Business Tech

The settlement between Intel and Advanced Micro Devices isn't just a matter of business between companies.

Sure, it's a big financial deal when the biggest chipmaker in the world forks over $1.25 billion to its closest competitor. And the settlement, announced Thursday, officially puts an end to a five-year battle over licensing disputes and AMD's complaints of unfair competition.

Beyond that, there will also be an effect on the two chipmakers do business with PC makers, and how they price their chips. Still, the settlement won't likely foment major changes for consumers shopping for a new laptop or desktop.

Choice
AMD processors are readily available from most PC makers, the major exception being Apple. If you really wanted one before the settlement came along, it's not like you couldn't get an AMD-based machine in stores or online. Intel now has agreed basically to not punish PC makers that choose to put AMD chipsets in some of their machines, but that doesn't mean Hewlett-Packard, Dell, Acer, Apple, and others will suddenly want to use AMD's latest chip in their flagship products. AMD will probably continue to be used as the "value" option for PC makers looking to offer cheaper notebooks.

PC prices are already pretty low thanks to the Netbook movement brought on by Intel, Acer, and others.

(Credit: Acer)

That said, there is room for AMD to increase its share in processors used in laptops. The company has made improvements in that area recently, particularly in the ultrathin category, according to observers. So if you're paying attention, you might see more from AMD when shopping for a new laptop.

Prices
My colleague Brooke Crothers made an excellent observation last week, that Intel, while accused of dampening competition with AMD, has actually kept prices very low for consumers buying laptops. Thanks to the Netbook movement, which Intel spurred with its Atom chip starting in late 2007, the average price of the small, lightly featured Netbooks is now below $500. While not everyone is in the market for a Netbook, all shoppers have ended up benefiting. In order to recoup some of the lost profit due to the popularity of Netbooks, the industry--led by AMD and its consumer-ultra-low-voltage chips--has now focused on selling ultrathin laptops, which typically cost somewhere between $500 and $900.

Though one might assume that Intel and AMD hitting reset on their competition and going head to head would bring prices down, that's not likely. If anything, prices may actually go up a bit, said Gartner analyst Martin Reynolds.

"This [settlement] potentially means that products cost a little more to manufacture because we don't have this irrational competition between the two," he said. "[PC makers] won't be able to pit the two against each other as much."

Speed to market
What matter to consumers most are price and capability. What matters to Intel and AMD is getting faster, cheaper processors that enable better battery life in laptops into as many new computers as possible. The speed of this cycle is very important. The faster the two companies come out with new products, the more often people will go shopping for new laptops.

AMD's product road map has severely suffered in comparison to Intel's over the last several years. Intel whips out new products on a regular yearly schedule. A quick infusion of $1.25 billion from Intel should do a lot to help AMD fund new product design in order to better keep up. Again, there won't be a significant change immediately, but over time we may see their speed to market pick up, Gartner's Reynolds noted.

Besides money, the end of the legal squabbling also means that AMD is freed up from focusing on the lawsuits and what Intel has done wrong, and can help the company focus on the task at hand: making good products at reasonable prices. So if not directly, the settlement will at least indirectly benefit those looking for laptops and desktops at their local retailer or online.

Of course the vast majority of shoppers, outside of those tuned into technology, probably won't pay much mind to whether there's Intel or AMD inside the laptop as long as it meets their expectations, said analyst Michael Gartenberg.

The buying decision is actually very simple usually, he said. "Does it even matter anymore? It's about who's delivering the cool machines at the price that I want."

Netbooks continue to soar in sales at the expense of the venerable notebook, according to a new report from DisplaySearch.

Revenues for Netbooks, or mini-notebooks, rose to $3 billion in the second quarter of the year, a leap of 264 percent over the second quarter of 2008, according to the new "Quarterly Notebook PC Shipment and Forecast Report" released Thursday. With those gains, Netbooks now enjoy an 11.7 percent share of the portable PC market.

(Credit: DisplaySearch)

Though traditional notebooks still command an 89 percent slice of the market, their second quarter sales fell to $23.2 billion, a 14 percent decline from the second quarter of 2008.

Measuring 2009's second quarter against the prior year's quarter, sales fell in all subcategories of the portable PC market, including ultraportables and desktop replacements, the report noted. PCs in the 13-inch to 16-inch range managed to eke out a gain, but only measured against the first quarter of 2009.

The low prices of Netbooks appeal to consumers looking for a second PC and to those in emerging markets who don't need the rich and costly features of a large laptop. The market has also been buoyed by cable and telecommunications providers who have doled out Netbooks to customers who sign up for lengthy contracts.

Hewlett-Packard is considering a reorganization that would see the company's printer unit combined with its personal computer business, according to a Wall Street Journal report Tuesday.

The plans, which are contingent on CEO Mark Hurd's final approval, would put both units under the leadership of Todd Bradley, the chief of the company's PC group, according to the report, which cited people close to the situation.

HP representatives declined to comment on the report, saying they don't comment on rumor or speculation.

The move would be an about-face for the company, which combined the printer and PC units before in 2005 when then-CEO Carly Fiorina was looking to boost the company's struggling PC business. The company's printer business was so successful that some were calling for the company to spinoff the division.

However, just five months after Hurd took over the HP helm after Fiorina's ouster by the board in 2005, he split them up again and appointed Bradley, former chief executive of PalmOne, as new leader of its personal systems group.

Last month, HP posted a 19 percent drop in profit for the third quarter of 2009, its third straight quarter of falling profit. For the quarter ended July 31, PCs accounted for $386 million in earnings, or 12 percent of HP's profits, while the printer business generated $960 million in earnings, or 30 percent of the company's profits.

In a poor economy, some budget PC brands are finding its customers happier than ever, according to this year's installment of the American Customer Satisfaction Index, an annual study completed by the University of Michigan each year.

In the 2009 rankings for PC makers, which are set to be released Tuesday, the brands whose rankings saw the most improvement were Compaq and Gateway. Compaq's score of 74 represented an increase of 5.7 percent, the largest gain among computer makers in the last year, and equaling the highest customer satisfaction ranking for the brand--owned by Hewlett-Packard--since 1996. The Acer-owned Gateway brand also saw an uptick in satisfied customers, attaining a score of 74, a 2.8 percent increase from last year.

"My guess is price has something to do with it," said Claes Fornell, director of the National Quality Research Center at the University of Michigan, which conducts the study. "(Compaq and Gateway) machines are typically priced somewhat below competition. Other than that things are stalling a bit in the industry, not moving one way or another."

The study asks 80,000 consumers to rank brands based on expectations of the product, previous experience, and comparison to an ideal version of the product. For PCs, a score of 78 out of 100 is considered good.

Despite those gains by Compaq and Gateway, the 2009 ACSI scores show that Apple continues to lead the pack by a mile, with a score of 84. Its next closest competitor, Dell, stands at 75, which was also the average score for all PC makers. HP moved from 73 to 74. Apple did see a slight decrease (from 85 last year), and on average all PC makers saw a 1.3 percent increase from 74 last year to 75 in 2009, reflecting an overall satisfied customer base, as well as very little change in dynamics in consumers' experience with their computers.

With an 11-point lead, Apple is one of only two companies evaluated by ACSI that dominates its category so totally, according to Fornell.

"It's unusual in any industry to have a lead like the one Apple has," he said. "Google has a similar lead."

His explanation is that compared to others in their respective categories, both are "better at marketing what they have to offer to the public."

That marketing, besides drumming up good feelings in consumers, is also pushing up Apple's bottom line. The company just recorded its best non-holiday quarter in its history, selling 2.6 million Macs, a 4 percent increase from the same quarter a year ago. PC makers, on average, saw their sales dip 3.1 percent for the same quarter, according to IDC.

If Dell's stock has gone down, why does it look like the overall compensation of the company's executive team gone up this year?

That was the most contentious question raised at Dell's annual shareholder meeting, held Friday morning at the Austin Convention Center. An investor who didn't identify himself asked politely why, when gross margins, operating margins, earnings per share, and market share had declined in 2009, it looked as if executives were getting more in return.

"Shareholders who held stock for 12 months lost half their money," the man said from the Austin, Texas, audience. "Stock was down 50 percent, thousands of employees were laid off. Yet I see in most cases, executive compensation is up, in some cases significantly. I'm just trying to understand how something like that can be justified, given that shareholders and employees have suffered so much."

The director of Dell investor relations, Rob Williams, defended the company's performance and tried to put it in context, saying last year was a "shock to global economic markets, and spending for IT hardware declined at a pace that was unprecedented in this company's 25-year history."

Williams pointed out that no top executives, including Chairman and CEO Michael Dell, received pay increases. Dell also did not take a bonus the past two years or get any extra stock, he said. Other executives may have received bonuses "related to their hire" or received company shares as part of a previously arranged grant.

Another investor, Scott Adams of the American Federation of State County and Municipal Employees Pension Plan, rose to ask why Michael Dell's personal security costs the company $1.1 million. "We believe this is excessive," he said. "Only Larry Ellison at Oracle as higher security costs."

Williams said Michael Dell is a public figure and that the board is comfortable with the money it takes to protect him.

The meeting was otherwise fairly innocuous. A stockholder motion was passed that future votes need only a simple majority to pass. All 10 board members were reelected with at least 83 percent approval, according to Williams. And near the end, Dell and CFO Brian Gladden again spoke of the company's desire to make an acquisition that would help the company expand "into new areas," though they were not specific about what those areas would be. But it's clear an acquisition will happen soon.

"If you look at history of Dell, it's a 25-year-old company, and in the last two years we've done nine or 10 acquisitions," said Dell. "It's not been as important in our past as they will be in our future."

Dell will report its second-quarter earnings next month.

This post was updated at 9:28 a.m. PDT with Scott Adams' correct employer.

Cheaper or faster?

That's going to be the burning question for computer shoppers perusing the aisles of electronics retail stores this fall. That's when the new line of notebooks powered by consumer ultra-low voltage (CULV) chips will start appearing in force. They'll be sitting right next to the trendiest offering in portable computing, Netbooks. Netbooks have come to be viewed as the best way to get cheap, portable computing, but CULV notebooks could change that.

CULV-based notebooks are poised to give Netbooks a run for their money.

(Credit: Macles)

Netbooks are mini-notebooks with screens between 9 and 11 inches, that have lower-power processors, and fewer features, but very attractive price points. CULV-based notebooks are ultrathin notebooks. They come with a more traditional 12- or 13-inch screen, but are also very low-power, so they have great battery life. Starting at $600 to $1,000, they'll occupy the price range just a step above Netbooks, which run between $200 and $500.

That's where the choice comes in. Will consumers go for a Netbook, which is less expensive, sometimes harder to use, but very portable? Or a sleek-looking notebook with great battery life and a slightly higher price? Just a bit more money could mean a far more fully featured computer. Who would still go for a Netbook?

Some analysts suggest many won't.

For its part, the provider of these ultra-low voltage chips, Intel, would prefer to steer people toward CULVs. Sure, Intel is also responsible for the Netbook phenomenon, but those devices carry much lower profit margins. Intel CEO Paul Otellini on Tuesday talked up CULV notebooks and their advantages over Netbooks, saying, "Now, if you want a thin and light notebook, you don't have to just pick a Netbook. You can pick an affordable notebook that has more functionality."

... Read more

Maybe Dell's dark days are finally over.

All signs are pointing to an improved PC market that will start to materialize later this year and really regain ground next year. Dell, the PC maker that's arguably been battered most by the downturn, also stands to make the greatest gains when the seas begin to calm.

Why Dell? The key to a full turnaround within the PC industry is when large corporate customers start buying computers for their employees again. Many had virtually stopped making new PC purchases due to increasingly tight budgets, combined with decisions to wait until Microsoft released the update to its operating system.

But there have been three good signs this week that point to an imminent recovery for the industry. On Monday, Dell took the trouble to send a press release announcing that it's seeing the demand for its products--PCs, services, servers--"stabilizing." That means more people and businesses are shopping, which it said will send its second-quarter revenue up slightly when it reports next month.

That was followed by Intel's upbeat outlook during its second-quarter results Tuesday. Intel's feel for the market is an important bellwether for the tech industry, and the chipmaker reported its best first-to-second-quarter growth in almost two decades. CEO Paul Otellini declared it a "clear expectation for a seasonally stronger second half."

Wednesday's study from PC market analysts at IDC showing better-than-expected growth worldwide in PC shipments serves to tie all the news together. For the second straight quarter, PC shipments were down, but beat expectations. Shipments were down just 3.1 percent last quarter, according to IDC. A recovery, it seems, is on the way.

Both Dell and Hewlett-Packard, the world's largest PC maker for several years running, will benefit when the recovery does start to kick in. Both are heavyweights in corporate computing. But HP has survived the tech industry slowdown better than Dell due to strong management, cost cutting, and its ability to react quickly to emerging consumer trends like Netbooks.

So when companies do start to spend money in large volume again this fall when Windows 7 is released, and into next year as budgets soften, Dell's improvement should be relatively better overall than HP's--if only because HP hasn't slipped that much in the past months. HP's shipments improved 3.6 percent in the most recent quarter; Dell's shrunk 17.1 percent.

The last few years have been rough for Dell. The company appeared caught off guard by the surge in consumer spending on laptops starting in 2006. HP (and Acer) recognized the change in the market, made some successful adjustments, and never looked back. Since then, Dell has employed several new tactics to invigorate its business, including getting back into retail, focusing more on product design, shaking up the organizational structure, and looking to shed costs through shutting down some manufacturing plants and several rounds of layoffs.

Though Dell is still trying to get its costs right, it has, however, paid a lot of attention to improving the breadth of its consumer offerings recently. It released the very pricey Adamo notebook several months ago and has also shipped more models of lower-priced Inspiron Mini Netbooks. While that hasn't reaped great results yet (its most recent earnings saw a fall of 63 percent), once the market is more stable, a wider variety of choices for consumers and its corporate customers should help.

And though Acer has gathered a lot of attention recently for its aggressive pricing and huge growth in the consumer market, an improvement in commercial spending could temper that momentum some.

"When we get to commercial recovery, (Acer) won't be as well-positioned as HP and Dell," said Loren Loverde, PC analyst for IDC. "They're still a smaller player in the U.S., and are half the size of Dell and HP. They don't have quite the scale in the U.S."

Acer's focus on selling more units at lower prices may also come back to bite it. When consumers are ready to buy more expensive systems--which carry better margins for the manufacturer--they're not likely to think of Acer, or its premium Gateway brand.

The others
Lenovo will continue to struggle while it figures out what kind of company it wants to be. It's still in the middle of navigating major management changes, and has had difficulty in kick-starting its consumer business. But the crown jewel, the ThinkPad business, can only be helped when companies begin to spend money on computers again. The company is well-established in China, a country that is still a growing market for new PCs.

Toshiba is heavily invested in the consumer market and particularly in small and medium businesses. As commercial and consumer spending go up, Toshiba should benefit with increased market share.

Now, when exactly this turnaround will happen is not entirely clear. Some analyst say the return to normalcy will begin later this fall, but it won't be complete until 2011. It will likely be gradual, and as Intel's Otellini noted earlier this week, when it does arrive, we should be prepared that it won't be a "recovery to prior levels."

There are more encouraging signs that the worst might be over for the PC industry.

For the second straight quarter, PC shipments worldwide were better than expected. Desktop and notebook shipments for the second quarter of 2009 decreased 3.1 percent from the same time a year ago, according to IDC's Worldwide Quarterly PC Tracker, released Wednesday. Though it's still negative growth, it's being read as a positive sign since analysts were expecting a 6.3 percent drop.

Combined with Intel's better than expected earnings Tuesday, and Dell's pronouncement that demand for computers is stabilizing, the industry looks ripe for a turnaround soon.

"I think we're moving out of it," said Loren Loverde, director of IDC's PC Tracker study. "We're still in negative growth, but we saw better growth than we did in the first quarter. That bodes pretty well for growth going forward."

The improvement was felt worldwide, with each region meeting or surpassing industry analysts' expectations. Though those expectations were indeed fairly low to start with, the fact that all of the regions performed adequately is a good sign, Loverde noted.

Acer continued to outpace the field, growing its shipments worldwide 23.7 percent. It's now right on Dell's tail, competing for second-largest PC maker with 12.7 percent of the overall market.

Dell is hanging in there with 13.7 percent of all computers shipped, and did make some progress with new notebook designs and Netbooks during the quarter. But as it slips farther behind perennial leader Hewlett-Packard (with 19.8 percent of PCs shipped) and tries to stay ahead of Acer, its weakness in those areas are coming into focus. Acer has been able to exploit an area Dell has not paid much attention to until recently.

"It's really evidence of growth the of consumer portables, which has not been a Dell focus or strength, and it has been an Acer focus and strength," noted Loverde. "Combined with Acer's much broader distribution, particularly in Europe, and also their fairly rapid expansion and much smaller focus on the US., Acer will continue to grow faster than the market."

But there are still challenges for Acer, who is much smaller than Dell or HP, and tends to focus on lower-priced notebooks, which means it could have trouble moving into higher-margin products later.

Lenovo continues to be in fourth place, with 8.7 percent of PCs shipped, followed by Toshiba, with 5.3 percent of the market. Toshiba experienced the next-best growth after Acer (10.5 percent for the second quarter) on the strength of its move into Netbooks, which are selling particularly well in Japan.

Dell has been back in the retail game for two years now, but there are still a few kinks being ironed out.

Some Dell customers are reporting serious confusion over the process of registering a new PC and signing up for the free Windows 7 upgrade. Dell's earlier announced policy is that PCs purchased after June 29, 2009 will be granted a free update when Microsoft's newest operating system arrives in October.

But since that date, some reported that when they go to register their new PC (purchased after June 29) from third-party retailers like Best Buy and MicroCenter, the date of purchase appears much earlier than the day the customer made the purchase. Instead, the date that appears in many cases is the day that Dell sold the computer to the retailer, sometimes weeks--or months--earlier.

One customer from Florida, Richard Lurton, who ordered a Dell Inspiron 15 notebook, went back and forth with Dell customer service, only to be told that the date the retailer purchases the computer is the date that matters.

Similar complaints were received by Best Buy, which acknowledged the problem and established a special message board for the topic. The support forums on Dell's own Web site show customers who bought Dell computers at Best Buy and retailer MicroCenter also having difficulty registering for the Windows 7 upgrade.

Dell acknowledged the company knows about the problem and is currently taking steps to resolve it. There is a page set up for retail customers where they can change the purchase date from the retailer's purchase date to the customer's purchase date.

Regarding customer service employees who were erroneously telling customers that the retailer's purchase date determined upgrade eligibility, Dell spokesman Bob Kaufman said that over the last two weeks, "customer care has received updated information and it is now handling calls appropriately."

Those still experiencing this problem can call Dell customer service.