Intel’s earnings yesterday just a week after an IDC report stated that PC sales had dropped 14% year over year in Q1 seemed to corroborate that report.  Profit was down 25% for Chipzilla.  Today Advanced Micro Devices announced earnings that were equally challenging, showing erosion of revenue and unit shipments in laptops, notebooks and desktops.  The world’s shift towards smaller form factor computers along with older systems staying in service longer is creating a bit of a perfect storm for the pillars of the old guard in computing.

It’s a trend likely to accelerate into Q2 and Q3.  For both Intel and AMD, along with Microsoft, diversification of their businesses will be the key to surviving these changes.  So far, it looks like Microsoft — for all of the grief they’ve taken over Windows 8 — has done the best job in the short term.  Server and Entertainment revenues were the strongest for them this quarter as adoption of their cloud services and a move towards software-as-a-service (SaaS) is solid.

For their most visible partner, Nokia, Q1 also revealed the perfect storm as their feature phone revenue plummeted and Lumia sales, while growing very well (27% sequentially) were not enough to overcome huge losses to entry-level smartphones and their Asha phones being long-in-the-tooth.  Q2, however, should be very good for Nokia as Windows Phone is growing nicely in every market not named the U.S. 30% quarter CAGR for the rest of the year — very achievable given their new product mix — would put them at 12 million unit sales for Q4.

Nokia and Microsoft will have to get more aggressive in the U.S. however to try and push stronger adoption.   AMD has future revenue streams looking solid with PS/4 and Xbox Next wins.  Expect cloud servers based on Jaguar in Q3.  I’m sanguine on Intel as I believe their mass market chips are still a bit tone-deaf to the current market, Intel marketing notwithstanding.