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The Box That Could Hurt Microsoft and Squash Apple’s Hobby

By Chad Henage – Mar 15, 2014 at 7:00AM

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This $179 box of destruction could lead to problems at both Microsoft and Apple.

Who would have thought that a $179 box could threaten both the PC industry and the streaming player industry at the same time? Google (GOOGL -1.48%) is pushing a small box made by ASUS dubbed the Chromebox. This computer which runs the Chrome operating system could be a major problem for Microsoft's (MSFT -0.54%) PC business, and might derail Apple (AAPL -0.91%) TV's plans before they even get started.

The PC industry is having enough trouble already
Pretty much everyone knows that the PC industry has problems and they aren't getting better. According to IDC Research, last year the PC industry witnessed a sales decline of 10% and 2014 may see a decline of 6%.

In the most recent quarter, Microsoft reported its OEM business saw a revenue decline of 3%. While the company's Surface revenue more than doubled, this division reported less than $900 million in sales compared to the over $5 billion generated by Consumer Licensing. Since licensing gives Microsoft a gross margin of more than 90% compared to a less than 9% margin in devices, any threat to Microsoft's OEM business is significant.

The second challenge the Chromebox could pose is, Google already has a significant lead in search and Bing doesn't need further challenges. Bing reported a 34% increase in advertising revenue in the most recent quarter, but obviously if the Chromebox is a hit Google's search business will directly benefit. No matter how you look at it, the Chromebox is a big challenge that Microsoft had better take seriously.

This company can't sit still either
It might seem that computer makers like Hewlett-Packard (HPQ -2.66%) could potentially benefit from the appearance of the Chromebox. It's nearly certain that ASUS will benefit as one of the first adopters, but HP doesn't have a great track record when it comes to anticipating trends.

The Chromebook has been around for a few years, but the difference between a Chromebook and the Chromebox is, one is designed to be a replacement for a tablet or traditional laptop. However, the Chromebox could be a second or third computer or even replace a streaming media player.

HP's Chromebook lineup is about on par with some of its peers, although slightly more expensive due to the HP brand. Where HP missed the boat completely is in the tablet market. With the iPad and strength of the Samsung lineup of Galaxy and Note tablets, HP has known the tablet market was a huge growth opportunity for a while.

Unfortunately HP's current tablet offerings show that the company hasn't learned its lesson. The company's recently HP 8 tablet was met with reviews calling the device a, "mundane tablet with a ho-hum screen ." That's actually quite an understatement as the HP 8 has a ppi of just 160 compared to Google's Nexus 7 at 323 ppi and Amazon's Kindle Fire HD 7" with a ppi of 216 .

The point is, HP gets 30 % of its revenue from Personal Systems and could use a boost like a Chromebox, but the company plans on introducing its version of the device "later this spring " and pricing hasn't been announced. This delay and questionable pricing could cut off HP's potential gains from this device before it even gets started.

Hurry up Apple!
There have been rumors for months suggesting that Apple TV would move from a "hobby" to a serious business. Whether Apple releases an actual TV set with iOS built in, or a set-top box that will integrate with live TV is yet unknown, but whatever the company expects to do it needs to hurry up.

With over 50 million iPhones and over 25 million iPads sold in the last quarter alone, clearly Apple has the interest of customers. The fact that these two devices make up more than 75% of Apple's revenue, suggests the company could use a big hit like an Apple TV to diversify the company's revenue.

The problem is, with a $179 price the Chromebox could easily substitute for a streaming player like the Apple TV. Though the Chromebox is about $80 more expensive than top of the line streaming boxes, this could be a close enough price difference to sway customers away from a limited experience to a full computer.

With the Chromebox's ability to run a full browser, plus Google's apps and with more apps coming online, this device could give customers the ability to stream everything from the web instead of relying on the apps available on other boxes.

The bottom line is, the Chromebox is a $179 weapon of destruction that Microsoft, HP, and Apple all need to be ready to respond to. If this product succeeds, Google may be able to box out its competition from the PC and the streaming media player industry at the same time.

Chad Henage owns shares of Apple and Microsoft. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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