PC shipments back into growth, but can connectivity make it sustainable?

PCs are often seen as the forgotten child of the technology family, though new estimates suggest there is life left in the segment.

We use laptops every day but never discuss the potential for innovation or a refreshment cycle. These are devices which are largely viewed as commoditised and a segment which has already been through its heyday, so attentions are drawn elsewhere in search of the next billion-dollar idea. But there might be life left yet.

According to estimates from Gartner, worldwide PC shipments, desktop and laptop, stood at 70.6 million units in the fourth quarter of 2019, an increase of 2.3% from the same period of 2018. Across the year, shipments were up 0.6% to 261 million units, with Lenovo and HP leading the charge.

“The PC market experienced growth for the first time since 2011, driven by vibrant business demand for Windows 10 upgrades, particularly in the US, EMEA and Japan,” said Gartner’s Mikako Kitagawa.

“We expect this growth to continue through this year even after Windows 7 support comes to an end this month, as many businesses in emerging regions such as China, Eurasia and the emerging Asia/Pacific have not yet upgraded.”

Interestingly enough, while growth is certainly encouraging the potential might well have been curtailed. According to Kitagawa, without a shortage of Intel CPU products on the market, growth may well have accelerated further beyond the numbers which Gartner is putting forward in its estimates. 2012 was the last time the PC segment experienced a full annual cycle of growth.

These numbers are certainly encouraging, but one has to ask whether this could be translated into sustained growth. Perhaps the connectivity industry is where we should be looking to answer this question.

One thing which has always been missed from laptops is embedded connectivity. Users has become accustomed to signing onto a Wifi connection or tethering a smartphone, but with almost everything and anything having a SIM placed in it nowadays, the laptop seems like one of the most obvious places to do so.

Few people would log onto a laptop today without connecting to the internet, so it begs the question as to why 4G connectivity is not commonplace within these devices today. There may be a couple of reasons:

  • Wifi was a better solution
  • Data was too expensive
  • Data tariffs were not designed in this manner
  • Industry was focused elsewhere
  • Customer demand was not present

There is unlikely to be any one reason, more of a blend of each one, but there are emerging trends which could result in SIM connectivity for laptops.

Firstly, Wifi could have been viewed as a better solution because of patchy coverage. Considered we still complain about 4G coverage today, this is a very real reason, though thanks to pressure from regulators and governments, most developed countries are eradicating not spots.

Secondly, the price of a GB of data varies quite considerably, though this is certainly decreasing as more markets shift towards unlimited bundles. The delivery of 4G connectivity is always becoming more efficient, therefore the transition towards commoditised data tariffs will only continue. This will aid the business case for embedded 4G connectivity in laptops.

Staying with data bundles, more telcos are offering flexible tariffs, allowing customers to purchase ‘data buckets’ for more than one device. If the telcos offer such products, alongside unlimited allowances, this will be another justifying trend to embed SIMs in laptops.

Looking at industry attention, there has always been some directed towards laptop connectivity, but it was almost an afterthought. Intel and Qualcomm has investing more in this area in recent months however. Should the products be on the market, at an affordable price, there might be increased enthusiasm from the likes of HP and Lenovo to produce such products at scale.

Finally, user demand. Wifi and tethering do provide an option for connectivity, but they also do for wearables. Working from home or on the road is becoming increasingly common, a trend which might encourage the adoption of connected PCs.

What is worth noting is that as there is not a silver bullet, it becomes more difficult to become optimistic about the future of SIM connectivity in laptops.

As tethered connectivity is a well-practiced activity, therefore embedding modems in laptops might be the solution for a problem which is not that great. The cost of adding modems has always been an issue for the industry, though there is one area worth is keeping a keen eye on.

In July, Apple announced it was acquiring Intel’s smartphone modem business. This might be so Apple could gain greater control of its iPhone supply chain, though it also presents the opportunity to embed modems into the MacBook.

As embedding the modem into the PC device could be done at a substantially lower cost, and Apple does have a customer base which would be tolerant of a premium placed on devices.

Although the market is not particularly optimistic about the idea of modems in laptops, Apple could change that perception. Apple’s idea to drastically shift mobile devices form factor was originally met with pessimism, but edge-to-edge screens are the norm nowadays. If Apple can prove its customers want to buy products with embedded modems, others will most likely follow.

This is perhaps a trend which could turn the tides of the PC segment permanently. Today’s estimates of growth are encouraging, but you have to question whether it will be a sustained change, after all, the primary driver for new purchases is Windows 10. Should laptop connectivity catch-on, there might well be a refreshment cycle for these devices, especially in the enterprise markets where mobility is being encouraged.

However, it is always worth bearing in mind that users are perfectly happy with the connectivity status quo of today, and the price of the products. The issue is, are connected laptops the solution for a problem which does not actually exist?

Intel reduced to using MediaTek modems for 5G PCs

Remember when Intel was Apple’s 5G secret weapon to break Qualcomm’s modem stranglehold? Well, now not so much.

It turns out Intel can’t even cobble together a modem for its own products and has been reduced to calling on the help of MediaTek to bring 5G to PCs containing its chips. The resulting effort is, of course, being positioned as ‘a 5G solution’, which long-time Intel partners Dell and HP will be dutifully whacking into some of their laptops when it becomes available.

“5G is poised to unleash a new level of computing and connectivity that will transform the way we interact with the world,” proclaimed Gregory Bryant, GM of Intel’s Client Computing Group. “This partnership with MediaTek brings together industry leaders with deep engineering, system integration and connectivity expertise to deliver 5G experiences on the next generation of the world’s best PCs.”

Note the uncharacteristic absence of superlatives in that otherwise by-the-book canned quote. That’s because everyone knows Qualcomm is the 5G modem leader, even Apple. Relations between Qualcomm and intel are presumably strained since the latter tried to help Apple strong-arm the former and as a result Intel partners get an inferior modem in their 5G solutions.

“Our 5G modem for PCs, developed in partnership with Intel, is integral to making 5G accessible and available across home and mobile platforms,” said MediaTek President Joe Chen. “5G will usher in the next era of PC experiences, and working with Intel, an industry leader in computing, highlights MediaTek’s expertise in designing 5G technology for global markets.”

Does it really though, Joe? Anyway, the extent to which there will be any demand for laptops with built-in 5G built in remains to be seen. With tethering now so easy, it’s hard to see why anyone would pay a premium for any kind of embedded modem in their lappy, let alone a 5G one. But it would have looked bad for Intel to not even give it a go, and that’s what this announcement seems to be about, as much as anything else.

Huawei set to launch 5G telly – report

A report is claiming Huawei wants to become a major TV and PC player and will use its 5G expertise as a differentiator.

The scoop comes courtesy of Nikkei Asian Review which was contacted by people who think they know what they’re talking about. Those people reckon Huawei is going big on TVs and will not only stick a 5G modem in its first device, which could even be launched this year, but will go with 8k resolution.

It looks like part of the point of this telly will be to show how great 5G is, which let’s not forget is a far bigger concern to Huawei, by steaming this mega high definition video wirelessly. Apparently Huawei fancies becoming as Samsung-like consumer electronics giant and judging by the momentum it has in the smartphone market it seems to have a decent chance of succeeding.

As part of that drive Nikkei reports that Huawei wants to become a top five PC vendor, which is a strange aspiration since that market has been in decline for years and the margins are miniscule. Again its motivation might be provide another market for its 5G modems as well as another front in Huawei’s continued search for western brand recognition.

Huawei has been making smartphone CPUs for a while but seems to fancy a move up to PC ones too. These would presumably be ARM-based and intended for Chromebook-style laptops rather than gaming PCs. Huawei started making PCs back in 2017 and apparently already has a 4% market share in China.

Apple capitulates to end war with Qualcomm

Qualcomm and Apple agreed to settle all the ongoing litigations with the iPhone maker paying the chipset maker an undisclosed amount and signing a six-year licensing agreement.

On Monday, Qualcomm and Apple went to court over the allegation that Qualcomm has been abusing its monopoly position to over-charge for its chips. The stakes could have run up to tens of billions of dollars, with the OEMs Foxconn and Pegatron already demanding compensation of $9 billion dating back to 2013. The case at the Southern District Court of California in San Diego was meant to last for five weeks.

On Tuesday, the two companies released a brief statement to announce a settlement. “Qualcomm and Apple today announced an agreement to dismiss all litigation between the two companies worldwide. The settlement includes a payment from Apple to Qualcomm. The companies also have reached a six-year license agreement, effective as of April 1, 2019, including a two-year option to extend, and a multiyear chipset supply agreement.”

This is definitely good news for the two companies especially for Qualcomm, and good for the industry and consumers. Specifically, for Qualcomm it means its business model will remain intact and the company can put an end to a multi-year legal saga; for Apple, in addition to avoiding the punitive $31 billion penalty, this settlement will be able to quicken its steps to launch a 5G iPhone, making up the gap already expanding between itself and the leading pack.

A few hours later, Intel announced that it intends “to exit the 5G smartphone modem business and complete an assessment of the opportunities for 4G and 5G modems in PCs, internet of things devices and other data-centric devices. Intel will also continue to invest in its 5G network infrastructure business. The company will continue to meet current customer commitments for its existing 4G smartphone modem product line, but does not expect to launch 5G modem products in the smartphone space, including those originally planned for launches in 2020.”

It must have been a blow to Intel’s mobile ambition, especially after it announced only late last year that it would bring the launch of its first 5G modem forward by half a year to the second half of this year, an act to prove the doubters wrong. That originally planned 5G modem to be launched in 2020 referred to in the announcement, presumably a second generation, was supposed to power the first 5G iPhone, after Apple all but officially declared that it would enter into an exclusive relationship with Intel.

Putting the two things together it may be reasonable to infer that Apple agreed to settle after it had realised that it does not have other options than coming back to Qualcomm for the supply of 5G modems (assuming Intel had updated Apple about its imminent decision to withdraw from the market).

In addition to leaning in on Intel, Apple has also been reported to be strengthening its in-house modem development capability, ultimately aiming to rid itself of reliance on external suppliers. Based on the terse announcement released together with Qualcomm, it looks Apple does not believe the home-grown modems will be good enough to compete with Qualcomm in the next few years. Huawei is another supplier that has launched its own 5G modem, but it may be safe to estimate that the chance of Apple going for Huawei chips is slim.

In keeping with the normal practice of settlement cases like this, the companies did not disclose the amount Apple will pay. However, Qualcomm updated the SEC shortly after the settlement announcement was made, as the settlement would have material impact on the earnings. The company expected an EPS incremental of about $2 “as product shipments ramp” without giving a specific timespan. As a reference, in the quarter ending 30 December 2018, Qualcomm delivered an EPS of $0.87 on the back of a total revenue of $4.8 billion. Therefore, assuming Qualcomm’s operational efficiency remains largely constant, the payment Apple will make could run into the $10 billion range.

Payment aside, there must be some soul-searching going on inside Apple, including by Tim Cook, the CEO, who came from a supply chain management background: how could Apple have let itself be cornered so badly in the first place? It’s hard to view this as anything other than complete humiliation for Apple, especially when you consider how aggressively it pursued this case.

On top of the millions it will have paid to lawyers Apple’s negotiating position in arriving at this settlement, considering what was widely assumed about its 5G modem situation, must have been very weak. So it’s quite possible Apple has ended up paying considerably more for Qualcomm’s chips than it would have if it had never initiated this war. Having said that, Apple’s share price seems completely unaffected by the news, probably indicating offsetting relief that it’s back in the 5G game. Qualcomm’s share’s however, surged 23% on the news.

Intel bags 13% growth but weak forecast angers market

Intel has reported its revenues for 2018, and while executives will be preaching their success the market has reacting very differently.

With fourth quarter revenue of $18.7 billion, a 9% year-on-year increase, and full-year revenues of $70.8 billion, up 13% compared to 2017, it looks pretty good. Executives will feel they have done a fair job, though a 6.1% decline in after-hours trading tells a different story.

“2018 was a truly remarkable year for Intel with record revenue in every business segment and record profits as we transform the company to pursue our biggest market opportunity ever,” said Bob Swan, Intel CFO and Interim CEO.

“In the fourth quarter, we grew revenue, expanded earnings and previewed new 10nm-based products that position Intel to compete and win going forward. Looking ahead, we are forecasting another record year and raising the dividend based on our view that the explosive growth of data will drive continued demand for Intel products”

Despite a 9% increase in sales during the final period, Intel missed expectations while the markets are reacting to what is perceived as a weak forecast. The team has forecast revenues of $16 billion over the first quarter and a 27% operating margin, while full-year revenues are expected to grow to $71.5 billion with an operating margin of 32%.

Looking at the specific segments, the PC-centric business brought in $9.8 billion, a 10% year-on-year boost, in the final quarter, and $37 billion across the year, up 9%. Intel suggested the higher performance products and strength in commercial and gaming segments brought about the growth.

Collectively, Intel’s data-centric businesses grew 20% year-on-year to $32.9 billion for the full year, with the Data-centre unit collecting the lions share, growing 21% year-on-year. Interestingly enough, mobile revenues have not been specifically listed here though this could be a very successful venture in the future.

It increasingly looks like Intel will be supplying modems for all Apple devices moving forward, as the iLeader looks to ditch Qualcomm. Intel has chequered past when it comes to mobile, but this could certainly be a more profitable venture as Apple bleeds its customers dry.