Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC), the sputtering “Wintel” pair that once dominated the high-tech industry, are both in the China headlines today, as each tries to reverse its downward slide in the important market. In the first case, Microsoft’s new CEO Satya Nadella is visiting China in his first overseas trip since assuming his current title, and is quickly finding himself quite busy putting out fires on a number of fronts. In the latter case, Intel is paying a hefty premium for a Chinese cellphone chipmaker as it attempts to find a place in a critical sector that is rapidly overtaking its core business making chips for traditional PCs.
Longtime tech followers will know that Microsoft and Intel were known as “Wintel” for decades, as the former’s Windows operating system and the latter’s central processors dominated the market for desktop and laptop PCs. But that business is quickly aging as PCs get overtaken by a new generation of smaller portable devices. The most notable of those are smartphones that perform many similar functions to PCs, and whose core technologies are dominated by chipmakers ARM and Qualcomm (Nasdaq: QCOM), and by Google (Nasdaq: GOOG), maker of the popular Android mobile operating system.
Against that backdrop, the decision by Microsoft Nadella’s to make a 2 day visit to China for his inaugural overseas foray looks like an attempt to shore up the company’s position in the important market. China is not only the world biggest PC and smartphone market, but is also the place where the big majority of both products are manufactured. What’s more, Microsoft is currently putting out a number of fires in the market, where it has invested heavily over the last decade.
The biggest of those fires involves an ongoing antitrust probe by Beijing, and Nadella said his company is cooperating with regulators on the case. (English article) The company also suffered a small but embarrassing setback when it had to delay the launch of its Xbox One in China by a week, which comes after Beijing recently lifted a decade-old ban on foreign gaming consoles. Microsoft is also facing headaches after laying off thousands of China-based workers following its purchase of foundering former cellphone giant Nokia; and it suffered another embarrassment 2 weeks ago when the longtime head of its massive China R&D labs left for a job at homegrown online search giant Baidu (Nasdaq: BIDU).
Nadella’s trip will undoubtedly be busy as he works with antitrust regulators and visits Microsoft’s other China business partners. His interview in the Chinese media is mostly PR about his company’s contributions to China, so it’s not worth repeating here. But this trip could indeed be crucial, setting the tone for whether Microsoft can stabilize its position not only in China but also throughout the world.
Next let’s look at Intel, which has just acquired 20 percent of a major local smartphone chipmaker called Unisplendour for $1.5 billion. (Chinese article) I previously wrote about this deal when media reported last month that Intel was in talks to invest in Spreadtrum, a big local chipmaker that was formerly listed in the US but got bought out this year by a group affiliated with the prestigious Tsinghua University. (previous post) The Tsinghua group later also bought out RDA Microelectronics, another US-listed Chinese chipmaker, and combined them into the current Unisplendour.
There’s not too much more to say about this deal, except that it reflects Intel’s desperation to find an entry point into the smartphone chip market. The purchase price values Unisplendour at $7.5 billion, which is roughly 3 times the $2.5 billion that the Tsinghua affiliate paid for Spreadtrum and RDA Microelectronics combined. Despite paying that big premium, which is quite affordable for Intel, I do like this particular deal as it could provide Intel with a much needed starting point to finally gain some momentum for its smartphone chip business.
Bottom line: A visit by Microsoft’s new CEO to China and a major new Chinese purchase by Intel represent new efforts by the Wintel pair to revive their fortunes not only in China, but also globally.