Return Of The Empire: Intel, Microsoft, Nokia Strike Back
Buried in Intel's expectation-beating performance last quarter, HP's introduction of new Windows 7-based PCs, and even Nokia's splashy foray into the U.S. netbook market, are signs that traditional IT hasn't had its last word just yet.
The move to cloud computing, which allows customers to take advantage of economies of scale generated by shared processing and storage resources and the concomitant reduction in power and cooling costs for their respective data centers, was given a hefty shove by the economic downturn, which forced IT executives to look to innovative ways to remain competitive while cutting costs.
Intel's surprising strength in chips for traditional laptops (as opposed to Internet-reliant netbooks), as well as Nahalem chips used in application servers, however, are signs that corporate IT buyers are maintaining plans for traditional, desk-bound systems and the Microsoft operating systems that underlie them.
The Wall Street Journal noted that
Paul Otellini, Intel's chief executive officer, told analysts that the company was seeing unit sales of chips for conventional notebook PCs growing at a faster rate than sales of its Atom chip for popular low-end portable computers called netbooks.The point here, though, isn't that netbooks are "low-end," but that they rely on an entirely different customer mindset than traditional laptop PCs. The latter are self-contained units that can perform all processing functions and storage on the local drive, while netbooks rely more heavily on cloud-based computing, which allows users to use computing and storage pulled off the Internet. The growth of on-demand software vendors like Salesforce.com and cloud infrastructure from the likes of Rackspace, IBM and others could have led many IT managers to forgo the more powerful but heavier and more expensive laptops for the less-expensive and more lightweight alternatives.
The strong sales of Nehalem chips tell the same story: if IT managers were planning to offload more of the software used to manage their operations to the cloud, there would be less need for in-house servers.
Although you could argue that the cloud vendors themselves need to buy servers, the fact is that they use servers more efficiently than corporate customers do. As an example, Salesforce.com CEO Marc Benioff noted during a conference I attended in New York last week that his company owns just 1,500 servers worldwide for over 63,000 customers. Large companies can run 1,500 servers on their own, simply because planning for peak usage requires them to have more servers than they really need; most servers in corporate IT departments run at less than 30 percent utilization, which is hugely inefficient, but ensures that IT administrators don't lose their jobs because a server goes down or runs more slowly than needed during peak periods.
Long story short: cloud computing, while clearly a boon to the bottom line, isn't displacing on-premise systems as fast as many expected, myself included.
Intel's results also put a smile on Microsoft CEO Steve Ballmer's face, as they implied expectations that Windows 7 will do a lot better out of the gate than Vista has ever done in the corporate environment. Unni Narayanan, chief executive of Primary Global Research, told the Journal that PC makers are basing the volume of orders for chips on the expectation that Windows 7 will be a hit. While Ballmer has long contended that Windows 7 will run well on netbooks, the bulk of orders will be for traditional PC-based computers. Still, as if to make Ballmer's point, even Nokia's splashy entry into the netbook market, the Nokia Booklet 3G, will run on Windows 7. (Of course, Nokia and Microsoft seem to be developing a very special kind of friendship, and future Nokia smartphones will have access to mobile versions of Microsoft's Office suite.)
Even Michael Dell, whose company has jumped on the netbook bandwagon as well, gave GigaOm's Kevin Tofel the distinct impression that he was more interested in traditional laptops.
[Dell] really didn't have one positive thing to say about them or the fast-growing netbook market. "With the netbook," he said "if you take a user who is used to a 14-inch or 15-inch notebook, and then give them a 10-inch netbook, a few hours later they want their big screen back." He characterized netbooks as "not a replacement for a high-end machine for an experienced user," and noted their "slower performance."There is still a preponderance of evidence that cloud computing will overtake traditional corporate computing in the long haul; the advantages of running more energy-efficient data centers, protecting data more securely (yes, cloud services are more secure than on-premise ones, particularly for companies that can't afford state-of-the-art systems and internal security specialists), and being able to provision applications and collaboration tools more easily and efficiently cannot be denied.
The surprise, however, is that the economic climate doesn't seem to have yielded a rush to the cloud. The likes of Oracle, SAP and Microsoft are aware that the days of traditional software sales are numbered, but they clearly have more time to regroup internally and ponder their next moves than many of us expected.