Search Follow us
Richard Windsor
11 December 2017

Qualcomm & Microsoft – Dream with caveats.

Some space left for this proposition

Windows on ARM is back for another crack at the PC market and while we can see a place for it, it is unlikely to cause Intel too much grief. Microsoft and Qualcomm have launched a series of laptops that are running Windows 10 on Qualcomm’s SnapDragon 835 chipset. In addition to offering better battery life, the presence of the chipset enables the always-on functionality and connectivity that users are used to with smartphones and tablets. If that were all that there was to this story, then we would be pretty sure that Qualcomm would quickly take over the PC market but, as always, the devil is in the details.

Many of the devices will ship with Windows 10S (for which they are best suited) but will be upgradeable to the full version of Windows 10. Microsoft has compiled Windows 10, Edge and shell to run natively on ARM and had also recompiled a series of DLLs (dynamic link libraries) to ensure that the major desktop applications run properly. For everything else, Microsoft has created an emulator (generally a big drain on performance) that will allow other third-party apps to run with some exceptions. These are: 64bit apps won’t work yet, kernel mode drivers are not supported which means that most antivirus and games that use DRM or anti-cheat software won’t work properly.

This means that buyers of these devices will not be able to be 100% certain that everything they might want to run will work. We see this as a big sticking point, as failure to perform as expected will infuriate users and create a lot of bad press around these products. This is the same concern that we had around the launch of Windows 10S which makes some sense in the classroom but nowhere else. These devices need to perform as well as Intel devices in their pricing tier otherwise buyers are likely to be put off. Given that Intel has much higher gross margins than Qualcomm in silicon, this might be achievable, but it will also depend on the quality of the implementation by the PC makers themselves.

The PC market has changed dramatically over the last few years as casual users have deserted the platform. This is because, these users predominantly used a PC for browsing, email and media consumption and smartphones and tablets offer a more convenient and better way to conduct these activities. Consequently, these users have ditched the PCs that they owned and replaced them with smartphones and tablets instead. It is this that have long believed has been mostly responsible for the softness that has been observed in the PC market over the last 5 years. This trend also means that the users that are left are much more focused on the functions that PCs do really well like content creation and high-end gaming. For these users, performance is critical, and we suspect that Windows 10 on ARM will not be powerful enough for them.

This leaves Windows 10 on ARM somewhat in limbo but for students, schools and very price sensitive users, this may represent a good option. Hence, if Intel is going to feel any heat from this, it is going to be at the very low end of the market which is not where it makes most of its money. The amount of traction that these devices get depends mostly on their price and the quality of the implementation by the PC makers but we think that it is pretty clear that the performance driven end of the PC market is almost certain to remain Intel’s.

Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.