Prolonged Economic Slowdown Prompts IT firms to Change Track

For a long time, there were certain facts about the PC business generally considered to be universal truths. For example, there were two types of PCs - one that ran Microsoft Windows and one that ran the Macintosh OS (operating system). Windows PCs were powered by Intel microprocessors, while Macs used chips from Motorola and IBM that were incompatible with Intel's technology.

If you wanted to buy a Windows PC, you would either get one from any of a number of brand-name manufacturers, and be assured of a certain standard of after-sales service from an established company.

If you were on a budget and were somewhat tech-savvy, you could visit a small shop in a place like Funan IT Mall and buy a no-name PC, but you would have had to troubleshoot it yourself or pay someone to do it for you.

But things appear to be changing: a couple of developments in the past week or two appear to have shaken some of these established truths, especially in the conservative corporate segment.

The first involves Hewlett-Packard's decision to use a microprocessor by Advanced Micro Devices (AMD) in one of its business PCs. The decision not to stick with Intel as its sole source of microprocessor chips for business PCs is significant because no top three PC maker had yet made that move. A microprocessor is that part of a PC that acts as a brain, controlling its computational speed and functions.

This is despite general consensus that AMD's Athlon chips have outperformed Intel's Pentium chips in several measures, although generally not in speed.

The chips have made inroads into the cost-sensitive consumer segment, as well as among smaller PC makers, but it has not made headway in the high-volume business segment. The reasons for this have been varied, ranging from a fear of Intel turning against PC makers in times of tight supply, to conservative corporate customers usually preferring a tried and tested formula.

But in these economically-slow days of belt-tightening, a cheaper alternative suddenly appears more attractive to businesses, since there is no way AMD's chips can command a premium against Intel's chips, given Intel's dominance in the microprocessor market.

Also, businesses are realising again that having two viable sources, instead of one, for a component effectively leads to lower prices all around.

Another significant development in the past week came from Dell, which announced that it would offer a no-name PC. If that wasn't enough to raise eyebrows, the company also said it would do this via small retailers and consultants instead of relying on its traditional direct-sales model that has been so successful so far.

These so-called 'white box' PCs accounted for some 60 per cent of worldwide PC sales last year, according to research firm IDC. In the US, where brand name is much more important to consumers, white boxes have a 30 per cent share - a US$3 billion market that Dell is eager to tap. The market for these white boxes is traditionally smaller businesses which have smaller IT budgets and fewer resources for internal IT expertise.

The move is not a departure from its direct-sales model, said Dell, because the company would still be shipping products in a build-to-order fashion directly to the dealer who orders the computer.

A third development to note is the increasing popularity of the open-source Linux operating system, which is essentially an operating system given away free. Linux is shaping up to be a competitor to Windows in the enterprise, where each licence costs several hundred dollars. It is also slated to appear more frequently in desktop computers in the months to come.

Banks and other large corporations have been drawn to Linux because of its lower cost of implementation compared with Windows and other enterprise operating systems, and large computer companies, including IBM, HP and Sun Microsystems, have all been scrambling to offer Linux systems.

After years of playing by the rules, the computer industry is going through a technological shakeup of sorts, driven by the slowing economy and shrinking corporate budgets. The net effect of these changes is a positive one. It shows that computer companies have realised that corporate budgets are not unlimited, and that they have to find ways to deliver comparable value and performance at a lower price, without compromising their own margins. Ultimately, the changes can only be good for the customer, offering increased choice and lower prices.

And to think that it required a sustained, long-term slowdown in the economy to force computer companies to realise that there are options beyond the status quo. These moves have been long overdue.