OPINION
CES Thoughts: Microsoft's Future, Intel and AMD, Can HD DVD Recover? Product of the Week

CES is an incredible show, but I was both sad and happy to see the final keynote Bill Gates gave at CES, both because I like Bill and probably won't see him personally again, and because he is moving to something that he really wants to do, I'm happy for him. I also think this CES signals a major change for Microsoft (Nasdaq: MSFT) that is part positive and part negative.

I was also fascinated at the contrast between AMD (NYSE: AMD) and Intel (Nasdaq: INTC) at the show both showcasing Intel's renewed focus and the possible advantages of the AMD/ATI merger once again showcasing how different these companies are becoming.

Last week, I mentioned that neither side in the HD optical fight had a commanding lead, and right after I submitted my column, Time Warner (NYSE: TWX) called the fight. It is possible, if not probable, for Toshiba and HD DVD to actually benefit, if not come back from this, and I thought it interesting to discuss how.

Finally, we'll end with my product of the week -- well, in this case, company of the week because I was incredibly impressed with Lenovo's surprisingly good first showing at CES.

The Future of Microsoft: Better Products, Fewer Laughs?

Microsoft's external image is often wrapped up with negative perceptions about how it deals with the market, partners and competitors. By sheer size, Microsoft touches more companies and people than any other company in its segment, and it clearly has its share of problems.

One of them historically has been the inability to own its own image, which is currently being rather impressively damaged by the Mac vs. Windows advertising campaign. A side of Microsoft that is just as real is the company's ability to not take itself seriously and make fun of itself.

In the Bill Gates keynote, there was a video that showcased this well, and I've often thought that if Microsoft could make this kind of thing a core part of its own advertising and general behavior, it would do wonders for the company's image, sales and government relations. Like people, companies have multiple faces, and this side of Microsoft -- which is generally connected to Bill Gates himself -- is one of the most endearing. I wonder if it won't be lost when he leaves.

The other part of the company that is changing is how it approaches the market. Typically, Redmond has taken two paths. Either it builds most of the parts, as it does with most things, or it builds everything, as with offerings like the Xbox and Zune.

I saw a third path emerging around Surface, MSN Direct and IPTV, in which Microsoft creates a complete solution and then licenses it out to third parties. This addresses what has been an historic weakness (incomplete offerings) and potentially creates both a better competitive set of products against companies like Apple, and the potential to further turn competitors like Sony (NYSE: SNE) into deeper partners.

MSN Direct went first with the watches, and while it wasn't as successful as it could have been, it is now making huge inroads in the GPS (global positioning system) segment, becoming the technology behind many of the major players.

With Surface, Microsoft is still rolling out its contained offering to food services and healthcare, but it will be partnering to move to the consumer market, which apparently is screaming for this thing. IPTV is the furthest along with major inroads into the U.S. and European markets.

This all may be followed by Zune, which seems to have some really good marketing all of a sudden. This provides the promise of a packaged iPod killer with a new solid back end. The Xbox 360 is already expected to move into British Telecom homes as a set-top box, and PC OEMs (original equipment manufacturers) are screaming to license.

This represents what could be one of the most significant changes the company has ever seen, the products in the CE segment will improve, I just hope the company learns to more effectively use its sense of humor and doesn't lose it.

AMD and Intel Differences

Boy, you really got the sense that AMD and Intel were on different paths at CES. Intel provided one of the best showcases for Intel-based technology I've ever seen, and it was focused on being mobile and WiMax, the next big thing after WiFi. Any hot notebook that used Intel technology could be found in the strategically located massive booth. Much of it, like Asus' small new Lamborghini was incredibly hot.

AMD announced Live Ultra, a showcase of how deeply the company had penetrated into the home space and here you saw AMD in phones, TVs, and other consumer offerings. AMD seemed to be the technology behind some of the best-looking TVs, some of the best multimedia cell phones, and this made CES look more like AMD's show than Intel's.

Intel had the keynote though, and clearly indicated that by the second half of the year it would be much more visible in this space. Intel showcased some really cool little PCs and entertainment devices it would have at that time.

The show did identify the key differences in the approach both companies were taking, Intel is coming after the market with a largely internal effort and building its solution from what it already had, while AMD bought into the market with ATI (Nasdaq: ATYT) and is working to leapfrog Intel with the result. Given that ATI is already in a number of these segments, this makes Intel chase AMD rather than the more typical other way around.

Behind the scenes, AMD is taking a huge hit because of the drag the in-process merger is putting on the company, while Intel's slower path is allowing it to maintain a much stronger market-facing image (with clear financial benefits). These two don't really start running against each other hard until 2009 in this segment, and it won't be until then until we see how this all works out, but this remains a race to watch.

Can HD DVD Come Back?

I've been thinking about how Toshiba was blindsided by Warner Bros.' late move to go Blu-ray only, and what it could do to reverse this trend. Realize that until the market actually moves, this is still anyone's game and much like it is with the current U.S. elections, leadership positions are often not fixed in concrete. Having said that, it is my belief that HD DVD is pretty much screwed right now but not necessarily out of the fight.

Toshiba has a number of cards it could still play, which would include:

1. Doing a blended download/HD DVD offering to get ahead of what will likely be the next big market move.
2. Drive down the cost of dual-mode players and work to ensure HD DVD performs best on them (the movies will be split between the two formats for most of this year). Find out what it would take to get Disney (NYSE: DIS) (likely a staffing change and money) and Warner (money) to change sides in what is likely to be bad year for both thanks to the writer's strike and do it.
3. Find a way to better leverage the Microsoft and Xbox relationship. Microsoft is still very powerful and the Xbox has a vastly larger installed base than the PS3 currently does.
4. Sue for Peace and walk away with a big check from Sony.

Were it me, I'd probably do the last and then chase downloads (which is where the market seems to be going anyway). This might leave me with a lot of cash from Sony and the ability to take much of what Sony just won and turn Sony's Blu-ray Disc effort into so much obsolete hardware.

As you know, if you read last week's piece, I'm covered with players in both formats and have a new dual-mode drive on my AlienWare Hangar 18 Media Center (which does great downloads) keeping me covered whatever happens.

Realistically, though, Blu-ray now has a decisive lead, and Toshiba really needs to consider whether it makes sense to stay in this fight. Unlike Sony, Toshiba can afford to walk away, and that may go to the core of why it's in the position it's in.

Company of the Month: Lenovo

One of the biggest mistakes that IBM (NYSE: IBM) made under Lou Gerstner's leadership was getting out of the consumer business. HP (NYSE: HPQ) has recently demonstrated that getting out of the PC business altogether wasn't IBM's smartest moment either.

I have generally felt this decision needed to be reversed, and after Lenovo bought the IBM PC company they had always planned to reverse it. At CES, we saw the result -- and Lenovo was the most prominent company in the Intel booth, and one of the most prominent companies in the Microsoft Vista tent.

Lenovo's first offering appears well built, which, given its ThinkPad roots, shouldn't be a surprise; but the line is also differentiated and sexy, which has not been a key part of any offering IBM ever brought to the consumer market going back to the crippled PC Jr.

This was simply an amazingly good effort and I felt this was the best place to point that out. Good job, Lenovo -- and that's why they are my product and company of the month.