Ageing giants try to find their place in the world after smartphones
This week was dominated by ageing giants trying to find their rightful place in the new digital world, one where even the smartphone is now looking like yesterday’s device. From Intel’s exit from mobile processors, to BT’s capex-heavy bid to save its Openreach wholesale business, and Samsung’s IoT-centric developer conference, this was a week of big names adapting to survive.
Intel pulled out of the handset processor business for the third (and surely final) time in 15 years, and will now focus on the cloud and IoT – just like Microsoft, which even in the post-PC era is still an alter ego for the x86 giant. Perhaps the two will grow closer again as both seek to rule the cloud and its services as they did the PC.
Microsoft, of course, is being less decisive than Intel about admitting its smartphone hardware is a lost cause, and despite last week’s further slump in Lumia sales, continues to cling to its failed acquisition of Nokia’s device business. The same can be said about Google, which despite selling its Motorola Mobility unit to Lenovo, has now hired back the executive who headed up that failed operation, Rick Osterloh, to spearhead a new push into hardware. This makes sense when it comes to showcasing Google’s software on emerging form factors – less so when the firm starts talking about rebooting Nexus to win share in the conventional handset sector.
Intel is traditionally less sentimental about its M&A mistakes, and has killed or sold on several units which were supposed to have been its passport to mobile success – from DSP Communications, acquired back in 1999 for its CDMA modems, to DEC’s XScale ARM-based platform, sold on to Marvell, and various purchases which were supposed to shore up Atom’s assault on Qualcomm.
It will hang on to its largest wireless acquisition, Infineon’s modem business, however – this is still a top five supplier to handset makers, and will be valuable to Intel if it persists in chasing the connected IoT device space. That, however, may prove as thankless a quest as handsets, given the overcrowded and fragmented market and the low margins – we would not be surprised to see Intel retreat to the far more promising territories of cloud and network infrastructure, buoyed up by the virtualization and SDN trends. As networks become IT platforms, that will be the company’s route to a role in 5G, which it remains determined to play – and the former Infineon unit will be valuable in giving Intel an offering for the connectivity element of the cloud-focused world.
5G connectivity to the cloud is the great white hope for many pressurized operators too. From AT&T to BT to Vodafone, they hope that 5G and virtualization will transform their network economics while bringing them the agility to compete with the over-the-top players. Of course, that requires a change in commercial thinking, not just in network speeds, and that is not always evident. Carrier after carrier is announcing a new wave of capex investment, with impressive budgets led by virtualization and ‘5G-ready’ capacity. It is far rarer for them to relate these promises credibly to a really innovative business strategy, though AT&T is an honorable (and unexpected) exception, with its real world activities in on-demand networking and IoT.
BT is promising to spend £6bn over three years, split between the EE mobile arm and the Openreach wholesale infrastructure business. Much of this is about convincing the regulator that it should not be forced to divest Openreach, and that its combination of wholesale, retail and mobile activities does not make it anti-competitive, or reduce its incentive to invest in services and networks. The plan, which includes EE’s promise to cover 95% of landmass (not population) with 4G by 2020, also shows how important 4G and future 5G connections are becoming to fixed broadband coverage, reducing the cost of reaching every citizen. AT&T and Verizon will both run their first 5G trials in fixed broadband use cases, while Vodafone may be able to reduce its need to acquire fiber lines as it embarks on its virtualization program, Project Ocean,
For most of the established giants of mobile, the IoT is the most talked-about way to offset decline in traditional revenue streams. Samsung’s annual developer conference was heavily IoT-focused, as the Korean firm yet again revived its Tizen operating system – which has had as many bites at the mobile cherry as Intel – to power connected ‘things’. And the IoT is driving the wave of consolidation among chip companies, as well as the growth strategies of Intel and Qualcomm. The latest deal is for Cypress Semiconductor to buy the IoT assets of Broadcom/Avago. Expect many more such transactions during the second half of the year, as the decline of the PC, and the stalling of smartphone growth, force the mobile industry to reinvent itself again.