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With netbooks’ surprise success, Intel Corp.’s Atom processor has become an unexpected money-maker during a down period, bringing in a cool US$719 million since its debut about a year ago.
But look beyond the immediate gain and Intel’s cheaper CPU could be cannibalizing hundreds of millions — or even 1 billion — dollars from sales of its more profitable Core 2 mobile processors.
While Intel and a leading analyst deny Atom is a loser, others have said it is clearly cannibalizing sales, and one analyst now says Atom is hurting Intel on the supply-side as well.
Intel didn’t report any Atom revenue in Q2 2008. But in the subsequent three quarters ending in March this year, it has reported $200 million, $300 million and $219 million in revenue, respectively.
Atom sales, however small in the context of Intel’s overall revenue ($7.1 billion in the most recent quarter), would appear to be one of Intel’s few bright spots. Sales were down 26% year-over-year, due to slowing demand for PCs.
Netbooks — net loser?

Gartner Inc., has presented convincing evidence that Atom netbooks are cannibalizing potential sales of regular notebook PCs. For instance, PC revenues during the key Christmas quarter fell as much as 20% year-over-year, despite a 1.1% increase in the number of PCs sold, Gartner said.
Now, Robert Castellano, an analyst with The Information Network is saying that Atom is hurting Intel on the supply side, because Intel is forced to manufacture the low-cost CPUs at the same state-of-the-art 45nm wafer plants it uses to create its Penryn family of Core 2 processors.
Intel sells Atom chips for about $29, versus the several hundred dollar average selling price of Penryn mobile CPUs, which include dual and quad-core chips, Castellano estimates.
Each typical 300-millimeter wafer can yield 2,436 Atom CPUs, versus 660 of the larger, more powerful Penryn chips, Castellano told Computerworld. Despite the four times greater yield in Atom chips, that doesn’t make up for the greater profit Intel reaps from each Penryn sale, he said.
Using available data from Intel and third-party market researchers, Castellano has calculated that Atom has pulled more than 1 billion dollars from Intel’s bottom line, resulting in the 55% year-over-year drop in the company’s Q1 net income.
“[Intel's margins] would’ve been higher if they didn’t make Atom processors [in-house],” he said. “I think Intel is not telling people the truth, which is that they can’t make a $29 chip at a profit.”
Castellano said that Atom is the real reason for Intel’s alliance with TSMC Co.
When the tie-up was announced in March, Intel emphasized that TSMC would help it boost Atom in the still-tiny Mobile Internet Device market as well as penetrate the smartphone market dominated by ARM Holdings PLC.
Intel’s real goal, he argues, is to offload production of Atom CPUs for netbooks to TSMC, a Taiwanese chip foundry, to reclaim space in its own production lines for its profitable Penryn chips.
An Intel spokesman did say that the chipmaker hasn’t publicly stated which kinds of Atom CPUs TSMC will be manufacturing. But that’s because, at least in part, “we’re still working on the exact details with them,” he said.
Intel: Atom is cream on top

The Intel spokesman declined to comment on Castellano’s calculations. But he said Atom was boosting the company’s profit.
“Atom sales in netbooks have given us extra growth and revenue we would not have otherwise seen,” the spokesman said in an e-mail. “We’re seeing very little arbitrage from our Core-brand of processors as many people buy netbooks as companions to their laptops or as a third or forth home PC purchase.”
The spokesman continued, “We are comfortable with the margins we make on Atom and more than pleased with the early returns we’re seeing from the family.”
Jack Gold, an independent mobile and semiconductor analyst, said Castellano’s analysis relies on several flawed assumptions.
Atom production could only cannibalize Penryn chips if Intel’s factories were running at full speed today. That’s extremely unlikely, given the weak PC market and Intel’s decision earlier this year to close down 4 factories and lay off 6,000 workers, he said.
“If Atoms were really displacing Core 2s, you’d see a shortage of Core 2 processors. But no PC vendor is crying about that,” Gold said.
Gold said that he believes Castellano underestimates the difference in yields between Atom and Penryn chips. The latter crams so many transistors in a tight space that the failure rate during the Penryn manufacturing process is higher than Castellano thinks, meaning the potential profits are lower, Gold said.
Also, TSMC’s expertise is in creating specialized chipsets based on the Atom for very small devices like smartphones, not inexpensively manufacturing “plain vanilla” Atom netbook CPUs in high volumes, said Gold. But he did say Intel might use TSMC as a second source for Atom netbook CPUs if demand for Penryn/Core 2 chips pick up again.
But that scenario is also unlikely because Intel is starting to de-emphasize 45-nm Core 2 processors for its 32-nm Westmere chips that it will introduce in Q4. These chips will run faster and use less electricity than Penryn ones, and be priced accordingly.
“I understand the argument, but he’s pulling at straws,” Gold said.
Analyst: All about the margins

Castellano said in reply that while Intel’s older factories producing 65nm, 90nm and 110nm chips may have been underused — hence, the recent factory closures — its 45-nm factories are still “running pretty much flat-out,” he said. Intel would not comment on the assertion.
Castellano disagrees that the Penryns are much harder to manufacture than Atom CPUs. He points out that Atom chips, while having fewer transistors, are also roughly four times smaller.
Given that the cost of manufacturing is roughly equal — “same factories, same materials, same tools, same engineers” — the profit potential tilts heavily in the favor of Penryns.

Months after the issue first surfaced, Hewlett-Packard laptop owners continue to complain about defective Nvidia graphics cards that could cause laptops to fail.

Some customers say that they have been treated unfairly by HP, in part because their laptops are not included on a list of affected machines that was issued last July by HP, so they are ineligible for a free repair or an extended warranty.

One laptop model with overheating problems is the Pavilion dv9500 line, with screens going blank or overheating, leading to system failure, customers wrote on one HP board. The laptop model isn’t on HP’s list of affected laptops, and in some cases HP is asking users to pay for repairs.

HP isn’t moving quickly to add new laptops to the list of affected PCs, customers wrote. Users are asking HP to examine and update the list of laptops affected by the issue. Laptop failure may also result from components unrelated to the issue with graphics cards, but a trend among posted complaints points to laptops with Nvidia parts, said Matthew Hilsenrad, an HP laptop owner.

“I hadn’t seen any post of ATI chips going bad, only Nvidia chips going bad,” Hilsenrad said. “A whole lot of people [on the boards] who bought the laptop around the same time seem to have the same problem.”

Hilsenrad owns a Pavilion dv9500 model with a Nvidia GeForce 8600 series graphics card, which he bought in September 2007. Many laptops not included in the list — including the HP Pavilion dv9500 and dv9600 series — bought in 2007 are now experiencing similar problems, Hilsenrad said.

He was asked to pay around US$400 to replace a motherboard when overheating rendered his laptop screen dysfunctional. He called HP to request a fix, but the PC didn’t fall under the extended warranty that HP issued for affected laptops.

After haggling with an HP case manager, he got the laptop repaired for around $215. However, the case manager said the affected laptop list could be updated to include the model he owned, in which case he would be refunded the amount.

Another poster, Salman Fateh, reported system failure and a blank screen on an HP Pavilion dv9500 with a Nvidia 8600 series graphic chip, which was purchased in October 2007.

“HP will not honor the extended warranty for this model. HP should honor customers and replace all laptops with defective Nvidia GPUs,” Fateh wrote in a separate HP forum.

Customers echoed Fateh’s opinion, saying that unless HP addresses the issue quickly, their laptops would become paperweights.

“HP needs to add the rest of these bad GPU units on the list, get them all repaired,” wrote a poster with the screen name Sarah Locker on HP’s board. “I don’t want to blame HP for Nvidia’s manufacturing fault, but it appears now that HP is the one that is dragging their feet.”

HP didn’t immediately comment on this story. Officials from Nvidia were not available to comment either.

Nvidia last July said that some of its graphics chips were overheating due to packaging material and the thermal design of some laptops. HP subsequently issued an advisory warning of possible laptop failure and a list of models affected by the Nvidia parts.

HP also issued a BIOS patch to keep system fans running longer to prevent overheating, and offered to repair laptops depending on certain symptoms. The affected laptops included some HP Pavilion dv2000, dv6000, dv9000 models and Compaq Presario V3000 and V6000 series laptops. HP also offered a 24-month warranty extension to affected customers in North America.

Other PC vendors, including Dell and Apple, had to address issues related to faulty Nvidia graphics cards. Like HP, Dell issued a software patch to control heating problems, but it attracted a fierce response from unhappy users, who accused Dell of shying away from addressing a larger problem of bad hardware. Apple offered a free repair of laptops with faulty Nvidia graphics cards

India has ordered 250,000 laptops from the One Laptop Per Child (OLPC) organization, while a human rights organization will supply 5,000 OLPC machines to Sierra Leone.

In India, two government organizations and one private-sector entity placed the laptop orders, Satish Jha, president and CEO of OLPC India, said Friday. These are the first orders in India for the OLPC XO laptop, with distribution set to begin in June to about 1,500 schools.Giving a computer to every single child under the OLPC program was reportedly described as “pedagogically suspect” in 2006 by the country’s education secretary in a letter to the country’s Planning Commission. But the government as a whole did not have an issue with OLPC, and leading government education agencies support OLPC, Jha said. Most of the 250,000 laptops will go to children in suburban and rural areas, Jha said. In areas where Internet connectivity is not available or is too expensive, the laptops will be connected through mesh networks to a server from where information can be downloaded, Jha said.OLPC has a target to deploy 3 million laptops in India this year, he added.

In Sierra Leone, the plan is to distribute 5,000 XO laptops by 2011, according to Mohammed Kaindaneh, secretary general of the Human Rights Respect Awareness Raising Campaigners (HURRARC). Fundraising to pay for the project, which will cost about US$1 million, will take place over the next two years.

A pilot project involving 50 primary schools and 500 pupils will receive 100 OLPC computers, Kaindaneh said. The laptops for the three-month pilot are not included in the larger order for 5,000 OLPC laptops.

Ethiopia, Rwanda, Nigeria and Ghana also have received OLPC laptops.

News of the laptop project in Sierra Leone comes as research teams in Kenya, Nigeria and Zimbabwe release findings that the Asus Eee PC netbook is a better choice for African nations than the XO laptop. Asus is better suited to individual owners and users in rural Africa who need low-power PCs, researchers found.

They ranked the Asus Eee first for the needs of Africa, followed by Intel’s Classmate, OLPC’s XO, the Inveno Computing Station and Ncomputing’s X300

Reader Craig Messerman is hitting the trail to record the sounds of the world around us. He’d like to use his MacBook in the process, but has hit a snag. He writes:

How can I use an AudioTechnica Pro24 stereo microphone for field recording with my MacBook? It makes beautiful recordings with my Sony DV camcorder (with plug-in power), but I can’t get high enough gain with the MacBook. It has a battery, and I’ve tried plugging it into the computer’s audio input, and into a Griffin iMic (first gen.). It doesn’t matter what I set the iMic switch to, it’s just no good. All I get is pretty good close up recording like we can with our Shure SM57 and 58. Any thoughts?

As much as I love geeking out over microphones and recording setups, I understand that this question has the potential to interest exactly two people–me and Craig. But hang on, there’s a moral here.

Before we get to that moral, the answer is that you need either a battery-powered pre-amp that sits between the microphone and your MacBook (this pre-amp, for those that don’t know, will amplify the mic’s signal) or you do what others in the business do and use a digital field recorder. These things are made by any number of companies including Sony, Marantz, Samson, Korg, Yamaha, Edirol, and Tascam; use removable media (Compact Flash and SD cards); and often include a microphone.

But this is Mac 911, after all, so let’s address the pre-amp-to-MacBook issue, which leads us to the moral.

I did my best to scour the Web for battery-powered pre-amps and came up with a few schematics but no single great suggestion. So, I turned to the power of Twitter (where I appear as @BodyofBreen). I put out a general call for such a pre-amp and follower/AV tech/all-around-helpful-guy Chris Eschweiler (@chrisesch) piped in with the suggestion that I check out Sound Devices’ $350 MM-1 Portable Mic Preamp With Headphone Monitor. It’s powered by AA batteries and offers impressive audio specs.

The moral, of course, is that good as Google can be, it sometimes doesn’t hurt to raise up your head and shout, “Say, anybody here have a recommendation for….”