Within the technology ecosystem, device manufacturers play a specialized role. OEMs operate under different business model constraints, more like traditional industries and less like the software, cloud and “as a Service” economics prevalent across the technology space.

 

In this blog, TBR Principal Analyst Ezra Gottheil answers the questions he hears from device manufacturers in their search for ecosystem partners. Additionally, Ezra highlights the trends TBR believes will shape the devices market over the next few years.

What Are OEMs Asking in their Partnership Search?

Within the business-to-business ecosystem of devices (PC, smart tablet, handheld), are there specific evolving partnership dynamics that are bringing disruption in an era of AI and generative AI (GenAI)?

Ezra: Not yet, but only because the OEMs find themselves in a strangely fixed universe, in which only two companies make viable x86 chips. NVIDIA’s software and developer head start gives it a stranglehold on AI GPU, and only TSMC (and soon Intel) can manufacture high-end chips.

 

Additionally, while platform providers Microsoft, Google and Apple carry oversized influence on the chip market, Microsoft’s impartiality with OEMs limits its ability to create specific deals and further complicates the potential for evolving partnerships across the ecosystem.
 

Click the image below to watch: TBR Senior Analyst Ben Carbonneau discusses trend expectations for the Devices industry in 2024 and how TBR’s research will address market activity in the coming year

As a player within the ecosystem — think, Accenture from the IT services perspective, SAP as a software provider or Nokia as a connectivity company — what could they be doing now to be part of the change as device manufacturers prepare for GenAI evolution in PCs and smartphones?

Ezra: Infosys’ investment in semiconductor design services, as well as similar moves by other IT services vendors, indicates an appreciation across the ecosystem that the hardware components around IT may become less commoditized, surprisingly, as demands for specific capabilities vary widely by industry and applications.

 

If IT services, software and connectivity vendors previously treated hardware indiscriminately, opportunities to partner more closely or develop expertise and capabilities around hardware — at least semiconductors — could bring meaningful differentiation. The OEMs have flexibility in devices’ physical design, so wherever potential implementations involve nonstandard devices, as in edge and embedded devices, there are useful alliances between customers, their partners and OEMs.

 

All PC OEMs have embedded systems practices, where PC and server platforms are manifested in medical devices and other nonstandard form factors. Lenovo is especially eager to build diverse devices.

 

Coming to this challenge from the OEM vendors’ perspective, even with help from the rest of the ecosystem, OEM vendors still face differentiating products that must be standardized. Can an alliance, including go-to-market motions, coinvestment in R&D and even coselling, help OEMs differentiate themselves among other ecosystem players?

Ezra: While one could speculate about an Accenture-Microsoft-Dell alliance launching a natively GenAI-enhanced laptop aimed at enterprise buyers, this world first require OEMs provide standard platforms so that everything works on everything.

 

They can vary form factors. They can provide edge devices that are PCs from the software/internal hardware point of view. But any new applications must be capable of running on competitors’ devices, which limits the potential for unique or differentiating services.

 

If, and when, OEMs form alliances with ecosystem players, those players, such as the IT services vendors, will want their customers to be free to switch hardware vendors at the customers’ discretion, limiting the value of alliances.

Conclusion

The landscape for device manufacturers, particularly OEMs, is undergoing a complex evolution amid the backdrop of advancing technologies like AI and GenAI. As explored by TBR Principal Analyst Ezra Gottheil, the search for ecosystem partners and the quest for differentiation amid standardization pose significant challenges. Current market dynamics, characterized by limited chip options and the dominant influence of platform providers, require OEMs seek innovative strategies to remain competitive.

 

Collaboration within the ecosystem holds promise for differentiation and adaptation to the GenAI evolution. And navigating these partnerships requires OEMs balance standardization with innovation, ensuring compatibility across diverse devices while also pursuing unique offerings.

 

Ultimately, like most players not already blessed with a monopoly or wildly dominant market position, the future success of OEMs in the tech ecosystem will hinge on their ability to forge strategic alliances and leverage emerging opportunities amid a rapidly evolving landscape.