Netbook Scoop

In a recent article, I described the impact that Ultra Low-cost PCs would have on the PC industry.  In particular, I forecasted the impact on Intel.

Increasingly, users will find that these new products have all the processing power they need.  They will be willing to abandon multiple core processors for less weight, less power consumption and longer battery life.  Oh yeah, and less cost.  Think about what that does to Intel’s business model.

Since then, there have been a number of news report and blog articles on related topics.  I thought it would make sense to explore a few.

This morning, The New York Time published an article titled “Smaller PCs Cause Worry for Industry” [registration required]. Their lead-in:

The personal computer industry is poised to sell tens of millions of small, energy-efficient Internet-centric devices. Curiously, some of the biggest companies in the business consider this bad news.

I love this quote from an industry expert:

“When I talk to PC vendors, the No. 1 question I get is, how do I compete with these netbooks when what we really want to do is sell PCs that cost a lot more money?” said J. P. Gownder, an analyst with Forrester Research.

Last week, TheStreet.com posted an article describing investor anxiety about Intel.  They wonder:

Will the Atom tap into an entirely new well of customers, expanding Intel’s addressable market, or will it merely cannibalize existing sales of Intel processors used in low-cost notebook PCs?

Also last week, CNET News posted an article regarding Intel’s recent conference call with investors.  It describes concerns raised by investors and Intel’s response.

The cannibalization question was brought up by two analysts during the conference call, and Otellini responded this way: “We do not see (Atom) replacing Celeron. If you look at the Netbook products being built around Atom, they’re all lower-priced, lower features, smaller screen size notebooks aimed at first-time buyers or second, third, or fourth machine in a household. We don’t see any cannibalization.”

Gigaom followed up on the CNet report with their own article “Does Intel Know What It Wants From Atom?” where they note conflicting statements made by Intel regarding the Atom processor.

Otellini’s responses were less than a ringing endorsement of the chip. “[Atom] is less than a third of the performance of our Centrino (high-end mobile processor),” said Otellini. “You’re dealing with something that most of us wouldn’t use.”

Wait a second. Just weeks ago before the Computex trade show in June, Otellini told the Financial Times he anticipated a $40 billion market opportunity for Atom chips over the next few years.

Obviously there is a lot of concern in the industry that the success of the Atom processor will impact Intel’s financial performance in a negative fashion.  Intel is trying their best to diffuse this concern.

But it is obvious to me that many users will downsize to the Atom processor (or its future AMD brother).  This will take sales away from the higher-priced processors in Intel’s portfolio.

There is little that Intel can do to prevent this.  They are already trying to restrict this by limiting the hardware that the Atom can run on (e.g. no PCI Express support).  But this is doomed to failure, as AMD will certainly not limit its new low-end processor in this way.

This will happen because this is what customers want.  Customers vote with their dollars.  They decide which products sell best.