Stakes high as 'Wintel' puts all its chips on Windows 8

The world of Wintel - Microsoft, Intel and the Taiwan-based companies that build the computers their products power and run on - is taking a huge collective bet on Windows 8.

While it has largely presented a united front, it has also highlighted some of the tensions that big gamble has created in a once tight relationship between the US firms and their Asian partners.

At stake is the future of the world’s largest software developer, whose new operating system is expected to be launched in the fourth quarter, and it largest chip maker, as well as an island-wide industry of computer makers and parts suppliers.

In one corner you have Microsoft Corp, which is porting its tiled Metro interface used in Windows Phone to tablets, laptops and the desktop. Although the old point and click interface is still available, the focus is on a touch screen that pits Windows against Google Inc’s Android and Apple Inc’s iOS.

In another corner you have chip maker Intel Corp, long Microsoft’s partner in personal computers. Intel has not only seen its position slip as the world shifts to mobile devices, it has also had to make room beside Microsoft for Britain’s ARM Holdings Plc, whose mobile-friendly chips may be better suited for tablets running Windows 8. And then there are the computer manufacturers themselves, most of whom are based in Taiwan and who are struggling to combine Microsoft’s new operating system and Intel’s chip-based designs into products that sell - and turn them a profit.

Innovation shift

Microsoft, though still strong on conventional PCs, has watched the energy and innovation shift to mobile devices - led by Apple’s iPhone and iPad. While PC shipments fell 1.4 per cent last year, and are expected to grow by only 4.4 per cent this year, according to research firm Gartner, tablet shipments have grown from 19.4 million units in 2010 to 68.4 million last year, with that figure expected to rise by 85 per cent this year, according to rival IHS.

Of those tablets expected be to sold this year, Gartner estimates more than 60 per cent will be iPads - and only 4 per cent of them will be running Microsoft’s operating system. Microsoft, therefore, has little choice but to overhaul Windows to straddle both its traditional computer market and the world of tablets. The result is a potentially jarring shift for users long comfortable with the familiar Windows interface.

Intel, for its part, is having to rethink its chip business, which has focused on processing data rather than more mobile-centric issues such as power consumption. In the meantime, however, it is pushing its vision of a slimmed down laptop called the Ultrabook. The first round of such devices - which owe a lot in look and feel to Apple’s successful MacBook Air - were not a huge success, but Intel has come up with better chips.

All of this, however, depends on the computer manufacturers and suppliers themselves. It’s they who have to build the devices and figure out how to turn a profit. This creates its own internal tensions because Microsoft wants each Windows machine to leverage all its features as much as possible, while the original equipment manufacturers, or OEMs, as Taiwan’s gearmakers are known in the industry, have traditionally cut corners to keep prices low.

“Microsoft will live and die on how well the OEMs implement the features of Windows 8,” says Forrester principal analyst Frank Gillett. Intel, too, is trying to push the OEMs to add touch screens and other whizz-bang features to help to push the Ultrabook up-market and differentiate it from the MacBook Air.

Intel has even gone so far as to sign agreements with touchscreen suppliers undertaking to buy up excess capacity to ensure there are adequate supplies for the OEMs, who make much of the world’s computer hardware for global vendors and, increasingly, their own brands.

The result is that Intel is emphasising quality and features that may push the price of such devices above the sensitive $1,000 mark.

A touch screen, for example, adds roughly $100 to the cost of an Ultrabook, Forrester’s Gillett says. Intel defends the creeping rise in cost, arguing that while it could easily offer designs for much cheaper models, it believes the market is looking for more sophisticated devices.

And although most manufacturers appeared to have embraced the full range of Intel’s suggested designs and Windows 8’s features, the quality remained uneven. The plastic slider on one device, for example, failed to unhinge the tablet from the keyboard.

Some models remained encased in glass boxes, suggesting they were some way from completion. While Computex was show time for Windows 8 and the devices running the system, there is still some way to go until the software’s launch. There are plenty of issues still to hammer out.

Pricing right?

First is who pays whom for what, and how much. The manufacturers must pay Microsoft for each copy of Windows and Intel for each chip. While these account for about a third of an Ultrabook’s bill of materials, Forrester’s Gillett says that’s where the greatest margins are.

Analyst Serene Chan of Frost and Sullivan said that Microsoft plans to charge $100 for each Windows 8 licence - a significant increase over what it charged for Windows 7 running on mobile devices, especially when compared with Google’s Android operating system, which manufacturers can use for free. Manufacturers said they still hoped to persuade Microsoft to reduce licence fees.  Intel said that while its price list was public, its arrangements with individual clients were confidential.

Remaking the Wintel world

Still, as the ground has shifted towards a tighter ecosystem that embraces developers, cloud services, content and - at least in the case of Apple - a combined maker of hardware, operating system developer and retailer, Taiwan’s manufacturers must pray that Microsoft and Intel help to fill in the gaps in the Windows world, which now looks a little out of date.

Can, for example, Microsoft build an ecosystem of application developers and payments as attractive as those of Google, Amazon and Apple? Microsoft has launched its own version of Apple’s app store, but it’s not yet clear how it will work for those programmes that don’t use the Metro interface.

As the devices, whether tablets, Ultrabooks or hybrids of the two, are likely to be aimed at more well-heeled customers than these manufacturers are used to, promotion is going to be key.  And that, in turn, mostly falls to Microsoft and Intel. Having built the devices, the manufacturers will rely on the US giants’ marketing clout to convince users to buy them.