Intel (INTC) floated like a butterfly but didn't sting at all, and somehow, right now, that's enough to please the jackals.
Last night's Intel call was a microcosm of what's happening in technology right now. The company is trapped between the old business -- client computing, which had revenues of $7.4 billion yielding profits of $1.4 billion, down 24% because of a rapid decline in desktop computing and higher costs ¿ and the new business. It had $3.7 billion in Data Center revenues, which yielded $1.7 billion in profit, up 19%.
But the smaller, fast-growing division just can't offset the larger, fast-declining business.
What can change that dynamic? An acquisition. What did the analysts continually ask about? An acquisition that can change that ratio.
But Intel wouldn't let the analysts lay a glove on them and instead just kept mouthing how parts of the data center group, notably the flash memory or NAND portion, could somehow save the day.
We all know it can't, including Intel. But unlike previous calls, when the management tried to explain how they were no longer going to spend billions in capital equipment to help the client computing group, and instead return capital to shareholders in buybacks and dividends, nobody really cared. They didn't want more money in their clients' pockets, they just wanted more growth and a business levered to personal computers can't give them that.
Hence the drumbeat for an acquisition, any acquisition, that can change the course of Intel history, certainly one more important than the McAfee deal a five years back, when $7.6 billion did nothing to alter that darned course.
To me, this is the moment when Intel has to go borrow billions and buy something that quickly changes the ratio, so it is just talking about social, mobile, cloud and the connections to the Internet of Things, the area that's growing.
But to do so, the company has to stop thinking like a personal computer company, cease talking about how its deal with Micron (MU) can grow NAND fast enough and reinvent the company on the fly.
It's nothing new. Guess what: IBM (IBM) and Microsoft (MSFT) have to do the same thing. IBM has to grow the consulting side of the big four trends, and Microsoft has to push the software side, but none seems to be able to move as fast as, say, companies like salesforce.com (CRM), ServiceNow (NOW) or Skyworks Solutions (SWKS). All these three companies get the next generation, saw it coming, and can really be of assistance to clients in navigating the new world while making, developing and combining the new world of devices and then figuring out the best way to harness the fire hose of data they generate.
All three are linked by history. Intel joins IBM in needing a big acquisition to change the legacy decline-data center increase ratio, which is pretty similar to the one that IBM is undergoing, although the profit for Intel is so humongous that it can do it with that acquisition, and probably will do so.
IBM has said point blank it won't spend more than 4%-5% to get the good portion of the ratio, which right now is about 29%, to equal or exceed the declining portion. Microsoft has no idea what to do, it seems paralyzed but maybe it has a plan to offset declining desk top using cloud, X-Box and heaven knows what else to get there.
All in all, you put together a ServiceNow, a saleforce.com, a Skyworks and let's throw in Red Hat (RHT), and you have a company that does all the good parts of these companies and none of the declining parts.
But to do it alone? With acquisitions and clarity of purpose, without the legacy bringing things down? All I can say right now is: good luck.