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"Size matters not. Look at me. Judge me by my size, do you? Hmm? Hmm. And well you should not..."

Last week, Intel's CEO Paul Otellini went on the record to say about Intel's Atom processor, "You’re dealing with something that most of us wouldn’t use."

The remark left many quizzical as the processor is being placed in the wildly successful Eee PCs, the MSI Wind, and the Acer Aspire One and is looking to fuel strong sales, in time perhaps surpassing Intel's own quad and dual core offerings.  It now appears that Mr. Otellini's remark may hint at a bit of remorse on Intel's part for opening Pandora's Box by creating a low power, efficient, affordable processor and helping to fuel the booming netbook market.

Throughout the past decade, first with the Pentium 4 and Athlon processors, then with dual core processors, and finally with quad core processors today; Intel and AMD have tried to push expensive, high power (both in a computing and electrical sense) processors on consumers.  In reality, the average home user who performs simple functions like browsing the internet, word processing, storing photos, and watching DVDs has no need for this much power.

However, Intel and AMD were pleased to push these processors on consumers as the more expensive processors had better profit margins.  Further, notebook and desktop manufacturers like HP and Dell were able to pad their own profit margins, marking up dual core and quad core offerings substantially.

Now with the advent of netbook and bargain notebook computers like the aforementioned MSI Wind, tens of millions of the little PCs are expected to take the computer world by storm.  They cost as little as $300.  And that means that PC manufacturers and hardware manufacturers aren't making much profit -- something they're not happy about.

Intel rival Advanced Micro Devices is so wary for these reasons that it has publicly contradicted reports, stating that it has no desire to develop a competitor to Intel's Atom processor.  New
marketing chief Nigel Dessau pledged to watch the netbook sector, but remains unwilling to commit to the risky proposition.

Mr. Dessau stated, "We are not saying it's not an important segment and we're not saying it's not a growing segment.  What we are saying is that we are a smaller company and we have to focus on what we do well at this point. We are watching that segment rather than playing in it, but as it matures we'll see where it goes. At this moment, we are going to focus on what we do best."

The statement also contradicts earlier hints by new CEO Dirk Meyer that the company might be cooking up an Atom rival.  And AMD already dipped its toes in the low power bargain processor market with its Geode processor used in some OLPC XO computers.  So why the sudden change of heart?

As AMD works towards the release of its new 45nm Shanghai processors, which will have 8 to 12 cores, it’s clear that the company is unwilling to risk entering a market with such low profit margins, preferring pricey offerings.  Intel, while having entered the budget market, seems to wish it could leave.  However for both companies, time may compel them to unwillingly commit to the netbook market due to consumer demand.

Otherwise they risk being undone by smaller rivals and startups.  Among these smaller competitors is VIA, a Taiwanese company who is marketing an Atom competitor chip named C7 "Nano"

Similarly Dell and HP, as evidenced by Dell's tentative commitment to the netbook market, may be compelled to pour resources into competing in this new market which they likely wish they didn't have to compete in.  Otherwise, they too will likely be replaced by fresh faces.

Among these fresh faces looking to dent the major players’ sales is CherryPal.  The Silicon Valley startup is debuting a desktop for $240 that is the size of a paperback and sips only 2 watts.  It will be able to surf the internet, check email, and accomplish word processing needs.  It relies on cloud computing, another major trend -- the storage of data in a remote location, for far cheaper than discrete home storage.

J. P. Gownder, an analyst with Forrester research is very familiar with the uncertainty facing PC makers.  He states, "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?"

Fujitsu, which has also come out against SSDs, another emerging trend, says entering the netbook market is an unwise decision for PC makers.  Says Paul Moore, senior director of mobile product management for Fujitsu, "We’re sitting on the sidelines not because we’re lazy. We’re sitting on the sidelines because even if this category takes off, and we get our piece of the pie, it doesn’t add up.  It’s a product that essentially has no margin."

IDC, a market research firm, is estimating that the netbook market will be 9 million units by 2012.  And in an interesting contradiction of CEO Otellini's statements, Intel's official PR prediction is that by 2011 there will be a 40 million a year market for netbooks.

Many believe that this strong demand will force HP and Dell into gigantic netbook production commitments.  Tim Bajarin, an industry analyst with Creative Strategies, a technology consulting firm puts it this way, "H.P., Dell and these other PC makers have learned that if there’s consumer interest, you can’t just sit back and let someone else steal all the thunder."

And a last key piece is Microsoft.  Microsoft has dominated the OS industry with big high powered multifunctional operating systems.  With the advent of low powered computers, many of the new netbooks are unable to support Windows Vista, prompting Microsoft to specially extend sales of Windows XP.  However, if Microsoft does not focus on the market with new products, it risks losing ground to Linux providers who have always focused on light and lean.

For the entire personal computer industry, from processor makers Intel and AMD, to notebook manufacturers like Dell and HP, to OS makers like Windows or Linux providers, the exploding demand for netbook and budget notebook computers is changing the industry.  Many of the industry's largest players are fearful that in undoing the tradition high-profit-margin, high power hardware model that the industry has operated on for years; they may be put out of business.  However, in the tech business world, like in nature, the fittest will adapt and evolve to work with this new demand and the more difficult economics that come with it.





"If a man really wants to make a million dollars, the best way would be to start his own religion." -- Scientology founder L. Ron. Hubbard



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