The end of the Windows-Intel, or "WinTel," era has been telegraphed many times, but has now reached the income statement.
Intel (NASDAQ:INTC) has reported a down quarter, and Microsoft (NASDAQ:MSFT) is expected to follow suit. Even IBM (NYSE:IBM), which redefined itself for that era and would seem immune to such pressures, gapped down on a revenue miss.
The era defined by PCs and servers is ending. The new era is defined by devices and clouds. Some may not think there's a difference between these two eras, but I think they're fooling themselves.
Devices give the names on the box far more control over the user experience, and the user's money, than PCs ever did.
Clouds are not just data centers, but an entirely new, lower-cost architecture with new capabilities that have just started to become apparent.
I own shares in Intel, Microsoft, and IBM. I lightened up on my Intel stake recently, and I only own 100 shares each in the other two, although I'm obviously happier with my IBM investment than my Microsoft.
The question investors should be asking is: How existential is this threat for the three companies involved? I'm going to take them in descending order.
IBM is much less threatened than anyone thinks. The company got into clouds early, and got into them the right way -- following industry standards. The only question is whether that cloud strategy will support the margins IBM has become accustomed to, if its huge enterprise customers will increase their workloads enough to justify growth. I'm guessing they will, because I think growth will be redefined from responding to customers to creating new opportunities for them.
Microsoft is under considerable threat. Windows 8 has to be a hit, by which I mean the interface formerly-known-as-Metro has to take off in phones and tablets. Without that success, not only is Microsoft threatened with extinction, but so are all of its OEMs -- especially Hewlett-Packard (NYSE:HPQ), Dell (NASDAQ:DELL), and Nokia (NYSE:NOK).
Intel faces the most existential threat. Its tablet problem has less to do with the technology than the control tablet makers are demanding over the design process, control that tweaking an ARM Holdings (NASDAQ:ARMH) design or Texas Instruments' (NYSE:TXN) OMAP gives them. As the tablet world continues to consolidate, Intel's hopes for a breakthrough dwindle.
Microsoft actually has a good idea, coming out with its own tablet. You may laugh at the Surface (I do), but at least it's an effort to change the game. Intel needs to get on board with this effort, to in fact lead this effort and define these new tablets. And if that means putting a "WinTel" name on them through a joint venture, that's what it has to do. Because without a tablet it can call its own Intel will have no tablet, and without a tablet its future will be severely circumscribed.
So I'm holding on to all three of these companies for now. I've lightened my Intel load, I'm nervous about the next quarter for Microsoft and might have to take some losses, while I'm hoping for some more IBM weakness so I can load up.
Disclosure: I am long INTC, IBM, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.