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Intel: The PC Is Back, So Now What?

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Intel's earnings provide good news for Windows and the PC makers. They also reflect a less dynamic, more entrenched industry.

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Intel Corporation (NASDAQ:INTC) reported its quarterly earnings last week, and for the first time in 18 months, the chipmaker saw a year-on-year increase in the number of PC processors shipped. Volumes were up 3%, driven by improved sales of desktop machines.
That number approaches 10% if tablets are included – and they should be, given the lengths that Intel and Microsoft (NASDAQ:MSFT) have gone to trying to push the personal computer into more portable form factors.

However, IDC and Gartner both reported that PC sales fell last quarter. It's too early to say whose numbers are correct, but some of this discrepancy is likely caused by the fact that it's no longer easy to tell what is a PC, and what isn't. IDC doesn't count Windows tablets, and Gartner leaves out Chromebooks, despite the fact that many of them carry PC silicon.

Expect more blurred lines in 2014. Over the next few months, we'll see Intel-powered tablets running Android. In theory, these devices will be Windows-compatible as well, and some may even ship with both operating systems like Asustek's (TPE:2357) Transformer Book Duet. By year-end, all of the major mobile platforms will have joined the PC industry at 64 bits.Apple (NASDAQ:AAPL) released a 64-bit version of iOS last fall, Windows ultra-portables will get their update sometime this quarter, and Intel gave Android a 64-bit makeover at CES.

Form factor and battery life have equalized, too. Dell's new Venue 8 and Venue 8 Pro tablets are basically identical, except for the fact that one runs Android and the other Windows 8.1.

So why talk about PCs at all? Form factor and hardware aren't the limitations that they used to be. These days, the major differences have to do with operating systems, and since those differences are actually becoming more significant, we should probably focus on them.

For example, most recent Windows tablets and 2-in-1s have come preloaded with Office – playing to Microsoft's old strength in productivity. More important (but less tangible) is Windows' presence in the corporate world, where it has a wide community of users and developers, plus a well-developed legacy of IT software. "The tablet in the enterprise is theirs to lose," says an analyst from Aberdeen Group.

Google (NASDAQ:GOOG) has instead focused on mobility, with on-the-go apps like Google Now. Its strategy has been to connect disparate devices and unusual forms, like eyewear and smartwatches (and even automobiles). Here, too, there is a community and a legacy. Meanwhile, Chromebooks are carving out a niche in education, while Apple enjoys the shade of its walled garden in the premium market.

At the same time, everyone's basically stuck.

With Windows 8, Microsoft reached the boundaries of its monopoly. By focusing too closely on mobile, it ended up alienating the desktop users that it needed to drive adoption.

Apple now finds itself marginalized by falling smartphone and tablet prices, but the alternative – chasing markets lower – is too awful to consider.

Google has little control over the deeply fragmented and perennially threatened Android ecosystem. As for Chrome OS, well… let's just say that Google faces trust issues.

The idiosyncrasies of these software platforms – what they're good at, and what they struggle with – are likely to play a larger role, now that hardware is converging, and mobility and performance are anyone's game. So while Intel's earnings provide good news for Windows and the PC makers, they also can prove that the industry has become less dynamic and more entrenched. No one has a decisive advantage.

That could change. Microsoft is already talking about Windows 9, rumored for 2015; and Intel is excited about its upcoming integrated smartphone chips, SoFIA and Broxton. Qualcomm (NASDAQ:QCOM) has its eyes on Intel's lucrative server business, and seemingly everyone is staking out claims to the connected home. So it's always possible that something big could happen – but don't hold your breath.

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