Netbooks and other always-connected-to-the-Net devices are threatening to upset the traditional PC’s applecart and the two dominant PC players, Intel and Microsoft. Intel this week launched four new Atom chips that are intended for such things as automobile video entertainment systems, desktop videophones, robots and interactive kiosks, according to Doug Davis, VP of Intel’s digital enterprise group.
Current Atom chips are used in netbooks and mobile Internet devices (MIDs). The new ones, about the size of a penny, use so little power that a fan is not needed. They process at speeds of between 1.1GHz and 1.6GHz and have 2D and 3D graphics processing. Intel had previously said it would spend upwards of $7 billion to upgrade its US plants to make the new chips.
The company is pulling out all the stops to make its Atom microprocessor the king of low-power chips. This week it said it will license Taiwan’s Taiwan Semiconductor Manufacturing (TSM) to build chips that combine the Atom processor with electronics which handle other chores, perhaps video or voice, although no applications were mentioned. TSM will in effect be selling customized versions of the Atom chip to makers of cell phones and other CE gear like TV sets.
Intel’s traditional business of making processors for PCs is dropping like the stock market. Gartner Research predicted this week that PC shipments will drop 12% in 2009, the largest annual decline ever. Intel will compete with Qualcomm’s ARM-powered Snapdragon chip in the low-power processor market plus other makers of processors which use designs by ARM such as Marvell and Texas Instruments.
Sean Maloney, Intel VP and chief marketing officer, said the TSM deal, which took two years to negotiate, will reduce the time to market for some products by three or four years. He said TSM is “the best intellectual property” and chipmaker “on the planet.” Intel keeps the rights over how device makers can use the Atom technology.
Microsoft is the other obvious candidate to be hurt by declining PC sales.
Microsoft has a lot at stake. Windows accounts for about 28% of the company’s $60 billion in annual revenue and is its most profitable product. The rapid growth in netbook sales, according to Microsoft, caused its Windows revenue to decline 8% in 2008’s fourth quarter.
It too wants part of the netbook market that Intel’s Atom chips are aimed at. Because the current Vista version of Windows isn’t suitable for netbooks (too big, too expensive), Microsoft changed its policy and extended the life of its XP version of Windows, which does work nicely in netbooks.
Microsoft says it has netbooks in mind as it’s developing Windows 7, the next version. It intends to do a netbook version with artificial limitations (usually not a good idea) such as being able to run only three programs simultaneously. Part of its strategy is to pre-install a full-blown version of Widow Mobile 7 so users can easily upgrade once they pay the upgrade fee. Microsoft has not announced its Windows 7 pricing strategy.
It’ll be interesting to see what other steps Microsoft takes to keep its revenue at least level. Netbooks have an appeal over and above the economic downturn factor. Lots of consumers want a small, low-cost PC with a full keyboard with an Internet connection they can carry with them.
Netbook demand will increase as a) 3G cellular networks get upgraded to faster 4G technology; b) monthly costs for accessing cellular broadband networks decline; and c) cellular broadband connectivity comes built in at a lower cost. RadioShack is selling a netbook for $99 if the user signs up for AT&T cellular broadband for two years at $60 a month.
Gartner said netbook sales increased to 10.2 million last year from less than 200,000 in 2007. It expects the number to double in 2009 to 21 million units.
Declining PC sales will also cut into the revenue Microsoft gets from its Office products, as could Google’s efforts to offer those applications on the Web.
Every device needs hardware so Intel is preparing for a world of smaller, less-expensive devices, a world where it competes with ARM-designed chips. In any event, device makers will have to buy processors but some software is “free.” Google and others are promising “free” or near-free software applications, which is a direct threat to Microsoft’s high-margin business model.