The eponymous flick is mildly interesting, but we’re gathered here today to examine the Wintel breakup. After years of monogamy with the x86 architecture, Windows will soon run on ARM processors.

As in any divorce, Microsoft and Intel point fingers at one another.

Intel complains about Microsoft’s failure to make a real tablet OS. They say MS has tried to shoehorn “Windows Everywhere” onto a device that has an incompatible user interface, power management, and connectivity requirements while the competition has created device-focused software platforms.

Microsoft rebuts: It’s Intel’s fault. Windows CE works perfectly well on ARM-based devices, as do Windows Mobile and now Windows Phone 7. Intel keeps telling us they’re “on track”, that they’ll eventually shrink x86 processors to the point where the power dissipation will be compatible with smartphones and tablets. But…when?

Intel: We constantly improve our geometry. Year after year we shrink the size of the basic semiconductor building block. Our newest fabs run 22nm processes!

MS: Yes, but why does ARM continue to win the battery game? Not to mention ARM’s flexible licensing which has created a thriving ecosystem of third-party processor extensions. Graphics, radios, networking functions…they all end up on the same low-power hardware, an entire system-on-a-chip (SOC) customized for each application, from navigation systems to tablets.

Intel: We’ve had this talk before. You’re a software company, why can’t you create a “mobilized” OS? At least we tried with Moblin.

MS: …and then you mated it with Nokia’s Maemo and spawned Meego. Ask any credentialed engineer what they think of corpocrats who condone such unnatural acts.

Let’s mediate.

Throughout the PC era, the Redmond company has cleaved to Intel. Intel insiders may dislike their second billing in the Wintel monicker and insist that the company is more than a junior partner, but the numbers tell a different story: Microsoft makes $62.5B in yearly revenue with a market cap of $242B; Intel? $44B/ $118B.

A thought experiment to illustrate Intel’s dependence on Windows: Take two PC processors, same size, computing output, power dissipation, and manufacturing cost. They differ in only one regard: Processor A doesn’t run Windows, processor I does.

Which chip will fetch the better market price?

The I chip, of course, the x86 processor.

Intel executives have chafed under the Microsoft yoke, they want to monetize their semiconductor design and manufacturing might in ways that don’t rely on Gates & Co. They even started their own venture portfolio, Intel Capital, to find and fund young companies that have the potential to open new sea lanes for the mother ship. They’ve gotten into all sorts of businesses, from toys to server farms, from modems to memory, and, lately, Wind River, Infineon and McAfee, none of which has done much to change Intel’s subordinate role in the PC market.

(This isn’t the case in the server sector where the dominant life form is x86 running Linux variants. Indeed, Intel’s strong Q4 2010 results show a 15% growth in the “data center group” while PC-related sales were flat.)

While the PC reigned, Wintel put on a happy face. But really personal computers–smartphones and tablets–broke up the marriage.

All smartphones run on ARM processors. (A handful of tablets use x86 hardware, but without much success.) The modern generation of mobile computing employs an array of operating systems, from Android to Bada, QNX, Meego, WebOS, iOS, but when you scratch down to the metal, you’ll find an ARM-based SOC. All of the subsystems that were cradled on a PC motherboard are now integrated on a single piece of silicon, ARM processor included.

Microsoft got tired of waiting for Intel to step up to the plate and, at the January 2011 CES in Las Vegas, Steve Ballmer announced that the next version of Windows would also run on ARM (transcript here).

But what is Microsoft’s CEO really saying?

I think Ballmer intends to bring the full market power of the franchise to tablets. Microsoft will step back and take the time–target 2012?–to make a “WinTablet” OS (WinTab? Wablet? Winblet? Register the domain names now) that includes a tablet version of Office. Third-party developers will follow.

The Wintel breakup causes profound and welcome changes in the industry, best summarized by Horace Dediu, in a recent Asymco blog post:

“At this year’s CES two unthinkable things happened:
• The abandonment of Windows exclusivity by practically all of Microsoft’s OEM customers.
• The abandonment of Intel exclusivity by Microsoft for the next generation of Windows.”

Intel professes to be unconcerned by the ARM flirtation, but below the calm surface the company’s executive must have their doubts. The low-end Atom business for netbooks hasn’t been doing well lately and will do even worse if tablets continue to eat into that category. Yes, there isn’t an enormous amount of money at stake in the low-end, but tablets and, more generally, ARM-based devices could seriously upset the x86 PC cart.

For Intel, getting back into the ARM business (they sold the previous one to Marvell in 2006) seems like a straight shot: A bit of paperwork, some money, a team of engineers and they’re in business. Intel could very well decide to follow Microsoft’s lead–once again– and make ARM processors for the new Windows + Office combo.

In reality, however, it won’t be that easy.

PC OEMs have little choice: x86 processors are available from Intel and AMD, and, in a limited form, from TSMC. They can’t design an application-specific x86 device and send it to be manufactured in Taiwan or Korea.

Tablets and smartphone manufacturers, on the other hand, have the benefit of design flexibility, the choice of sources that come with the ARM ecosystem. Intel can’t take advantage of the quasi-monopoly it enjoys today in the PC world. Plus, the new ARM world means lower profits, so the company may decide against getting into the fray and, instead, focus on the servers. And even there ARM could become a threat: x86-based server farms run huge electricity bills and cause operators to look anew at ARM’s power-saving advantages for data centers.

None of these changes will happen overnight, but they won’t take long. A year ago, tablets were nonexistent. The PC market has been irreversibly changed. The George and Martha Wintel bickering makes for an interesting story, but…there are businesses to be run.

JLG@mondaynote.com

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