Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Microsoft and Intel in the Age of Low-Cost Mobile Computing

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The prompt shift to low-cost mobile computing has taken Microsoft (NASDAQ: MSFT  ) and Intel (NASDAQ: INTC  ) by storm. During the rise of the PC, Microsoft and Intel formed the powerful duo lovingly referred to as Wintel, enjoying the highest margins within the PC value chain.

Investors have gotten used to those levels of profitability. However, as consumer trends shift toward lower-cost mobile alternatives in smartphones and tablets, the two companies must now navigate a difficult transition. The companies putting direct heat on Microsoft and Intel are Google (NASDAQ: GOOGL  ) and ARM Holdings (NASDAQ: ARMH  ) , respectively.

Microsoft and Google
Sales of small-sized tablets are skyrocketing, and respectable Android devices can be bought for just $199. That price point doesn't leave much room for rivals like Microsoft to charge the hefty software licensing fees that it's accustomed to, all because Google is willing to give open-source Android to OEMs for free. It was rumored that the first wave of Windows RT devices were costing OEMs as much as a whopping $85 per unit.

Microsoft's biggest cash cows have always been Windows and Office, but the software giant must come to terms with the fact that it can't generate as much per unit as it used to. That's precisely why Microsoft has been cutting deals with OEMs for smaller devices. Furthermore, Microsoft is also now bundling free copies of Office 2013 with these smaller devices, such as the new Acer Iconia W3, confirming the earlier rumors to that effect.

Intel and ARM
Thanks to competition within ARM's broad ecosystem of licensee chipmakers such as Qualcomm and NVIDIA, ARM chips have always been far cheaper than Intel's processors. Combined with better power efficiency, ARM chips have been ideal for mobile devices. Intel has made a lot of progress on the power-efficiency front, but now the chip giant will need to make concessions on pricing to be competitive.

Intel's upcoming Bay Trail chips may cost less than $50, which is lower than the prices it enjoys with its PC processors. That's still higher than what most ARM-based chip makers charge, but it's much more competitive.

Microsoft and Intel
The software and chip giants both have no choice but to accept lower pricing if they hope to maintain relevance in the age of low-cost mobile computing. Google's disruptive approach with Android gives OEMs a cheaper alternative operating system, while competition within the ARM ecosystem removes Intel's pricing power. The result may be longer-term pressure on margins for both titans, as neither had to face competition like this before during the PC's heyday.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 16, 2013, at 9:48 PM, techy46 wrote:

    The companies putting direct heat on Microsoft and Intel are Apple, Google, Qualcomm and Samsung not ARMH.

    Apple's going to be it's own worst enemy so that's not a worry. Google's Android, advertising virus, giveaway coupled with Samsung's cheap plastic products are the real Wintel enemy but Intel's fixing their half by endorsing Android. Now Microsoft has to fix Windows 8 using Intel;s new Atom and Haswell chips and Samsung will jumo on the bandwagon leaving Google with Motorola.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2491669, ~/Articles/ArticleHandler.aspx, 8/27/2016 6:22:14 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 21 hours ago Sponsored by:
DOW 18,395.40 -53.01 -0.29%
S&P 500 2,169.04 -3.43 -0.16%
NASD 5,218.92 6.71 0.13%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/26/2016 4:00 PM
INTC $35.26 Up +0.17 +0.48%
Intel CAPS Rating: ****
MSFT $58.03 Down -0.14 -0.24%
Microsoft CAPS Rating: ****
ARMH $66.42 Down -0.31 -0.46%
ARM Holdings CAPS Rating: ***
GOOGL $793.22 Up +1.92 +0.24%
Alphabet (A shares… CAPS Rating: *****