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'Wintel' still seen dominant
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November 9, 1999: 2:04 p.m. ET
Antitrust litigation seen having little impact on PC leadership position
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - Despite the harsh antitrust ruling against Microsoft Corp. last week, the so-called "Wintel" alliance likely will remain the dominant force in personal computing -- regardless of how the case ultimately is adjudicated, industry observers concurred.
Wintel -- a term describing any computer system consisting of some version of Microsoft (MSFT)'s Windows operating system running on an Intel (INTC) or Intel-compatible microprocessor -- is the most popular computing platform, representing more than of 90 percent of the world's PCs.
Both companies have been harshly criticized by rivals who say that Wintel has used that dominance to throttle competition. And that's an opinion with which the United States government, which is suing Microsoft (MSFT) and is investigating Intel (INTC) for alleged monopolistic practices, at least partially agrees.
In the government's case against Microsoft, U.S. District Judge Thomas Penfield Jackson last Friday ruled that the company does have monopoly power in the market for PC operating systems and has used it to engage in anticompetitive business practices.
Penfield has separated his decision into "findings of fact," which were released late Friday, and "conclusions of law," expected early next year. Some trial watchers have characterized this as a way for Jackson to give the two sides a chance to settle the case before he hands down his final decision.
But whatever legal path Microsoft chooses to take, Wintel likely will continue to be the most prevalent computing platform, analysts said.
"In the near term, we don't see any kind of direct impact," said Bruce Stephen, an analyst who tracks the PC industry for technology research firm International Data Corp. in Framingham, Mass. "We think that Windows will continue to be the dominant operating system on PCs for the foreseeable future."
Other systems may gain
Whether Microsoft chooses to settle the matter, waits for the judge to deliver his final decision and then appeals it, or even if it decides to split the company up, Windows and Intel will be able to maintain their market position, Stephen said.
But now that Microsoft has been deemed a monopolist by a federal judge, some PC manufacturers who -- fearing potential reprisals from Microsoft -- may have been reluctant to ship systems with operating systems other than Windows might be more inclined to do so. That would give a lift to non-Windows operating systems such as Sun Microsystems Inc.'s Solaris and Red Hat Inc.'s Linux, Stephen said.
"It may create more willingness on the part of some [manufacturers] to look at alternate operating systems because they feel that Microsoft's ability to use those kinds of practices and tactics may be diminished," he said.
Wall Street seems to have gotten that impression as well. By midday Tuesday, shares of Red Hat (RHAT) had risen more than 17 percent to 98-7/16 since the close of trading Friday. Meanwhile, Sun (SUNW) shares were up about 2.5 percent at 112-1/2.
A change in the balance of power, however, is a long way off. Even if Microsoft were to separate its operating system business from its applications business -- a scenario most market observers find very unlikely -- the huge installed base of Wintel systems will impede efforts to topple the standard, noted Martin Reynolds, an analyst at Dataquest Inc. in San Jose, Calif.
"Let's say the judge finds that Microsoft is a monopoly and says, OK, I'm going to get my Sword of Solomon out and then we'll have 'Microsoft Applications' and 'Microsoft Operating Systems,' " Reynolds said. "The applications division would then pursue other operating systems than Windows to put its applications onto, and the operating systems division would pursue ways to be more competitive without having to tie it to the applications."
"The first thing we would see is the applications popping up on things like Solaris and Linux, which would bring them more strongly into play and potentially clear the way for other manufacturers to build Linux processors," Reynolds said. "But they still wouldn't have the benefit of all the legacy software, so I don't see that this is suddenly going to cause the whole Windows thing to fall over flat on its face."
In 1999, PC manufacturers are expected to ship roughly 108 million Wintel machines, up nearly 22 percent from 1998, according to Dataquest research.
The pervasiveness of Wintel systems in business also will play a big role in keeping the standard alive, said Johnathan Ross, a PC analyst at ABN Amro. Corporate information technology managers will be reluctant to switch to an alternative operating system, primarily because of the cost of changing over all of the application software as well, he said.
"In the corporate market, the buying decisions tend to be pretty conservative," Ross said. "And the legacy issues are pretty important, especially as you get into bigger enterprise environments."
Add to that the momentum expected from Microsoft's introduction of Windows 2000, scheduled early next year, and the Wintel bastion becomes stronger -- even if the court action ultimately results in a breakup of Microsoft's business and a leveling of the competitive landscape, Ross said.
"The Wintel standard is going to remain dominant, overall," he said. "Assuming a breakup, you would only see a gradual shift in power. Nonetheless, I think that Wintel would be the overwhelming choice."
Apple still small
For computers in the home, the choices of alternative operating systems still are very limited, with Apple Computer Inc.'s Mac OS -- which runs on its line of personal computers, including the popular iMac -- being among the most viable, Ross said.
Even so, of all the PCs sold in 1998, roughly 3.4 percent were running the Mac OS. At the end of the first half of this year, that figure had risen only to 3.5 percent, according to IDC's Stephen.
But investors seem to think that may change as well. By midday Tuesday, Apple (AAPL) shares were trading about 3 percent higher than their closing price Friday at 90-3/4, after peaking at 97-23/32 in a flurry of trading Monday.
For Intel -- which last week won its own victory when a U.S. appeals court ruled that it did not break antitrust laws by withholding certain product information and technology from a rival supplier of computer graphics chips -- Microsoft's legal wrangling should make very little difference with respect to its place in the Wintel alliance, according to Joe Osha, a semiconductor analyst at Merrill Lynch.
While Microsoft is accused of using its operating system monopoly to sell application software, Intel's place in the Wintel alliance hinges on the popularity of the Windows operating system, which appears to remain solid, Osha said.
"It's the operating system for Intel that matters," he said. "So unless you believe that there's going to be another operating system out there, then it's highly unlikely that this matters that much for Intel."
At midday Tuesday, Intel shares were trading at 80-13/16, off almost 2 percent from Friday's close.
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