Recovery?

(By Richard Holway Saturday 17th Oct 09) In my ‘State of the ICT Nation’ speech on 21st Sept 09 – Even the Bad Times are Good – I reprised a theme I first used in 2005. In bad times, some companies do very well indeed whilst others languish or even fail completely. ‘Bad times’ accelerate change.
So I was a little concerned at some of the reports from other analysts surrounding both Intel and Google’s results this week. Both were used as examples that the ‘recession is over’. Have none of it! They are both examples of how the market has changed dramatically and permanently (in my view).

Intel, it seems, has found the move to netbooks and smartphones beneficial. As unit prices for such devices have plunged, volumes have soared and Intel’s percentage take of each unit has increased. This is NOT the case for many of the other components used in these devices and certainly isn’t the case for operating system suppliers like Microsoft. They all pray for a return of Enterprise spending on high spec/high price PCs which, bluntly, I do not think is going to happen anytime soon.

A similar picture applies with Google. There is very little in Google’s results which point to the end of the recession. Google is just being ‘smarter’. In particular, much of its 7% yoy growth has come from its international operations (up 19% yoy). Overall its revenue growth has come from stealing market share as even internet ad revenues are in the doldrums. Its earning growth came from smart cost cutting.

In both cases, Microsoft should be worried. The move to cheaper devices (which has benefited Intel) is really bad news for Microsoft. The more that Google strengthens its market grip, the harder it will be for Microsoft. Establishing Bing (which is really quite good!) is proving a difficult task; Google’s gain this quarter was at Bing’s expense. Google now controls 90% of Mobile search – where the future really is. Google is pretty much ‘King of the Cloud’ in the consumer area already; making Microsoft’s task in both mobile and the Cloud more difficult by the day.