IBM, Microsoft, Apple, Google and Intel, The Real Earnings Story

You may have heard Intel and Microsoft missed their numbers but Google, Apple and IBM did well. Most people are trying to make sense of what is happening here. After all, to most financial analysts, these are all tech companies and subsequently they should all do the same.

Here is the real story.

If you remember the last downturn, in 2001-2002 a great deal of tech people started to experiment with free Linux solutions when budgets were slashed. The move to Linux had started years earlier but the accelerant was a lack of budgets.

In the last 12 months we have seen the slowing economy act as an accelerant as well but in this case it increased adoption rates of virtualization and SaaS/cloud computing. And the kicker is you can try either of these for free to get the ball rolling.

Server chips and software are expensive and both of the above technologies reduce cost with little to no downside. I spoke with the TMCnet webmaster before I wrote this article and he informs me it takes about 30 servers to run TMCnet and most are running at a few percent of capacity. In fact, most servers are run at minimal capacity with a few spikes from time to time.

But if we were to take these thirty servers and condense them to a handful and use virtualization, Microsoft and Intel both lose out. And they lose out on lucrative products with fat margins. Multicore chips and a host of server software run on many of these computers. I should point out we run a mixed Microsoft/Linux environment.

In fact we did begin to use cloud computing for some of our media delivery and it has been a tremendous win for the site and no additional servers were required... just a low monthly fee.

Then there is the whole Vista fiasco - the OS equivalent of the Edsel. People love to hate this operating system. I use Vista on three different computers and happen to think it works fine most of the time but somehow the rest of the world seems to hate it. It is for this reason people are more likely to switch to a Mac - especially after they find them in the Apple store while buying the gadgets the Cupertino company sells.

Then there is the netbook threat. This one hurts Microsoft and Intel equally as netbooks are cheap, use processers with lower margins and XP which brings in less revenue than Vista And since people don't like Vista anyway, they are getting a financial incentive to us an OS which they probably think is superior. Windows 7 is supposed to be the Linux on netbook killer but the jury is still out.

I heard Bill Gates speak at a Software Publishers Association meeting in May of 1989 at the Hotel Del Coronado in San Diego and he told the audience people don't remember if your product is late but they remember if it doesn't work right. Sadly, Vista was late and is being criticized for working poorly. What will "7" be like?

IBM of course did well in part due to the services business which many companies say are doing well - in part because these services obviate the need for full-time workers.

Google is a different animal as it is in the web advertising market and did well because companies are looking to cost-justify every cent of their budgets and clicks are a metric which make many CXOs happy (for now anyway).

The point here is there is pressure on Intel and Microsoft other companies in this story do not have to deal with.

In fact, it could get worse since more hosted applications means less of a need to upgrade PCs.

Perhaps an even bigger threat to Intel and Microsoft is mobile devices which are getting better meaning more and more people I know are not traveling with laptops but instead a simple Blackberry or iPhone.

These factors are part of the problems at Microsoft and Intel. Sure the economy stinks. Who can deny that? But it is important to see there are other crucial trends forming in the market and most analysts have missed every point above.

I don't expect this pressure to let up by the way and I expect Apple to get hurt soon if they don't take netbooks more seriously. Admob data led some to insinuate the iPhone and iPod Touch are the netbooks from Apple but the reality is the company will get hurt if they don't come out with an entry-level netbook with a keyboard at some point soon.