RSSIs the Atom saving Intel?
By Scott M. Fulton, III | Published January 16, 2009, 10:38 AM
Falling consumer demand for PCs is triggering declining orders for CPUs, Intel admitted yesterday, but not across the board. As it turns out, its smallest consumer processor may be the mightiest of all this year.
While the world's economic troubles have corporations everywhere clamoring for solutions, it's not as though nobody saw the storm coming. The news from Intel yesterday, during its quarterly conference call to financial analysts, indicates that the processor it created not as much for performance but for portability and price may be floating the company's boat: the unsinkable Atom.
As company CFO Stacy J. Smith told analysts yesterday, although revenue from microprocessors overall fell in the last quarter -- certainly not unexpectedly -- if you exclude Atom from the equation, average selling prices ASPs were up. That means that the average price someone pays for a CPU only appears to be flat compared to the previous quarter when you add the low-cost Atom to the mix. That's very good news, for two reasons: 1) Margins can rise, which compensates for the sales slowdown; 2) The Atom sets a new floor for prices across the board, letting component prices for CPUs in the traditional notebook segment to rise. The notebook segment is the real growth segment; and having a netbook processor set the floor for prices prevents price declines in what's currently the market's most valuable sector.
Atom is accomplishing this, according to CEO Paul Otellini remarks, even though a traditional market for Atom processor-based systems (what analysts call a TAM) does not yet formally exist, and even though inventories for Atom-based netbooks have yet to be filled.
"The Q4 impact gets back to my rule of thumb," stated Otellini (our thanks to Seeking Alpha for the transcript). "You've got to view the different segments of the business through the lens of supply line and inventory corrections and Atom was at the other end of that spectrum where there was very little inventory out there, the pipeline was filling, it probably caused it to have a better Q4 relative to some of the other segments, and we're likely to see correction in that that's coming up in the first half of the year."
So Atom doesn't even have to be selling like gangbusters -- it isn't yet, it can't -- to be having a positive effect on Intel, absorbing a lot of the blow. But as the CEO is warning, that's a one-time affair. Now the inventories do have to fill out, and now the new segment has to be treated normally like all the others.
Here is where CFO Smith offers some more good news: "I think the best data we've seen so far, suggests that in excess of 80% of these [Atom sales] are not cannibalizing. They're not taking business from ours or competitive notebooks. Competitive based notebooks, for the most part and as that moves into emerging markets and price points, continue to come down next year, I would expect that trend to continue. So, it really is a bit unbounded because you're dealing with a price point which has not existed before and that's the nature of Atom expansion."
Atom is building a solid market -- not just a niche -- for netbooks at the $400 price point and below. You'd think that if people buy a $400 netbook, that's one less $800 notebook being sold. But as Smith is saying, that's only true now for one buyer in five. People are buying netbooks not as notebook alternatives, but as valuable machines unto themselves.
Say this were a healthy economy instead of a cruddy one. How would Atom play into it, asked one analyst?
Otellini wasn't going there, responding, "That's just like asking Mrs. Lincoln what the play was like. I don't know that you can have that view. I do think that Atom will grow substantially year-on-year into '09. Every pattern we see from our customers, and certainly the exit rate from Q4, says that we will see a significant year-on-year growth."
Next: Atom moves ahead, but in what direction?
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|I think the market slowdown for the purchase of CPUs is simply a cool off period and will only exist for a while. Much of the general push for 'new computers' or by consumers for an upgrade is due to a new OS being released. Vista wasn't that much of a far cry for consumers already owning mid level to higher end XP machines, and especially not a far cry for gamers who already had top notch systems. In retrospect, if we look at windows ME or 2000 - computers running these OSs were only sufficient to run XP. There were no to the limits games or programs sucking down ram or cpu cycles back then, and multimedia was more of a bonus than a staple for computer users. Enter the era of Vista, and there again there was a slight push - but Vista pulled so hard at the hardware argument that many of us have gone a bit overboard - we want to have a system that works, and we've heard all these rumors that Vista only works if you have the best hardware and lots of ram, so....many people now have Core 2 Duos/Athlon X2s or Quad Cores/Phenom Triple and Quads and are sitting at 2, 4 or 8GB of RAM and are completely happy. Those that are still stuck with really old stuff either don't need anymore than what they have, or have felt the effects of the recession somehow. If we did this back when XP was released, you bet that CPU sales would have stagnated by the time Vista came....but XP worked all the way from single core running at 600mhz with 512mb ram, all the way up...so migration was very slow. Now, there are DIY systems from sellers going for 100 to 200 dollars that are washing out older but still, pretty fast system specs. Not to mention system builders pumping out really good current hardware for a very reasonable cost. Even with a somewhat recovering economy, apart from those at the bottom floor, people are and have been able to get their hands on pretty solid systems.
So what we have right now is sort of a fork in the road. What do you do when you don't need to upgrade, but you have a few spare dollars to spend? You embellish...so to speak. You get into all the other neat little things. You get that hot new portable computer you've always wanted, and look, it's only $350! (enter: netbook), you invest in a little media pc to go along with your entertainment center, you venture into getting more space for your computer, so on and so forth. And guess what? The Atom caters to all those who want a super cheap, low power system of some sort, so Intel is meeting a new era of the computing evolution with their product. Before the Atom I had hell designing a miniPC system - the really tiny cases were expensive and barebons run from 100 to 300, then you still had to buy a 100-200 cpu, ram, hard drive, etc., now...they're coming out left right and center, fully configured with the Atom for under $300.
I own a perfectly capable 17 inch laptop that I purchased for fun....I figured I wanted a big screen for movie watching whenever I travelled and 6 lbs isn't horrible for mobility. But I find myself coming to terms with that nagging want to buy myself a netbook as well, something weighting 2 lbs I can simply carry around with me, almost like a cell phone, all over my apartment, in and out of the place and all I need it for is to surf and message (which I can do with my smartphone, mind you - but it all feels more convenient on a laptop like device). I can also watch movies and listen to mp3s on it, play some non-graphics intensive games, etc. So again, people like me may just want one for having one's sake...not out of replacing or getting a new laptop, a market of and for itself. Heck, no person who has a clue about laptops or computers, period would buy a netbook AS a laptop. You'd spend that 100 extra dollars for a very basic full featured notebook. The only reason you'd really ever do that is if you didn't have that $100 to spend. They don't 'work' AS laptops....the screens are too small, they're slower and they don't come with an optical drive.
They DO however 'work' as mobile entertainment and fill a certain gap that laptops don't with weight and size. They also fill a gap for those that don't have that $100 extra or those who don't want or need a laptop for what they're used for in general.
So can I believe that the Atom is somehow saving Intel? Easily. In a market where your 'main' products aren't in demand so much, the Atom is almost dominating slowly but surely....and though it is probably temporary, it doesn't hurt.
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|I'm not so sure I buy into your cannibalization argument, foxfyre. If the data is borne out, and only 20% of Atom-based netbook purchases are substitutes for notebooks, then that means for every $800 sale that's lost, you have five $400 sales. That's a pretty good return on investment, according to my calculator.
-SF3
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|Let's see, so 4 in five are buying both a laptop and a netbook, and of course they probably already have a cell phone.
Hmm. So these folks need an addition overlapping device?
And in a financially tightening economy, folks are simply running out to add yet another device that simply adds marginal overlapping features to those that already exist on their smart phone and laptop?
Why do I get the feeling that this is what the vendors WISH was selling, as few I know are rushing out to buy an underpowered netbook as most lack Expressbus expandability and most lack 3G or 4G connectivity. And those that need such capability most likely already have a Blackberry, iPhone or variant with data connectivity and actual phone service, and a real laptop for more robust needs.
This sounds like selective statistics and "wistful" marketing hype.
I wonder what selective slice of the demographic pie they are getting that nonsense statistic from, as is most definitely not borne out in any major market nor among any of the enterprise IT folks I know.
I am curious to meet the 80% of the market who are buying a cell laptop AND netbook, in addition to the cell phone so many here have claimed is essential. And I bet they have a Palm Pilot too. As well as suspenders to go with that belt... ;-)
This entire market is simply a transitory precursor to major market convergence between small function netbooks and smart phones.
I can see someone opting for a Netbook format providing it has Expresscard expandability (like Lenovo's) and integrated 3G/4G wireless capabilities such that it could effectively REPLACE the cell phone and provide limited computer functionality on the move. But it makes no sense to have a laptop, and a cell phone, and a NetBook.
{But what we do need, in a slightly divergent but ultimately interrelated subject, is a ban on the operation of cell phones by a driver of a vehicle under power! And 'hands free' is just as bad, as your brain is still light years away from a focus on driving.}
;-)
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|Well, this isn't a marketing program we're talking about; this is the company CFO commenting on sales statistics, which he is compelled to do under the law since Intel is a publicly-traded company. If you're suggesting that when Smith's saying Intel's made $300 million this last quarter on Atom sales that are going to netbooks, among others, he's really pulling that figure out of some unseen orifice, then what you're accusing him of doing is breaking the law.
Now, is that what you're accusing him of doing?
-SF3
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|The fact is many companies are rushing to make all sorts of net toys.
Just as the automanufacturers make millions of cars.
There is a HUGE difference between a company sourcing steering wheels for all of those carsw and the number of cars that are actually getting into the hands of consumers!
He is quoting sales based upon order placed - which by law include those shipped and those which are scheduled for delivery over time!
You might want to make a quick revue of GAAP accounting principles before you go equating units 'sold' to units sold to end users.
Just take a gander at US carmaker sales lots and the foreign car maker holding lots at the ports of entry of the vehicels that have been ordered by dealers that are nowhere close to getting into the hands of consumers except perhaps by liquidation actions!
And don't forget what his OTHER significant role is! And that is to push a vision which actively encourages others to view their products and the future of the market as one of growth, prosperity and as a good investment!
And that is also what is is trying to do In the midst of a boat taking on water, he is basically telling us we still have a few inches of freeboard! He is NOT talking about the fact that the water is now up about our armpits!
......................
And as far as not buying into a market cannibalization perspective. Then you are positing that we have suddenly discovered a new consumer market who has been utterly uninterested in computers and smart phones that is suddenly empowered by netbooks?
Right....
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|The Atom?
Well, are folks actually buying the 'Palm Pilot substitues' in ADDITION TO, or instead of, a new laptop?
And we have to put them into perspective with the new i7s.
If folks are moving to them as a mpore economical way to avoid buying a new desktop or laptop (as we should probably include the advent of the new forthcoming low power laptop i7s as well), then heck no. They are cannibalizing their own market.
If the i7 is not enough to get folks to upgrade their aging desktop or a new laptop in 2009, then one wonders what the NetBook really offers interms of functionality as a 'do less' format satisfies needs.
This notion of people having to have a netbook AS WELL as a computer
is valid only if they are buying them in addition to a new computer. Otherwise I suspect it is as a stopgap measure to simply offer a cheaper alternative to buying a more expensive unit simply for the portable wireless connectivity - a feature not necessarily common on laptops up to just 2 years ago.
Will netbooks save the IT industry? No more than cell phones have.
What will be interesting will be to see how the i7s and Shanghai/Dragons of AMD do in 2009. Especially with the low power i7 in a laptop! And I would suggest that in this down market, both Intel and AMD spend some money to make a compelling case for the price/performance benefits of the new CPUs in simple dramatic commercials.
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