Hey Intel, Microsoft: Share those profits with your PC pals, eh? - analyst

Toppling tower of PC weaklings could bury giants, Gartner warns


Tech research analyst Gartner reckons profit-hoggers Intel and Microsoft need to give their PC-producing pals a shot in the arm.

This may be a radical solution proposed by the beancounter, but such is the perilous state of the classic PC market that something has got to give. At least, that's what Gartner reckons.

"Microsoft and Intel continue to take the bulk of the profits out of the supply chain," said Ranjit Atwal, Gartner's research director.

"That was fine when the market was growing but will become incredibly difficult to swallow when times are changing - the whole of the PC industry is creaking," he added.

Gartner's Atwal said several PC makers are suffering due to a "structural shift" in consumer spending to tablets and smartphones, and expects some big names to exit the market.

The PC market started dipping in Q3 2010 and hasn't recovered since - the recession and the rise of alternative devices saw to that.

Only yesterday Context confirmed tablets are propping up the UK PC industry, and IDC and Gartner revealed that rather than invigorating sales, the launch of Microsoft's Windows 8 operating system and a slew of devices that run the new OS was having the opposite effect.

The idea of profit sharing in the PC industry is not new. Former Acer CEO Gianfranco Lanci complained back in 2007 that "[Only] a few people are making all the profit. Others are struggling."

"The distribution of profitability in this industry is very questionable," he added, but stopped short of naming names.

Intel's average quarterly gross margin in the last five years is 59.97 per cent, and Microsoft's is even higher at 78.31 per cent.

Dell's average gross profit margin at group level is 19.53 per cent and HP's is 22.32 per cent. Acer's most recent gross margin was 9.4 per cent in Q4.

A senior figure at one PC giant, who asked to remain anonymous for fear of backlash from Microsoft, said the Wintel monopoly of profits was not new but agreed it was getting worse.

"Their portion of the total profits is getting higher and higher as the average unit price (AUP) declines, it is the PC vendors that are suffering," he told us.

Microsoft or Intel shareholders would clearly baulk at passing over cash to PC players. Over time, though, the value of those stocks will dwindle as PCs become bit players in the world of intelligent devices, our veteran PC exec reckons.

"The only solution to this is for PC vendors to raise AUPs and make products that are higher end and more interesting. There will be no passing over of money to us."

Intel and Microsoft were unavailable to comment at the time of going to press. ®


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