Following Wintel, A Recipe For Disaster

A bunch of ODMs, tired of low margins (“Quanta Computer with 3.2%, Compal Electronics 3.31%, Wistron 3.9% and Inventec 3.8%“) and competition have decided to follow Wintel to ultrabooks. Of course, they get higher margins on higher-priced kit but the reason for that is that M$’s licence fee and the price of “Wintel Inside” is a lower fraction of the cost on a higher priced device. They could get a much larger margin by selling lower-priced goods that consumers want if they skipped Wintel. Instead they are going to abandon netbooks and notebooks not realizing that Wintel is the problem, not the prices of computers.

Consider a notebook they make for $400. If they chuck $50 of Intel and $50 of that other OS, they can make just as useful a computer for $300. If their margin was 4% of $400, $16, they could sell the notebook for $350, making $50 of margin, 15%. No, they cannot do the maths.

The makers of small cheap computers are going to eat these guys’ lunches in 2012. Linux on ARM will grow all the way into notebooks and soon there will be lighter, more powerful and cheaper notebooks beating ultrabooks and these guys will not be able to sell an ultrabook except in a few places on the planet where people have money to burn. Will one more year of following Wintel finally make these ODMs see the light?

About Robert Pogson

I am a retired teacher in Canada. I taught in the subject areas where I have worked for almost forty years: maths, physics, chemistry and computers. I love hunting, fishing, picking berries and mushrooms, too.
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8 Responses to Following Wintel, A Recipe For Disaster

  1. oiaohm says:

    “I think all that iThing stuff is made in China or other nearby parts of Asia, too. Can anyone verify or dispute that?”
    I know Samsung does the ipad in china for Apple. Yes apple has been suing one of the companies making hardware for them. Somehow that is asking for it.

    Dr Loser
    “Woo! I can charge $99 and my margin is immense!”
    I will break this down for you.
    Licensing of all the IP rights you need lets say I go expensive. Nvidia arm chip. Per device 25 cents. Production costs about 40 dollars. About another 10 in shipping. So $99 is a nice 100+ percent mark up. Yes you do see some devices at 80 dollars these days.

    Devices for 15 dollars production are possible if you cut a few areas. Don’t use humans for one. Removing humans can cut your production cost in by over half. So in a few years 99 dollar tablets will be 49 dollar tablets or less.

    Foxcomm is firing workers in china for the simple fact how cheap robots are. Yes the scary thing is we are still paying to much for the devices due to how ineffective humans are.

    Arm the competitor to Intel only cares about a few cents per unit. Most of the cost is production cost.

    5 cents is not possible due to that being lower than the IP rights you require. Now a 1 dollar device that is possible but heck that will require lot of creatively to avoid costs. Most likely at 1 dollar you will not have budget for normal circuit boards.

  2. Dr Loser says:

    Well, you may be happy to live under the PRC, Robert, but most of the rest of us aren’t. I’m not wholly convinced that the general Chinese population is, either. Still, feel free to benefit from their enforced industrial slavery while you can.

    Recipe for disaster?

    Market cap of Intel: $122.21 billion.

    Market cap of M$: $214.59 billion.

    Some disaster. Some alternative recipe.

  3. Clarence Moon says:

    That does not seem to be Apple’s strategy. Apple optimizes their margin by keeping their prices high and builds demand by strongly differentiating itself from the low price competition. Getting an iPad or an iPhone or even an iPod or Macintosh is seen as a step up, regardless of the true value of their technology.

    I think all that iThing stuff is made in China or other nearby parts of Asia, too. Can anyone verify or dispute that?

  4. The Chinese are not afraid to sell low. They will undercut everyone else. Competition is the art of optimizing the margin by cutting costs and improving performance better than the other guy. Ignoring a market won’t work.

  5. Dr Loser says:

    Or ¢ or ¢. I guess I’m going to have to pick one or the other…

  6. Dr Loser says:

    Um, margins on commodity goods don’t work that way, Robert. Take the reverse scenario, where the hardware (with optimal chip-set substituted for Intel) costs 1&#cent;.

    Woo! I can charge $99 and my margin is immense!

    Well, yes. But I’m going to be immediately undercut by rivals selling the thing at 5&#cent;.

    At this point the differentiation in the marketplace is not cost; it’s either branding or utility.

    The interesting question here, therefore, is whether the manufacturers are prepared for a race to the bottom. I doubt it, somehow. I suspect that Intel (let’s ignore the OS for a moment) has quite a lot of life left in it.

  7. oiaohm says:

    Clarence Moon apple actions are also back firing.

    Motorola has won first stage to get ipad and iphone banned from the EU.

    Even worse Motorola has won that it can use it FRAND patents against anyone who has used Patents Offensively against it or its Partners. Worse is even if Apple makes a deal that suits FRAND now it does not get them out of paying damages for all the time they were infringing.

    Apple litigation could be over very soon. It will be wise for Apple to back off. Note all the partners directly supporting android development are also protected by Motorola frand same with all members of OIN. Due to its wording.

    How can I put this. Apple is basically up the creek without a paddle and are now throwing items over board in a hope it hooks onto something to save their tail(this is the proxy patent attacker).

    “The article also suggests that the future is still based on Windows”
    Read the articul carefully. “the notebook industry is expected to steadily return to the right track.” Currently saying it off track and they are praying it will return to being on track.

    Windows 8 be a flop and there will be big problems.

  8. Clarence Moon says:

    One other comment in your cite caught my eye:

    “As for tablet PCs, although players such as Acer and Asustek have launched quad-core tablet PCs with support of the latest Android system, these players are not paying as much attention to compete against Apple or Amazon like before and are turning their focus back to the notebook market.”

    That suggests that the iPad sort of business is not going to become the price conscious free for all predicted, particularly since the cost of the Apple litigation makes it a rather barren field for many would-be entrants.

    The article also suggests that the future is still based on Windows:

    “With Acer and Asustek both set to simplify their notebook product lines in 2012, after a hard drive shortage improves in the second quarter of 2012 and launch of Intel’s upcoming Ivy Bridge and Microsoft’s Windows 8, the notebook industry is expected to steadily return to the right track.”

    Also, relative to our previous discussions, what is not said in this article is that there is a 30% to 40% share for non-Windows computers in this tight market. Wouldn’t that be worthy of a mention in an article such as this?

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