simply use an iPad for more computing tasks.

Sure there are a few PC makers that are trying to find some success in both the computer and the mobile industries: Samsung, Toshiba, Sony and Lenovo are some that come to mind. But none of these companies has melded the mobile and desktop experiences, user interface and ecosystem like Apple is doing. So while 25 percent of new iPad owners are getting their first taste of an Apple product may not sound alarming, warning bells should be ringing in the offices of those focused on desktops and mobiles as two discrete product lines.

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As with any forward-looking predictions, certain assumptions have to be made and Dediu outlines his as such:

• Mac sales growth will continue at 25 percent per year.
• Windows 8 will bring only a small sales boost in 2012 as enterprises don’t rush upgrades.
• Windows 8 tablets will account for 7 percent of all Windows PCs in the final quarter of 2012, jumping to 20 percent by 2013.
• Yearly iPad sales growth will double this year and next.
• Sales growth of Android tablets, including the Kindle Fire, will still lag behind the iPad, but sees 80 percent growth a year.

Overall, I think these assumptions are generally reasonable, given the time frame of a two-year look and based on historical data. Even two years is pushing the crystal ball a bit in the mobile space as technology advances are cycling faster than 24 months, but again, Dediu’s approach makes sense.

Naysayers will be quick to point out that some activities will always require a traditional PC. I see their point when you look at CAD software, movie production or custom enterprise applications that require some computing feature not yet feasible for tablets. For these, and similar, computing needs, I agree — for now. But times are a-changing. I noted this in my GigaOM Pro report (subscription required) just last month by explaining why the PC you buy in 3 years may not be a traditional PC.

Tablet hardware is improving quickly, which brings software innovation as app developers take advantage of more processing power and graphics capabilities. Input on tablets can be a challenge, but one look at the Asus Transformer Prime and its keyboard dock offers a glimpse of current and future solutions. Remote desktop solutions abound, and some, such as OnLive, don’t even require you to have your own PC; you simply connect to one in the cloud.

Simply put: Mobile devices are enabling new economies, opportunities and functions we couldn’t envision just a handful of years ago. Ignore this trend and you’re sure to think there’s no way tablets could ever outsell PCs, let alone do so within the next two years. Look at the next generation embracing tablets, however, and you start to see that the idea isn’t so far-fetched after all.

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