Microsoft (NASDAQ: MSFT ) and Intel (NASDAQ: INTC ) are more than just friends. The storied Wintel alliance made a mainstream market out of personal computers. For many consumers and businesses, Microsoft software running on Intel chips has been the default computing platform for two decades or more. The platform's phenomenal success put both companies on the Dow Jones Industrial Average (DJINDICES: ^DJI ) in 1999, side by side, and they're still enjoying the distinction of membership in the blue-chip market index.
But there are big cracks running through Wintel's formerly bulletproof synergies.
Intel and Google, sitting in a tree...
Intel is snuggling up to Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) with a passion. The two companies have worked together before, like when they released a new line of Intel-based Chromebooks last summer, but the relationship jumped to a whole new level this week.
Google and Intel just co-announced another round of fresh Intel Chromebooks, including a new class of high-performance systems operating on Intel's standard notebook chips rather than on Atom platforms that traded in some processing power for battery efficiency.
These systems pose a credible threat to traditional PC-style laptops and desktops. They come with all the number-crunching oomph of a regular PC, married to the cloud-based flexibility and usability of Google's Chrome platform.
Chromebooks are already popular in homes, schools, and even businesses, but their lack of processing muscle previously held them back from truly conquering the PC market. Not anymore. If Intel wanted a straight-up divorce from Microsoft's Windows platform, this announcement reads like a legal separation statement.
Anything you can do, I can do better!
If Intel filed for separation, Microsoft is whipping up a restraining order.
You've already seen Redmond porting its Windows software to mobile platforms, with no sign of Intel Inside. The Microsoft Surface and Surface 2 tablets feature ARM (NASDAQ: ARMH ) processors. There used to be an Intel-based Surface Pro as well, but that tablet never gained traction and has been discontinued without an Intel-centric successor.
Instead, Bloomberg reported that Microsoft is about to expand the Surface lineup in a new direction. A smaller-sized Surface version will make its debut later this month, according to Bloomberg's anonymous sources, and Microsoft has picked a new chip provider this time.
This smaller Surface still won't come with Intel inside. Instead, Microsoft simply picked a different ARM-based architecture.
OK, so maybe Microsoft isn't quite ready for a clean break just yet. Put away those divorce papers for a while. Bloomberg also said that the same press event will unveil several new Surface models, supposedly including a new Intel version. But if this attempt fails while ARM-based Surface tablets fly off the store shelves, I would expect this to be Microsoft's last attempt at reconciliation.
Microsoft and Intel had a good, long run together. But nothing lasts forever, and it's time to start dating other companies.
As a shareholder of both Google and Intel, it's easy to get excited about the two companies working together more closely. I do believe that Chromebooks -- with or without Intel chips -- pose a serious threat to standard PC systems in many situations. When most of your work and play can be done online through a browser, the Chrome OS might really be all you need.
Microsoft also saw the markets adjusting to new technologies, but decided to bet big on its own line of tablets instead. Tablets such as Surface also meet many of the same needs as Chromebooks, and in a more portable format. But Google is carving out a whole new market segment for itself here, while the tablet sector has already been taken by Android and iOS devices. Taking on two segment leaders with big head starts is not an easy task, even for mighty Microsoft.
This divorce is happening, though the final papers won't be signed for a few more years. When that happens, Google will have stolen plenty of Microsoft's old customers. Intel may or may not have contributed much to this trend, but Chromebooks seem unstoppable either way.
Microsoft is a survivor, and it now operates under new management with a better feel for the mobile future. Future Windows versions might replace the big up-front license costs with some type of subscription system, where the software becomes effectively free but customers pay for support.
That could keep Windows alive and repel at least some of the threat from Chrome and others. As for Surface tablets, they need something of a marketing miracle. The name is already associated with an also-ran platform, and Microsoft could use a mobile reboot that leaves the Surface brand behind.
Both Intel and Microsoft are likely to stay on the Dow for decades to come -- but their chairs at the blue-chip table are moving further apart every day.
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