* Microsoft set to launch Windows 8 later this year
* Intel pushing "Ultrabooks" to compete with tablet
* Success of Windows 8 hinges on new generation of devices
* Cost of licences an issue for hardware manufacturers
By Lee Chyen Yee and Clare Jim
TAIPEI, June 10 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.
And while this week’s Computex trade show in Taiwan 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 U.S. 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 (MSFT.O), 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 (GOOG.O) Android and Apple Inc's (AAPL.O)
In another corner you have chip maker Intel Corp (INTC.O),
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 (ARM.L), whose
mobile-friendly chips may be better suited for tablets running
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.
The Computex show that ended at the weekend has illustrated
just how delicate this arrangement is – with differences over
pricing, promotion and the ecosystem that will be needed to
support this new chapter in Windows' history.
"Is this going to be a major resurrection? Well, at least
it’ll help stop tablets from cannibalizing the PC laptop
sector," said Jonah Cheng, an analyst with UBS.
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 percent last year, and are
expected to grow by only 4.4 percent 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 percent this year, according to
Of those tablets expected to sold this year, Gartner
estimates more than 60 percent will be iPads – and only 4
percent 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, materials and
designs featuring sliding, folding or detachable keyboards that
it hopes will blur the lines between laptop and tablet.
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
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.
"We can specify the Ultrabook to get the price point all the
way down to $399, but we don't think that's what the consumers
want," said Intel senior vice president Tom Kilroy.
The Computex show-floor reflected this diversity and
ambition. Asustek's (2357.TW) Taichi dual screen Ultrabook –
where both sides of the lid sport a screen – was a particular
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
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. And there are plenty of issues still to
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.
"The cost of the licence that OEMs have to pay Microsoft
will be a major drawback," she said.
Microsoft did not respond to a request for comment on
Manufacturers said they still hoped to persuade Microsoft to
reduce licence fees. Said one executive from a PC vendor: "We
are a major player in the market and hopefully that gives us
more negotiating power on the royalty fees and cross payments."
Intel said that while its price list was public, its
arrangements with individual clients were confidential.
But Intel’s Kilroy was defiant, saying that the company
invests tens of billions of dollars in chip manufacturing, and a
similar amount in research and development.
"So we don’t apologise for the fact that we are the leading
edge technology, and that we expect to get paid for it," he
said. "The business model works very well."
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 (AMZN.O) 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
"They have to make it very easy for people to develop, test
and then market Metro-style applications," says Richard Edwards,
London-based analyst for IT consultants Ovum.
Whether these products do well once they are launched is
going to be largely down to how well they are promoted.
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
And that, in turn, mostly falls to Microsoft and Intel.
Having built the devices, the manufacturers will rely on the
U.S. giants' marketing clout to convince users to buy them.
Outspoken Acer (2353.TW) chairman J.T. Wang, for example,
told reporters at Computex how he had recently made his concerns
about this clear to Microsoft's CEO.
"When I was in Seattle last month I told Steve Ballmer that
they'll have to come up with a strong marketing campaign."
Ballmer's response, Wang said, was to point out that he'd just
been named worst CEO of 2011 by Forbes. "Although you are the
worst CEO of 2011," Wang says he told him, "you have to stand up
and fight." Ballmer, Wang recalled, said Microsoft would fight.
It’s likely they will. But another fly in the ointment is a
shift in the old alliance between Intel and Microsoft.
Computex 2012 marked a divergence of interests as Microsoft
is now also working closely with ARM, offering a version of
Windows 8 called Windows RT that will work on its less
power-hungry processors in tablet devices.
There were few of these devices to be found at Computex.
These will come later, but there are already concerns that
Taiwan-based manufacturers, who do not have a long or
particularly successful track record building tablets, are
likely to face increasing price pressure.
Highlighting the challenge, British-based research company
IMS Research said on Friday that Apple's competitive pricing has
helped push the average price of tablets down by 21 percent in a
(Writing and additional reporting by Jeremy Wagstaff, Asia
Chief Technology Correspondent, in Singapore; Editing by Alex
((email@example.com)(+65 6318 4884)(Reuters
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