Intel's delayed delivery of software that conserves computer battery life is holding up development of some tablets running the latest version of Microsoft's Windows operating system, according to a source close to the matter.
Microsoft has yet to approve any tablets featuring an Intel processor code-named Clover Trail because the chipmaker hasn't produced necessary power-management software, said the source, who asked not to be named.
The delay - following remarks by Intel chief executive Paul Otellini, who told employees in Taiwan that Windows 8 needed improvement - underscores how the Wintel alliance that has dominated the personal computer industry for three decades is struggling to respond to the threat of Apple's iPad.
At stake is the chance to make up for lacklustre PC buying by capturing users who are flocking to mobile devices, snappy applications and elegant design.
“The PC channel is in chaos right now,” said Alex Gauna, an analyst at JMP Securities in San Francisco. “They don't know what to do. They don't know what to design for, they don't know what the consumers are going to buy. Tablets have stolen their growth trajectory, plus the macro situation, plus Wintel has made a mess of their ecosystem.”
PC makers, including Hewlett-Packard, Dell and Lenovo, are counting on the new version of Windows to help them compete in the $63 billion tablet market dominated by Apple.
Any software development delay gives manufacturers less time to get their tablets ready for the year-end holiday shopping season, undermining attempts to erode Apple's 70 per cent share of the tablet market.
Tablets featuring Clover Trail are the ones designed by Intel to most closely compete with the iPad. The industry could ill afford a slowdown in getting them into stores, with the next iPad due to be released in March or April, said Wes Miller, an analyst at Directions on Microsoft.
“It's bad news for Microsoft and Intel because it's not going to present the best light on either one and it will hurt the perception of Windows 8,” he said.
While Windows is fundamentally sound, the operating system lacks a wide range of robust applications and PC makers haven't had enough time to work out kinks with drivers, which connect software to such hardware as printers, according to Directions on Microsoft.
Microsoft has certified about 800 machines with the new software, said Mark Martin, a spokesman for Microsoft. That includes tablets running low-power chips with technology from ARM on a version of the software called RT. The recent entrant to the Windows family compounds threats to Intel.
“Microsoft has worked closely with Intel and our hardware partners,” Martin said in a statement. “We look forward to the new Atom-based offerings from Intel to complement the already strong Windows 8 and Windows RT ecosystem.”
Tablets and laptops convertible into tablets built on Clover Trail would be available on October 26, said Jon Carvill, a spokesman for Intel.
“We're excited about the opportunity for Windows 8 tablets with a broad range of [Intel chips],” he said. “We've collaborated very closely with Microsoft in extensive testing and validation [for chips].”
Intel shares have declined 6.2 per cent this year, while the Standard & Poor's 500 Index has gained 15 per cent. Microsoft shares are up 14 per cent this year.
Intel held an event last week showcasing Clover Trail-based tablets from Acer, Asustek, Dell, Fujitsu, Hewlett-Packard, Lenovo and Samsung. The new devices, many of which featured detachable keyboards, have weeks of standby time and are capable of playing high-definition video for 10 hours.
Still, any delays caused by unfinished software or untested hardware in tablets, laptops and desktops would be harmful to an industry already seeing demand faltering in China and Brazil, countries that until recently could be counted on to compensate for weakness in the US and Europe.
The refresh of the software that runs more than 90 per cent of all personal computers typically leads PC makers to stock up on parts in anticipation of a surge in orders. Microprocessor shipments have risen an average 6.7 per cent in the quarter before new Windows PCs go on sale, according to Mercury Research, while PC sales rose more than 15 per cent in each of the past two release quarters, researcher IDC said.
This time around Intel is on pace for a sequential decline in third-quarter sales for the first time in two decades. Western Digital trimmed its forecast for disk drives, and analysts at IDC said the PC market would expand less than 1 per cent this year, the worst performance since it shrank in 2001.
“It's a tough environment right now,” said Dean McCarron, an analyst at Mercury Research, who has been tracking PC-industry data for two decades.
According to McCarron, computer processor industry sales have posted as steep a decline only twice before in 20 years: in 2000, amid the bursting of the dotcom bubble, and in the fourth quarter of 2008, after the financial meltdown. He estimates that 8 million fewer PC processors will ship in the last quarter than the previous period, which means fewer PCs built.
Chip orders are an important indicator of how confident manufacturers are of what will happen when the new PC models go on sale.
While consumers no longer stand in line outside stores to get the latest version of Microsoft's operating system, as they did when Windows 95 went on sale in August of that year, even versions such as Vista - which was panned by reviewers - can help the industry. PC sales jumped 15.3 per cent from a year earlier in the quarter Windows Vista debuted. Its replacement, Windows 7, prompted a 15.2 per cent increase, according to IDC.
In answer to the surging popularity of handheld devices led by the iPad, Microsoft has given Windows 8 a touch-screen interface. It has also opened up Windows to chip technology other than Intel's, and is plotting a move into the hardware market itself with a line of tablets, dubbed Surface.
All that may be cold comfort for Intel and other traditional PC component makers, because in many cases tablets rely on parts better made by competing suppliers.
Meanwhile, tablet shipments more than tripled in 2011 and will jump 67 per cent this year, according to an estimate by JPMorgan Chase & Co.
“It's obvious that tablets are taking sales from notebooks,” said Chris Danely, an analyst at JPMorgan in San Francisco. “We're all buying tablets.”
With a growing list of Windows 8-based designs to choose from - notebooks, tablets, laptops with touch screens, touch-screen desktops, laptops with detachable screens that become tablets - PC makers have avoided snapping up their usual stockpiles of parts until demand is more clear, according to C.J. Muse, an analyst at Barclays.
“Folks are sitting on their hands in terms of what they are building, and they are planning on air-shipping whatever starts to sell,” said Muse. “There's just too much uncertainty.”
Still, the main obstacle isn't lack of enthusiasm about Windows 8. The underlying challenge is that Microsoft and Intel were too late with products aimed at fending off tablets, said Doug Freedman, an analyst at RBC Capital Markets.
Intel began pushing Ultrabooks, slim-line laptops that start up instantly, last year. The devices haven't come down in price fast enough to woo buyers, and Windows 8's planned arrival at the end of this month has given Apple and other tablet makers too much of a head start.
“They're six to nine months late,” Freedman said. “They haven't put their best foot forward against the tablet.”