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Analyst: Intel may suffer from netbook success

Posted: 12 Jan 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Intel revenue? netbook success? Atom processor?

Does Intel Corp.'s Jan. 7 warning that Q4 08 revenues could slide down 20 percent sequentially and 23 percent y-on-y have anything to do with better-than-expected sales of netbooks and the Intel Atom processors that power most of them?

At least one analyst thinks so while another believes the No. 1 chipmaker could announce headcount reductions later this month.

Netbooks vs. notebooks
Robert Castellano, president of The Information Network, said many consumers who purchased netbooks would likely have bought notebooks had the new product category not emerged. Assuming a price difference of at least $200 each between Atom processors and Intel's more expensive Penryn devices for notebooks, Castellano estimates that Intel lost $1.14 billion in revenue in 2008 by making cheaper processors and stands to lose another $2.16 billion in 2009.

Castellano's analysis concludes that Intel made a miscalculation and that the tech sector is really not as bad off as the numbers suggest. "The calculations are oversimplified, I admit, but I submit there is logic in this analysis," Castellano said in a statement.

The Information Network estimates that 11.4 million netbooks were sold in 2008, up from 400,000 in 2007. For 2009, the firm estimates that netbook sales will grow 189 percent to 21.5 million. Meanwhile, the firm estimates that 145.9 million notebooks were sold in 2008 and projects that number will grow 21.8 percent in 2009 to 177.7 million.

Without netbooks, The Information Network argues, many netbook purchasers would have bought notebooks. Acknowledging that the percentage was open to debate, the firm assumed for the sake of argument that 50 percent of the purchases of netbooks in 2008 and 2009 would have been notebook sales. This would equate to 5.7 million more notebooks sold in 2008 and 10.8 million more notebooks sold in 2009, the firm reasoned.

Atom rivals
On possible flaw with the Information Network's analysis is that it assumes all netbooks would be powered by the Atom. But Intel is not the only company targeting the netbook and low-cost PC space. Intel rival Advanced Micro Devices Inc. will target the low-cost notebook space with a Yukon platform after abandoning its Atom-competitor, codenamed "Bobcat," last September. Qualcomm Inc. bills its SnapDragon chipset as a competitor to the Atom, and graphics specialist Nvidia Corp. announced in June a processor to compete with Atom. Freescale Semiconductor also threw its hat in the ring with a lower-priced ARM-based processor geared toward netbooks.

"I look at the netbook market as being owned by Intel's Atom," Castellano said in response to an EE Times inquiry. Others are entering the market, he noted, but Intel has a head start and the momentum to own the market. The focus of the theory was Q4 08 and Q1 09, "where I think they bought poor market research which affected the scheduling of chips for production," he said.

Commenting on some competitors to the Atom, Castellano said, "There is a pared-down Celeron used in many of [AsusTek Computer Inc.'s] Eee PCs, but it is inadequate at some applications, such as browsing and audio at the same time. Via's C7 is used by HP in the Mini-Notes. Although the processor is not as fast as the Atom, it is paired with a Chrome 9 chipset, which improves performance enabling netbooks to be run on Vista. Freescale is entering the market with a processor, but it runs Linux."

According to the Information Network, the 45nm Atom is priced at about $29. A total of 2,436 Atoms can be made on one 300mm wafer for a total selling price of $70,600, excluding edge loss and yield impact, the firm said. The Penryn is priced at about $279, and a total of 660 Penryns can be made on one 300mm wafer for a total selling price of $184,100, the Information Network said.

Meanwhile, Craig Berger, an analyst with FBR Capital Markets, said Intel's second guidance cut since mid-November could mean Intel will announce some headcount reductions on its Q4 conference call, currently scheduled for Jan. 15. Berger predicted last month that Intel job cuts were coming, an assertion he later said was refuted by the company.

Intel executives have said the 10,500 job cuts it began in September 2006 have kept the company lean enough to weather the difficult economic environment.

Berger again cut FBR's 2009 earnings per share estimate for Intel (to 65 cents per share from 70 cents) and target price for Intel's stock (to $12 from $13). FBR maintained its "market perform" rating on Intel, equivalent to "hold."

- Dylan McGrath
EE Times

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