Mobile may be the future for technology, but even with the worldwide proliferation of high-powered smartphones and tablets, some traditional tech giants are struggling to maintain consistent revenue streams.
Earnings disappointments this week from Intel, Microsoft, Google and AMD underscore how Silicon Valley, both the old guard and new, is struggling to profit from consumers’ waning love affair with the stalwart PC and the new infatuation with mobile – the most significant tectonic shift in the industry since the advent of the internet.
“Companies are realising that it is not easy to find a formula that works with mobile,” Gartner analyst Carolina Milanesi said. “Mobile is not proving to be as straightforward as people thought.”
Signs that some of the most innovative of today’s Silicon Valley titans are struggling with how to make money from mobile users come at a bad time for an industry already struggling with a worsening macroeconomic environment.
Click prices declined for the fourth consecutive quarter. This is the mobile problem
The biggest stunner was perhaps Google, which shed more than $20 billion of market value after it reported that its core advertising business had slowed. Critics said it was no anomaly.
“Click prices declined for the fourth consecutive quarter after rising for eight consecutive quarters before then. That’s a negative. This is the mobile problem,” said BGC analyst Colin Gillis.
Microsoft followed that as PC sales continued to fall.
Then there is Zynga, the poster child for mobile transition woes. In 2011 the casual games maker was a consumer internet darling. In 2012, it has cut its outlook twice and lost three-quarters of its market value amid a lack of mobile hits, leading analysts to warn of massive layoffs.
Google CEO Larry Page, however, argued the shift represented a long-term opportunity. “We’re really starting to live in a new reality,” he said in the wake of his company’s share slide. “It will create a huge new universe of opportunities for advertisers, where they… will be dynamically adapting across a whole bunch of different devices, to reach the right audiences at the right time.”
PC crisis
Perhaps hardest-hit are Intel and others closely tied to the PC chain. Intel’s weak outlook for the fourth quarter ended any hopes the PC market would pick up by the end of the year. While Intel dominated that space in its prime, in smartphones its market share is less than 1%.
Intel’s one-time rival AMD is in even worse shape, saying this week it will cut 15% of its staff – more than 1,600 people – as part of yet another restructuring to cut costs while it tries to figure out its future.
Microsoft revealed a 22% dive in quarterly profit as sales of computers running its Windows operating system dipped.
Marvell, yet another chipmaker being battered by the lagging PC market, also cut its revenue outlook by as much as 10% as its customers in the storage business suffered.
Mobile winners
Amid this backdrop, those companies making progress are the ones with an established foothold in mobile, having figured it out years earlier.
Amazon and Apple are expected to fare better, analysts say, and although Apple is struggling with supply issues analysts contend that’s a good problem to have because it’s spurred by raging mobile hardware demand.
Amazon and eBay, meanwhile, are succeeding in reaching consumers through mobile devices, particularly Amazon with its cut-rate Kindle Fire tablets. About 800,000 shoppers made their first-ever eBay purchase through a mobile device.
And some manufacturers with mobile offerings are doing well, too. Verizon, for example, posted a record quarterly profit on the strength of the wireless business it co-owns, which came largely from demand for the iPhone.
Memory maker SanDisk also easily beat expectations for the third quarter, as demand for chips to be used in smartphones and tablets drove up pricing.
Economic fallout
If technology companies only had to deal with a platform transition, that would be one thing. The problem is they are struggling with that transition in the face of a weak economy, when technology upgrades are often the first budget line item to be cut and consumer spending crumbles.
“It seems like the macro conditions certainly deteriorated in the third month, and no tech company will be immune to it,” said Trip Chowdhry, analyst at Global Equities Research.
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