Arm-based Mac: Smart move for Apple, but irrelevant to the future of Windows PCs

The winner of this year’s Worst Kept Secret award could be Apple, which didn’t exactly surprise anyone when it announced plans to develop and ship a new line of personal silicon-based Apple computers with Arm technology instead of Intel CPUs.

My web browser practically overheated trying to load all the red-hot shots of that ad in the run-up to WWDC 2020and in the days immediately following. But the most popular take of all came this week, when Jean-Louis Gassée declared that the move to Arm will inevitably lead to the end of the Microsoft-Intel alliance and usher in “a new era of PC.”

My reaction? Yes, maybe not.

I suppose it is natural for a senior statesman in the Apple community to find such a change to be seismic. As you may recall, Gassée was in charge of Macintosh development in the 1980s, and took office after Steve Jobs was fired.

But compare Apple’s Arm’s plans with Microsoft’s, as I did, and you’re likely to come to quite different conclusions.

Yes, this is a strategic move for Apple, where an Arm-based computing device in a portable form factor is perfect. But the move has almost nothing to do with power consumption or price or CPU performance. It’s much more about filling a gap in Apple’s product line and expanding your high-margin services business.

Meanwhile, in Redmond, the slow push toward Windows on Arm is not strategic. There is no technical advantage to running Windows on Arm, nor is there an ecosystem of Arm-based applications that are ready to run on that device. Microsoft’s future is much more linked to the sale of cloud-based applications and services to run on any screen that its customers have in front of them. In fact, Microsoft will certainly see orders of magnitude more revenue from its services running on Apple’s Arm devices than it will generate from Arm-based Windows PCs.

This is, ironically, one of those cases where Apple isn’t exactly innovating. In fact, an uncharitable observer could argue that Cupertino is copying its archrival Microsoft, which ported its flagship desktop operating system, Windows 10, to Arm’s designs several years ago.

But participating in a Who Copied Whom game, while effective in infuriating fans on the platform, misses the point entirely. Instead, watch how these changes in technology align with the respective business models of the two companies, as exposed in the most recent quarterly reports from both companies.

The case for an Arm-based Mac

Apple is first and foremost a hardware company, but the vast majority of that hardware is small enough to fit in your hand. IPhone, iPad, and portable devices (primarily AirPods and Apple Watch) generate 10 times more revenue than the Mac business. Veterans may think of the Mac product line as a valuable Apple asset, but today it is a legacy business. .

Don’t Believe Me Just look at this chart, which breaks down Apple’s revenue streams for the six-month period ending March 31, 2020. I’ve combined Arm, iPhone, and iPad-based products into one category. .

As you can see, the Mac product line represents only a small fraction of Apple’s business. And if you look back over the past five years, you’ll see that Mac’s share of revenue has consistently been less than 10%. Mac’s real income for this period was lower than the same period in 2015, even without adjusting inflation. (Apple stopped reporting unit sales for its product lines in early 2019, so it is no longer possible to compare unit sales for individual products.)

Increasingly, during that period, Apple has been positioning its iPad lineup as the true successor to the Mac, adding touchpad support and a keyboard option for the iPad Pro that makes it something akin to a laptop. And there’s nothing subtle about that tone, as the iPad home page makes clear:

The Arm-based Mac addresses a noticeable gap, directly targeting customers who like the huge ecosystem of apps available on an iPad but occasionally need to use desktop apps and, more importantly, prefer a form factor of Real laptop about the cumbersome, not entirely portable setup you get when you buckle up a keyboard accessory.

And there is another reason for Apple to create a Mac that can run iPad apps. In the last five years, revenues in the Services segment have exploded. These are incremental revenues with a gross margin that is double the hardware gross margin. Adding support for the iPad app to Arm-based Macs means those devices can more easily contribute to that revenue stream.

Macs built on x86 architecture are not going to go away, as Apple has made clear. (In its press release announcing the transition to Apple Silicon, the company said, “Apple will continue to support and release new versions of macOS for Intel-based Macs for years to come, and has exciting new Intel-based Macs in development.” ). But in a few years, the only Intel-based devices Apple will likely sell are high-end workstations that cater to the needs of a small group of creative professionals willing to pay a premium for that processing power, especially with High-end GPU. working alongside the CPU.

For wealthy consumers and freelancers at the core of Apple’s market, an Arm-based Mac-iPad hybrid in a laptop format is a perfectly reasonable option.

What about Windows on the arm?

Microsoft is not a hardware company like Apple. Sure, it has a Devices division that makes Surface PCs and a variety of PC accessories, but that division accounted for just 4.4% of Microsoft’s revenue in the nine months ending March 31, 2020. (Apple and Microsoft have different fiscal years, making it difficult to align quarterly reports accurately.)

But Microsoft is no longer based on Windows either. In that same nine-month period, Windows licenses (OEM and commercial) and related products contributed just over 15% to revenue. Even if you combine Windows and devices, they don’t add up to 20% of the company’s total revenue.

No, these days Microsoft gets most of its revenue from the cloud, with over 35% of that revenue coming from commercial cloud sources, a giant cube that includes Office 365 Commercial, Azure, the business side of LinkedIn, Dynamics 365 and not specified “other commercial cloud properties”.

As I noted earlier, Microsoft has been developing Arm-based Windows on PCs, but the effort sometimes feels more like a science project than a real business. The existence of the Surface Pro X is proof that the operating system is running, and Microsoft has managed to convince some of its OEM partners (Lenovo, HP, and Samsung, but not Dell) to ship PCs running Windows on Qualcomm SoC. .

But those Arm-based PCs aren’t going to win gold medals for performance, and the current x86 emulator has enough limitations that it’s hard to see why someone would willingly use one of those curiosities as their primary PC. Crucially, there is no deep Microsoft Store app bank that can expand that PC’s capabilities in the same way that Apple’s App Store will expand Arm-based Mac power.

Tellingly, Microsoft’s most serious investment in Arm-based devices is not for a PC but for a new Android device, the Surface Duo. The dual-screen Surface Neo tablet, which must be running Windows 10X, will be powered by an Intel CPU.

Today, if you want to run Office 365 on an Arm-based Windows PC, download the 32-bit x86 code and run it on the emulator. If you try to install the 64-bit version, it stops cold with this error message:

Meanwhile, Office developers have apparently dedicated serious resources to porting Arm’s corresponding Office Mac applications so that they can run as native 64-bit applications on new Macs.

All of which proves a great point about Microsoft: The company is more interested in getting its Office apps and cloud services on its screen, regardless of what type of device is connected to that screen. That philosophy (which would have been heresy on One Microsoft Way a decade ago) is why Microsoft has survived and thrived despite the great difficulties in mobile computing.

In short, PCs are just another display in the Microsoft cloud-centric world, and if any of those displays are being managed by Arm SoCs, well, that’s fine. But it is not strategic.

Ironically, when Apple completes its transition to its own silicon in two years, it will have achieved a goal that Microsoft tried and failed to achieve with its Universal Windows Platform at the dawn of the Windows 10 era. The goal was to provide developers with a platform common to every device running Microsoft’s flagship operating system, including smartphones, tablets, personal computers, portable devices, and entertainment devices.

Apple must have been taking notes.