The new compact

The netbook has become a runaway bestseller, and as economic conditions bite, consumers are being drawn to the cheap, compact machine. It's a prospect that could trouble PC builders and chipmakers alike.

For the first time since the birth of text messaging on mobile phones, a technology segment has caught the mobile computing industry by surprise - and this time, it is taking the PC business along with it. To get an idea of how volatile this new market is, consider that, while it may already account for millions of units in sales, nobody quite knows what to call it.

'Netbook' is the most popular term, favoured by Intel for close to a year, although Psion trademarked the term a decade ago and is now sending letters to manufacturers asking them to stop using it. Consequently, other names have popped up, from the descriptive 'mini-notebooks', 'subnotebooks', 'low-cost, ultra-light devices' and 'laptop lites', all the way through to the whimsical 'liliputers'.

One thing is for certain: these machines are no longer called 'toys', although that was the original response from some - now embarrassed - analysts.

Probably inspired by One Laptop per Child's XO computer, Taiwanese manufacturer Asustek Computer, better known as Asus, had been working to reduce laptop form factors and came up with the Eee PC. It had a slightly shrunken keyboard, a 7in display and an Intel Celeron processor. Running Linux, but also capable of running Windows XP, it was crafted to do little more than provide email and Internet access. Battery life was low - two hours, give or take - but so was the price, at around $300. The technology community turned up its nose.

The public imagination, however, was captured - particularly in Europe and Asia. From that standing start, only 16 months ago, these notebooks shot to a 7 per cent share of all laptop sales in 2008 and are forecast to reach 11 per cent in 2009 by the CEA. The Information Network (TIN), a Pennsylvania-based research firm, takes a broadly similar view on the units.

TIN reckons 11.4 million netbooks were sold last year and that 21.5 million will sell this year, implying a 12 per cent share of the overall PC market. Intel, the lead silicon supplier, says that it shipped $300m worth of netbook processors in 2008's fourth quarter - that is roughly 10 million units in three months, given what the chip giant is thought to charge.

Enter the atom and expanded capabilities

As market share has grown, the netbook has morphed in terms of what it can do, how it is marketed, how it is designed and how it is both programmed and powered. The first major shift came last April, when Intel started shipping the Atom processor. This was a chip specifically aimed at the 'mobile Internet device' segment, unlike the shoe-horned Celeron. Atom improved netbook battery life and allowed the machines to run productivity software: Microsoft Office on XP-loaded machines, OpenOffice on Linux machines.

Atom also broadened the market. Asus was joined by such Intel customers as Dell, Acer, and Lenovo. HP, meanwhile, has launched its Mini line with a processor and chipset from Via Technologies, a combination that - unlike Atom - can even bring Microsoft's hungrier Vista to the netbook.

At a more mundane level, increasing competition between netbook makers saw the addition of webcams, and shifts in storage technology that also pushed the machines towards the media-player market.

The original Eee PC shipped with a 2GB solid-state drive (SSD), although mini hard-disk drives (HDD) soon also found their way onto specifications. As second and third generations reached the market over the course of 2008, you might find the same external industrial design with the same processor, but options for either a 16GB SSD or a 160GB HDD.

Today, in 2009, this choice is getting much more interesting. "We're now at a point where a 32GB SSD is at price parity with the equivalent 2.5in HDD, and 64GB, a decent capacity for a product like this, represents only a small premium as SSD over an equivalent 1.8in HDD," Don Barnetson, senior director of marketing for SSD at SanDisk told the recent Storage Visions conference in Las Vegas.

The question now, though, was just what differentiated a netbook from a standard laptop once you got past the form factor. 'Netbook' was a good name for the original Eee machines because they did not do much else.

"I think the idea of people calling these things 'netbooks' suited Intel as well," says Bob Morris, director of mobile computing at ARM, which launched its own bid for the space at the 2009 Consumer Electronics Show. "The name suggests that these machines were limited, that they were downmarket and differentiated from Intel's main laptop business, so the implication was that they wouldn't cannibalise it. Core 2s go here and Atoms go here and there's no problem."

Today, though, both Intel-powered machines and those from emerging rivals are provoking the cannibalism question. In Intel's recent Q4 results conference call, CEO Paul Otellini repeatedly had the point put to him by a succession of analysts. His response: "The best data we've seen so far is that in excess of 80 per cent of [our Atom sales for netbooks] are not cannibalising; they're not taking business from ours or competitive notebooks."

Robert Castellano of TIN sees a problem, however: "If you look at that Q4 number for Atom, at about 10 million units, that could be 20 per cent of the laptop market's demand for chips at that time of year. Say that each Atom at $30 replaces a sale of a Penryn at closer to $250, and you're already looking at over $2bn in lost revenue, but you're still not that far from what Otellini's saying."

TIN posited that Intel 'lost' $1.14bn in 2008 through Atom supplanting its higher-end devices, and could lose another $2.2bn in 2009 - and that assumes that it retains its current, dominant market share. The reality, though, as Otellini acknowledged, is that competition for this space is only just beginning. "There are new players - non-traditional players - entering this marketplace," he said, begging the question as to whether you can build a tradition in 16 months.

Netbook competitors

Intel's market share is not assured. Via Technologies is already there in HP machines. At CES, Via added Samsung to its netbook clientele with its Nano netbook processor. Going further, there is Intel's traditional rival AMD with its Athlon Neo, and graphics player Nvidia. Then there is ARM. Qualcomm has parlayed its own expertise and an ARM architectural licence into the Snapdragon platform. A host of companies are using the Cortex A8 and looking at the multicore A9. Freescale Semiconductor has a processor boasting an all-in $20 bill of materials. By comparison, Atom is $30, with an extra $15 for the chipset. OEM Pegatron already had a netbook based on this i.MX515 processor at CES. Still to come is A8-based silicon from Texas Instruments, Samsung and Marvell.

With so many players arguing over the netbook space, in the midst of a recession, things look certain to get bloody. Most of us would therefore put our money on Intel being, if not the last man standing, then certainly one of them. But the market dynamics here are still working themselves out in some crucial ways. So far, netbooks have achieved greater traction in Europe and Japan than in the US.

"A lot of that has been down to service operators in those regions," says ARM's Morris. "As with cellphones, they have subsidised the retail cost in exchange for people signing, typically, a 3G data contract. Now that is a model that we and our partners understand. We know how the margins work there. We know what it's like with the service provider as a key customer."

Morris claims ARM can easily evolve from the mobile handset to the netbook. "We also understand the technology here. We have prototypes now that are running for a full eight hours and more. You can load three HD movies on them, and watch them without running out of juice on a transatlantic flight," he says. "This is what the market is looking for."

The question is whether power or compatibility will win the day. Netbooks still have many questions to answer and a lot more maturing to do. Assuming we can still call them netbooks and nothing's changed since you started reading this.

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