All Mac Considered

Twilight of Empire: Part Four

Joe C. Carson

"And this too shall pass away."

(Ancient proverb)

Cassandra's Curse"Cassandra had been gifted with the power of prophecy, but Apollo, whose advances she had refused, brought it to pass that no one believed her predictions, although they were invariably correct."

Bullfinch's Mythology

When I first started the "Twilight of Empire" series of articles, I had envisioned only a short series of articles outlining why I felt that the Wintel Hegemony's stranglehold on the development of computing would eventually collapse. I likened their position to that of the classic "Water Empire", an empire based on the complete control of one or more essential commodities needed for survival. The term "Water Empire" is one used by historians because the earliest great ancient civilizations in Egypt, Mesopotamia and Mohenjo-Daro all relied on totalitarian control of water as their basis. A "Water Empire" is virtually unassailable from within, but is often easily conquered from without by forces not dependent on their control of water, or whatever other essential commodity they use for their control. I had also visualized a situation where the Wintel Hegemony's power would wane over a period of three to five years or so as profession IT people become more frustrated by the inherent flaws of Windows and the inevitable limits would be reached for the development of the x86 processor designs, and those same IT people would be forced to look outside of their narrow prejudices for solutions, even to consider Apple technology as a possible way out of their quandry.

>What I did not expect was what I have seen occurring over the last few months since the early part of November of 2000. The inevitable weakening of the Wintel Hegemony has started to accelerate. Starting with the unexpectedly weak holiday sales season late last year for computers, the entire computer industry found itself facing a growth recession. Yes, Apple was one of the first to admit it and as usual the media jumped on Apple and for a while pretended that somehow only Apple was having a problem. Then the ugly truth came out that every major computer maker was in trouble and that this problem wasn't merely a blip on the radar. More than a few so-called "analysts" found themselves with egg on their faces.

Because of the rush of events, I have decided to make this an ongoing series that will report on the inevitable decline of the Wintel Hegemony as events unfold. For now we will take a closer look at the events of the past few months that have led us to the present.

Microsoft's Problems

Before the flood of reports from various PC-centric sources about the failure of Intel's Pentium 4 that I mentioned in "Twilight of Empire, Part Three," there was a hint of problems to come from Microsoft when in mid-October, 2000 they posted a glowing quarterly report on profits. Glowing, that is, until you took a close look at the real numbers. In Larry Barrett's article at Ziff Davis Inter@ctive Investor, "Windows sales carry Microsoft past 1Q forecasts", he reported the fact that Microsoft's quarterly "profits" were mostly from portfolio investments while actual operations (i.e., software sales, op systems sales, etc.) declined $12 million. At least one business analyst referred to Microsoft's profits report as "funny business". Since then Microsoft's quarterly reports have not improved, especially with the shortfall of PC sales dragging down Microsoft sales of operating systems and Office software.

Next for Microsoft was the weak reception that Windows 2000 has received. Mitch Wagner reported in his article at internetWeek "Y2K Isn't W2K's Year" that the IT industry was receiving Windows 2000 with a wave and a yawn. Another article from Jo Ticehurst at VuNet.com, "Windows 2000 'not ready for web servers'" tells us that John Pescatore of the Gartner Group has told an audience at a the Gartner Symposium Europe in Cannes, France that Windows 2000 is too insecure for safe and secure internet web serving. He likes Linux better. Apparently even Microsoft agrees. During a recent incident when hackers brought down Micorsoft's own servers for a time, it was revealed that Microsoft was using Linux to run them rather than their own software. Does Microsoft know something about its own server software that they aren't telling their customers?

It's not that there is anything particularly wrong with Windows 2000 (except that it is Microsoft technology...) other than the usual lack of security inherent in Microsoft operating systems, an unintuitive interface, limited scalability and obtuse system management tools; it's just that, well... who cares? Generally, Wintel types tend to be cheap and lazy and Wintel enterprise people are no different. They simply see no good reason to spend time and money actually getting around to installing it. This is especially true since they have finally learned how to get around the problems that previous versions of Microsoft operating systems have, and Annoyances.org has not yet posted their Windows 2000 section to help users cope with its inevitable problems.

Also, Microsoft's marketing has not indicated that Microsoft views Windows 2000 as a major strategy, especially with their new emphasis on net-based computing and their disbanding the Windows 2000 marketing group. Message read by customers: Microsoft doesn't care about Windows 2000, so why should they?

PC Maker Problems

At about the same time as Microsoft began to feel the strains of being Microsoft, the hardware leg of the Wintel Hegemony began to show financial problems as well. In October some technology industry analysts, who were right for once, predicted that Intel was heading for trouble, and some analysts were running around in a panic trying to figure out how to panic. This was reported by Margaret Kane in her article "Analysts mixed on Intel" at Ziff Davis Inter@ctive Investor. Meanwhile, the usual claque of pro-Wintel analysts were still predicting that everything would be peachy-keen hunky-dory. Boy, were those guys wrong! A few weeks later, Ziff Davis Inter@ctive Investor again reported on Intel's condition in Tiffany Kary's article, "Intel falls on downgrade". Intel stock dropped and ratings were downgraded because the probability began to become apparent that Intel sales will slump for a while and the new Pentium 4 costs a lot more to make than a PIII while not noticably being able to improve performance.

Meanwhile, most industry analysts were pointing their fingers at Apple as being in trouble, pretending that somehow only Apple was having sales problems going into the 2000 holiday season. One rather ridiculous reporter, a certain Sergio Non, gleefully told us how badly Apple was faring while claiming that a glowing press release from Dell was indicative of how well off the PC computer market was doing. Of course, he based his glowing report on Dell's finances on a Dell press release... Ummm...we all know just how reliable company press releases are in gauging a company's relative financial health, don't we? Mr. Non had to feel a case of spinach-in-teeth after CNNfn reported in an article "Dell drags down techs" that things weren't quite so peachy-keen hunky-dory for Dell as those press releases were claiming.

I do have to wonder where all those smug anti-Apple analysts went. Now that Dell and Intel were facing less than perfect finances, the stock market finally was realizing that the Wintel market is weaker than they guessed... Not enough pimple-creamers buying PCs for games? But if you read how some reporters can try to skew the facts, go to Ananda Black's posting at Ziff Davis Inter@ctive Investor "MIDDAY MARKETS: Dell guidance hammers techs" about the same drop-off in Dell stock is somehow just a fluke and Dell will go back to making their stockholders rich again. Meanwhile, they weren't recommending that Dell get slammed as hard as they did Apple, but then, what the hey... most tech industry tea-leaf readers probably own Dell stock and not Apple stock. Their Dell portfolios are probably sitting next to those Dell trash-boxes that they are using to give out those wrong analyses we keep seeing.

But wait! It gets better, or should I say worse, for the Wintel World...

In late November, just as the holiday buying season for 2000 was getting underway, CNNfn released a news item, simply titled "Compaq, Dell slip" about Salomon Smith Barney telling about high PC inventories and slow sales. In this report, Compaq had joined Dell as having trouble. Despite the impression that many tech industry analysts were trying to give that Apple's sales problems during the holiday season are somehow unique to it, the two PC Big Boys were having troubles... for almost exactly the same reasons as Apple: high inventories and slow sales.

The PC market was already saturated and the days of continuous growth are coming to a close. Business IT types really have little use for either the overly-expensive Pentium 4 machines, or the high end GHz class PIII or Athlon machines. They are satisfied with the current machines they already own so long as they work since any PC running at or above 400 MHz is more than adequate for business applications (just how fast do you want an overpriced typewriter to run a word processing program anyway?).

Then after the reality hit that Dell and Compaq were paddling the same boat as Apple, Gateway joined them in having problems as reported in Michael Kanellos' article at CNET News, "Gateway shares crash on earnings warning". In this report, Eric Rothdeutsch of Robert Stephens Investment Bankers is quoted as saying:

"It is definitely at the low end of everybody's expectation."

Which is something of an understatement!

He then said:

"This is turning out to be a nightmare quarter for all PC demand in general."

He then went on to describe investment losses by Gateway in their tech stocks, slowing growth to only a 10% level during 2001 and the possibility of a price war sparked which has now come to pass.

IDEC market researcher Roger Kay also had a bit to say about the poor earnings report of Gateway:

"It's nothing short of a debacle."

Going into December of 2000 the PC-centric media started to look for scapegoats for the poor holiday sales. eWeek based at ZDNet posted an article by Ken Popovich "PC makers brace for 'ugly season'" attempting to blame Gateway for the poor PC sales during the 2000 holiday season. Although analysts had been warning of a market slowdown for computers in general, Gateway ignored the warnings and its management decided that Gateway's sales would increase, not fall. They discovered the hard way that the slowdown predictions applied to them as well.

By the way, nice try Mr. Popovich. Although Gateway's management screwed up worst than most, they weren't alone.

Reuters released a report "IDC Forecasts a Chill in PC Sales" that caused me to suppress a giggle fit... PC sales are considered "down" despite the fact that they are in fact up... The reason everyone is talking about a "slump" is that after a decade of double digit growth, this quarter's growth is in single digits. In other words, it is still growing but not as much. By the way... all of the analysts' panic-mongering is based entirely in the sales figures from a few days. Does this perhaps hint that "analysts" are full of the material usually found paving the floor of a barn? On the other hand, since these reports appeared things have not gotten better.

In fact the computer industry is in a "Growth Recession" and the growth curve is showing clear signs of flattening out. A true recession is always preceded by a growth recession, although a growth recession does not automatically mean that a true recession will follow. However, the probability is that PC sales will flatten and possibly fall during 2001.

Why?

Most home and business buyers see no need to upgrade since the systems they now have are more than adequate for any uses they have. Hence, slower sales for people who simply do not need to replace the old beige box.

Apple on the other hand is also seeing a current holiday slowdown for similar reasons since home Mac users have machines that like the PCs, are more than adequate to the tasks at hand for home users... but as the holidays are past we are now seeing a different sales dynamic for Apple than I thought would occur.

After the Holidays there is a normal seasonal slump in computer sales since home buyers have their new home computers. Business and professional use usually drives the after-holiday market. However, unfortunately for the PC makers business buyers are quire satisfied with their current Wintel machines and see little reason to get a more expensive PC, especially if it uses the over-priced and under-performing Pentium 4. Apple's core professional buyers and users, however, are a different lot.

Apple usually announces faster, more advanced machines at MacWorld in San Francisco. This year Apple announced newer, more powerful Macs based on the newer G4+ processors, and the pre-press, publishing and graphics pros will be looking for the power that these new processors promise. Their market tends to be a steadily growing one that always needs more power, regardless of what is happening in the Wintel world. The new 733 MHz MPC7450 based machines Apple unveiled in January are merely the opening shot in a new scramble to develop newer and faster PPC processors for the Mac that we will see throughout 2001. Add to that, by the time you read this article, Mac OS X 10.0 will be available to the public and a new era for Mac users will be dawning just as the Wintel Hegemony is stagnating in sales, hardware and software development. Whether hardcore Mac users like Mac OS X or not, it will be the de facto standard for Apple in the future and its effect on Apple's core markets will be profound.

Apple's sales growth curve will remain in double-digits even if a lower one while PC makers drop to single-digit growth simply because Apple has a totally different market dynamic than PC makers do. It is one time that Apple execs should be very thankful that their sales are not heavily dependent on business, enterprise and gaming as is the PC market. This alone will cause Apple's market share to expand. It's simple arithmetic.

Short Takes

Go Directly To Jail! Do Not Pass Go!

During the Y2K panic in 2000, a strange event occurred. Microsoft had ben denying that a patch existed to allow Windows 98 to handle Y2K even though insider reports on Windows geek sites had been claiming that it did exist. Then one day, this "non-existent" patch mysteriously appeared at a Microsoft technical support site without announcement or comment.

One story I heard may explain what happened and why. I don't have any corroborating evidence if this story is true or not, but somehow is has the ring of truth about it. It is too outrageous not to be true.

As the story goes, the State of California had made a request to Microsoft for this "non-existent" patch for its Windows computers. Since California has a population of some 30 million souls, that would hint that there are a lot of computers used by State and Local government agencies in California. Microsoft's response to the request was to admit that the patch did indeed exist (although they preferred that California cough up the cash for Windows 2000 as a way to bypass Y2K woes), but for California to get the patch they would be required to fork over a great deal of cash to get it. I don't know precisely how much the demanded fee was, but it ran into the multiple of millions of dollars.

California's then State Attorney General was outraged and issued an arrest warrant for the extradition of William Gates to California on suspicion of extortion, and officers were dispatched to Redmond to make an arrest. When Bill Gates realized that California's State Attorney General wasn't bluffing and he would soon feel handcuffs again, Microsoft hurriedly posted the "non-existent" patch on their technical site and informed the State of California, and I am sure the California State Attorney General's office as well, that the patch was available from this site for a free download. The officers were recalled, the arrest order rescinded and PC types had a way to survive Y2K.

Anyway, that's how the story went...