Why I think WINTEL is under pressure

For last many years, Microsoft and Intel have sort of monopoly in the PC (laptop and desktop) despite markets being allowed freely competitive. This kind of monopoly in a consumer industry is rarely seen. Few years back, Unix was gaining popularity, Java-based applications were on a roll and it seemed that Microsoft is under attack. Hard-core developers are still fans of Unix OS. But over last couple of years, I have experienced that Microsoft has come up with large integrated suite of applications with tons of features that makes it easier to work with its operating system. I am not considering iOS as it caters to niche segment and has its own share of limited supporters. In micro-processor space, Intel hardly faced any challenge from any chip manufacturer. In terms of performance, AMD is way behind Intel. Market leadership and monopoly of these two leading companies is popularly known as WINTEL.

So what can go wrong? There is no indication of any competition surfacing even in distant future for these two companies. So why I feel that they would soon be under threat or they would be under fire soon? In my view, they are under pressure from a category which was not perceived as a threat initially and that can change the complexion of the game. Tablet and Smartphones are getting popular day-by-day. The sales are increasing exponentially for these products while for PCs (laptop and desktop), it has been negative in 2013. It is expected that in 2014, the sales for smartphones and tablets will be more than PCs. According to a research report by IDC, by 2017 87% of the connected devices will be smartphones and tablets with only 13% accounted by PCs.

The latest report by Cisco mentioned that there will be more than 3.6 billion internet users by 2017. A couple of years back, most of this traffic was expected to be routed through PCs. In addition, most of this growth was expected to be in emerging markets like India, China. So why PC manufacturers under pressure? Probably the experience or expectation that emerging economies will follow developed world. When smartphones were launched in Europe or US, the PC market was more or less matured and most of the users brought these as add-on devices. Even then users were still comfortable with PCs and there were limitations with iPhone or Blackberry. But things changed drastically with launch of iPad in early 2010. It brought in portability that was not experienced earlier. With launch of Nexus series using Android OS in 2010 and then series of launches by different manufacturers using Android OS, devices became affordable too. Cloud computing has also taken care of the big limitation of storage capacity on smartphones and tablets.

What this all mean that now you do not need a $1000 instrument to just stay connected with your friends or to store your data like music or pictures. Though PC sales are heavily impacted in developed world, it is going to hit PC manufacturers more in emerging countries as it is considered big market. The 'junta' is more than happy with the connectivity provided by 2G and 3G data connection. A single sub-Rs 15000 or $300 price tag for a device that does most of the functions you need. Besides the flexibility of carrying it in your pocket and you do not need to run around searching for internet connection wherever you go. For those who need slightly bigger screens, Phablets do the trick. And in this space, we have large number of OS and chip manufacturers and WINTEL has not even started to capture the ground. Even the Ultrabooks are not catching fascination as was expected.

So where does this leave WINTEL? The sales of PC will still continue in corporate world. I will still need MS office to do my work faster and better on a laptop. But instead of buying a personal laptop outside the one which office will give, I would probably buy a Phablet. There have been launch of OS for mobile by Microsoft but it is to create a space for itself and to garner some market share from iOS and Android. Similarly Intel has started focusing on mobile microprocessor but Qualcomm or ARM has already occupied the market share. Both have missed the bus, especially Microsoft and I believe that the days of WINTEL supremacy are numbered. I do not see any trick up their sleeve, and many laptop manufacturers have already started selling smartphones (like Lenovo, Dell etc). I think it is going to meet fate like Blackberry. Just as smartphones killed camera, it is also going to deliver similar blows to PCs. Till then, Wintel can just hope to make as much money as they can.

 

Fed Tapering - Good or Bad for India?

Stock markets goes into a swing as and when there is a news on 'tapering' by US. If there is a news on push back, the markets react positively but the moment there is an news on 'tapering' being implemented, the market goes onto a tailspin. Lets first understand what actually is 'tapering' that is generating so much instability in markets world over. 

We know that short-term interest rates are reduced whenever a need is there to stimulate growth. But in the process, Fed reduced the rate effectively to zero which means that there was no scope further to stimulate growth. US Fed used Quantitative Easing to fuel growth that meant it started buying long term financial assets or bonds from commercial banks and private institutions that was aimed at reducing the yield on bonds that would have led to lowering of borrowing costs ultimately fueling growth. There has been so far three round of QEs popularly known as QE1, QE2 and QE3 through 2008 to 2013. Recently there was a news that the US would gradually reduce funding to this bond purchase program that is commonly known as 'tapering'.


From 2008 to 2010, Fed pumped in more than $2 trillions in the financial markets and kept in pumping more money as we can see. However, it did not translated into growth in US markets as was expected. The growth normally is realized if the money available with banks through this program is lend to local borrowers. Then where did this money go? On one hand, when the growth was stagnated in US and European markets, Asian economies like China, Singapore, India were not effected by this global downturn. Even though business were experiencing slow growth, property market and stock market was booming. To think of it, ideally 'tapering' should not have any effect on global market as Fed stimulus was aimed at reviving US economy and as it seems reviving, Fed is withdrawing the stimulus. It should be a local phenomenon .

So it can be safely assumed that Fed stimulus has actually made way to these emerging economies. Financial and private Institutions of US have been investing the Asian countries particularly India  and China. Between 2009-2012, property prices in India have more than doubled, inflation has assumed alarming proportions with no sight of it slowing down, and most of the stocks returning more than 20% despite no growth signs. Though exchange rate fell from over 50 in 2009 to 45 in 2010, it was almost stagnant at 45 rupees a dollar till mid 2012. My guess is that to keep the exchange rate competitive, Central Bank pumped more rupees into the Indian economy. Ideally this should have translated into investments for future growth of the economy, but that was not the case.


Is QE responsible for this?

So where did all this extra money go? Most of the money made its way into the property market. That probably was reason for such high appreciation in property markets.  I know many a friends of mine who have shifted their focus from their industries to real estate. Also as more and more money was available into the hands of public, this was also one reason for high inflation during this period. In last five years, average inflation rate was also high at around 9% over last 5 years, and  unfortunately for us, it did not translated into growth of Indian economy.

 

With tapering, financial institutions in US would need the money for paying for bonds on maturity and they would be taking back the money pumped into emerging economies like India. With no buyers and large number of sellers, this could actually led to collapse of stock markets and property bubble burst in India (and other economies). Though Us government has been giving mixed signals on tapering, there is a huge risk of this happening. RBI governor is aware of this and probably the reason for tightening of monetary policy since he took charge. But the risk still looms and we all should be prepared for this plunge.

But I also have a view is that though tapering is going to impact us in short term, it will be beneficial in long term as the recent inflation was not growth-led. This might actually turn out to be blessing in disguise and may led to revival of Indian economy. It might also bring back local investors to stock market who have been shying away because of prevailing uncertainty. Property market might bring in actual buyers rather that speculative investors. It is a hope for now that can turn into an opportunity by effective fiscal and monetary policy and efforts from the government. Hoping for it to happen!