Intel's margins hurt again by Atom to tune of $1bn

Intel’s misjudgment of the low margins of the Atom in its netbook processor has hurt the company for the second successive quarter, according to the report: “Netbook-Mobile Internet Device Convergence: Strategic Issues and Markets,” recently published by The Information Network (www.theinformationnet.com).

The Information Network had stated on January 7 that Intel misjudged the success of the Netbook and its Atom processor to the tune of about a billion dollars for Q4. Given the low margins announced in its Q1 release, Intel is still bogged down by the Atom.

The Atom used in a Netbook is processed with 45nm feature sizes on 300mm wafers and measures 25sqmm. It is priced at about $29. Intel’s Penryn Core 2 processor is used in Notebooks. It is also processed with 45nm feature sizes on 300mm wafers and measures 107sqmm. It is priced at about $279. There is a price difference of $200 per processor between the Penryn and Atom, but more importantly, a difference of $115,000 per processed 300mm wafer.

“Intel rethought its production schedule in Q1 by allocating capacity for the Atom and for the Penryn, unlike Q4 where the cut back production on the more profitable Penryn,” noted Dr. Robert N. Castellano, president of The Information Network. “We estimate that Intel produced 5 million Atom processors and 50 million Penryns.”

On March 2, Intel and TSMC announced they had reached an agreement to collaborate on technology platform, IP infrastructure, and SoC solutions for the Atom CPU cores. That situation will improve Intel’s margins for Q2 2009.

“While the announcement was slated toward TSMC’s capability to produce Atom cores for Intel’s march into the Mobile Internet Device (MID) market, which is dominated by ARM, it was an opportunity for Intel to wipe production of the Atom off its books. I’d like to think of it as ‘Intel’s Atom Bomb’,” added Dr. Castellano. “It indicates the tech sector is not really that bad off as the numbers suggest, but just a miscalculation on Intel’s part. Indeed, Intel did say that the bottom had been reached in the PC sector.”

Netbooks eroding Intel’s lucrative notebook market

NEW TRIPOLI, USA: Netbook manufacturers are adding bells and whistles to their product that are blurring the lines between a netbook and a notebook.

The problem is the netbook market is migrating upward to be a low-end notebook with a small screen for a few hundred dollars less, yet it is still a few hundred dollars more than the original intention of what a netbook was supposed to be. Will there soon be no meaningful difference anymore between netbooks and lower-end, consumer laptops besides weight and Atom chip?

As a result, we are cautious about our forecast for 21.5 million netbooks sold this year as a percentage will probably be better categorized in the 177.7 million unit notebook market.

We are seeing a blurring of lines between a netbook and a notebook. We further envision netbooks on the market with multimedia capabilities for watching streaming video and DVDs. Asustek is already marketing a netbook with a DVD. Asustek initiated the netbook craze in 2007.

“Intel probably hates the situation because they are earning practically nothing for their Atom chip, which is eroding their lucrative notebook market. Microsoft gets smaller licensing fees as well,” noted Dr. Robert N. Castellano, President of The Information Network. “The only real winner will be Asustek, who is a 2nd or 3rd tier notebook supplier, trying to get market share in the mobile space.”

We noted in a release of March 9 that subsidized netbooks will start appearing.

“Along with the growing competition among software service providers, we will see a new infrastructure taking hold, modeled after Hewlett-Packard (cheap printer, expensive ink) and the mobile service providers (cheap cellphone, expensive monthly wireless charge). This subsidized bundle model will grow the ARM netbook to greater market shares. “

AT&T seems to think it was a good idea. The wireless provider is offering subsidized netbooks for as little as $49.99 in two markets, Atlanta and Philadelphia. The catch is that buyers must sign a two-year contract for an AT&T data service plan, which starts at about $60/month. (We’re waiting for AT&T’s royalty check for the idea!).

The $49.99 gets you an Acer Aspire One with an 8.9-inch display, 1GB of memory, and a 160GB hard drive. One needs to sign a two-year deal for AT&T’s Internet at Home & On the Go service, which starts at $59.95 a month.