Nanotech - The Circuits Blog

By not coughing up a low-cost MacBook, as some had expected, Apple has ceded a potentially huge market to PC makers. But is this just all part of Apple's marketing genius?

$999 is as low as Apple will go.

(Credit: Apple)

The announcement Tuesday of the $999 white polycarbonate MacBook was pretty ho-hum as product refreshes go (same price, same color as before) but the implication was important: Apple is surrendering a large, emerging laptop market to Microsoft and its coterie of PC makers.

Not that it's necessarily a bad strategy. Market researcher Gartner said recently that Apple's shipments in the U.S. grew year-over-year by 6.8 percent to total 1.57 million during the third quarter, putting it right behind Hewlett-Packard, Dell, and Acer. Comparatively, overall PC shipments in the U.S. grew by 3.5 percent from a year earlier.

But among those unimpressive overall PC numbers (HP's third-quarter shipments grew only 2.7 percent), was an impressive statistic for Acer: buoyed by Netbooks, Acer's shipments grew by 61.4 percent year-over-year, and it blew past Dell to become the No. 2 PC maker worldwide based on this growth.

Granted, Netbooks are a relatively low-profit segment (i.e., profit on a $400 Netbook is going to be a lot less than that on a $999 laptop). Nevertheless, they're a hot market. Intel CEO Paul Otellini has stated numerous times that Intel was able to create a market that grew faster than either the iPhone or Nintendo Wii. Case in point: Windows 7-based Acer Netbooks are now big on the Home Shopping Network--which claims to have sold more than 5,000 in one segment on Saturday.

And that's not the only market Apple is punting on. A new category of inexpensive, thin laptops has emerged with the roll-out of Windows 7 on Thursday. Like Netbooks, these laptops are light (typically 4 pounds) and don't include an optical drive. But they are relatively powerful and full featured. The 15.6-inch Acer Aspire Timeline, for example, with a 320GB hard disk drive and dual-core Intel processor is fairly well-endowed at only $500.

Apple is not receiving a lot kudos in the mainstream business press ... Read more

Call it the Netbook halo effect: small and cheap is infectious. A quick peek at the lineups of new laptops slated for the Windows 7 (October 22) roll-out make it clear that the prices of mainstream and higher-end laptops are diving, even as the technology gets better.

"There's a new reality in laptop pricing," said Bob O'Donnell, an analyst at market-researcher IDC. "It's getting harder and harder to sell anything over $800." O'Donnell cited a data point that showed the average selling price of notebooks falling below desktops briefly in retail. "That may have been an anomaly, but the fact that's it's even close is indicative of this phenomenon."

That said, let's start with HP, the world's largest PC supplier. Svelte, well-built business laptops have historically been priced at a premium--starting at more than $1,000. Not anymore. On October 22, HP will begin selling the 13-inch ProBook 5310m that is about 0.9 inches thin, less than four pounds, and clad in an aluminum display enclosure and a magnesium alloy bottom case for $699.

HP ProBook 5310m starts at $699: this class of business laptop used to start at well over $1,000

(Credit: Hewlett-Packard)

That's about $800 less than the HP EliteBook 2530p business notebook series introduced in August of last year (that started at about $1,500). The 5310m is priced at $699 with an Intel Celeron dual-core processor and $899 with Intel Core 2 Duo chip. Both come with the Windows 7 operating system.

That's what I call a sea change in pricing.

But it gets better. Then there's the 4-pound HP Pavilion dm3 notebook that starts at $549 (no, it's not a Netbook) and will likely range up to about $700 in price for a reasonable memory and hard drive configuration. The 13-inch laptop comes with power-efficient Intel Core 2 Duo or AMD Neo dual-core processors and a standard 6-cell battery that delivers--so HP claims--up to 10 hours of battery life.

I was able to play with a dm3 at a function sponsored by Advanced Micro Devices recently in San Francisco. My immediate impression was that this was a light but solid design.

The Apple $999 MacBook is suddenly ... Read more

Updated at 2:30 p.m. PDT: adding statements from Dell.

Intel and Dell are indicating that PC demand may be increasing but it's not clear how sustained or strong this trend is.

The news Friday that Intel raised guidance is not a surprise, according to Ashok Kumar, an analyst at investment bank Collins Stewart. "It's in line with seasonal trends and reflects strong back-to-school build in the PC food chain," he said.

Kumar added, however, that the strength of actual sales to end users of PCs won't be known until later. "The ramifications for Intel is that they'll continue to see benefits from supply chain rebuilds but where the rubber meets the road is the actual back-to-school sell-through."

Broadpoint AmTech analyst Doug Freedman also cautioned that though PC "build rates are accelerating" and "inventory replenishment" is taking place, "inventory replenishment means that there is no inventory so they have no choice but to build," Freedman said.

But he added that Intel's guidance "affirms the thesis that PC recovery is under way. Consumer now, Enterprise next." Recovery is initially driven by consumer PC demand and then by corporations, usually one to two quarters later, according to Freedman.

Both Freedman and Kumar stated emphatically that the Windows 7 launch, at this point at least, is not having as big an impact on build rates as previously expected.

Related to Windows 7 is the expectation that latent demand will kick in for replacing old PCs at companies--an expectation that Intel and Dell have cited in earnings-related discussions. But don't expect blockbuster replacement numbers, according to Kumar. "Yes, you have an aging installed base but we don't expect anything more than 20 or 25 percent to come up for replacement," said Kumar.

Adding to the uncertainty are Dell's second-quarter results, which were not that encouraging, according to Kumar. "Most of the revenue stream came from the public sector. Enterprise and consumer remains weak," he said, referring to Dell's profit, which was down 23 percent, and stimulus-package funds that flow to the public sector.

And Dell made this cautious statement on Thursday: "In the third quarter, the company expects seasonal demand improvements from the Consumer and U.S. federal government businesses...Dell believes a refresh cycle in commercial accounts is more likely to occur in 2010...(but) the company continues to see pressure in the form of component costs and areas of aggressive pricing in the near term, and continues to take actions to offset these items."

"The problem for the industry at large is that ASPs (average selling prices) are dropping like a rock," said Kumar. And on a macro level "employment is still weak and consumer discretionary spending is under pressure," according to Kumar.

Nvidia said that some notebooks with its chips continue to have "failure" issues, in a filing with the Securities and Exchange Commission on Wednesday.

In the Form 10-Q filing, Nvidia stated that though it does not continue to see "abnormal failure rates" in systems using Nvidia products," some notebooks are still affected.

Specifically, Nvidia said: "We continue to not see any abnormal failure rates in any systems using Nvidia products other than certain notebook configurations. However, we are continuing to test and otherwise investigate other products," Nvidia said, adding, "there can be no assurance that we will not discover defects in other MCP or GPU products." (MCP stands for Media and Communications Processor; GPU stands for Graphics Processing Unit.)

On July 2 of last year, Nvidia announced it was planning to take a one-time charge to cover costs associated with problems with materials used in certain versions of its laptop graphics chips. Subsequently, a $196 million charge was recorded in the second quarter of its 2009 fiscal year to "cover anticipated customer warranty, repair, return, replacement and associated costs" with the problem.

In the 10-Q filing, Nvidia cited a "balance of $145.7 million associated with incremental repair and replacement costs from a weak die/packaging material set." and "$31.2 million for the three months ended April 26, 2009 in payments related to the warranty accrual associated with incremental repair and replacement costs from a weak die/packaging material set."

Nvidia paid or incurred $50.3 million against the original "warranty accrual" in its fiscal third quarter and fourth quarter 2009, such that the remaining balance of the "bump-crack accrual" (defect) was $145.7 million at the end of its fiscal fourth quarter, according to Nvidia.

Nvidia is also grappling with insurance companies over payments to PC makers for GPU failures, according to reports.

As early as 2007, Hewlett-Packard listed laptop models affected by the graphics chip glitch. In August 2008, Dell also listed affected models. And Apple said in October that it would repair faulty graphics chips.

In the 10-Q filing, Nvidia also stated (some cases were cited in previous Nvidia filings) that "in September, October and November 2008, several putative consumer class action lawsuits were filed against us, asserting various claims arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products used in notebook systems."

Most of the lawsuits were filed in federal court in the Northern District of California, but three were filed in state court in California, in federal court in New York, and in federal court in Texas, Nvidia stated. "Those three actions have since been removed or transferred to the United States District Court for the Northern District of California, San Jose Division, where all of the actions now are currently pending."

Some of the lawsuits, such as "Inicom Networks, Inc. v. NVIDIA Corp. and Dell, Inc. and Hewlett Packard," include Dell and HP.

Windows 7 pricing is potentially an obstacle to Windows 7 adoption for some users, though in just about every other aspect the operating system is beating Vista, according to a Dell marketing executive.

"If there's one thing that may influence adoption, make things slower or cause customers to pause, it's that generally the ASPs (average selling price) of the operating systems are higher than they were for Vista and XP," Darrel Ward, director of product management for Dell's business client product group, said in a phone interview, referring to the various versions of the Windows 7 operating system that are expected to appear.

Ward continued. "In tough economic times, I think it's naive to believe that you can increase your prices on average and then still see a stronger swell than if you held prices flat or even lowered them. I can tell you that the licensing tiers at retail are more expensive than they were for Vista."

In the business market, Windows 7 Professional is expected to be more expensive than Windows Vista Business, the version that Professional is replacing, he said.

Some schools and smaller businesses may not be early adopters due to price. "Schools and government agencies may not be able to afford (the additional cost). Some of the smaller businesses may not be able to enjoy the software as soon as they'd like," Ward said.

Pricing aside, Ward said momentum behind Windows 7 is big compared with Vista. "When Vista came out we didn't have the motivation to do the types of services that we're doing now. We didn't have the clear customer demand for such services," he said. "We do have a visible number of customers, large and small, who are actually waiting for Windows 7 and who have already put plans in place to target the transition to Windows 7, they're asking Dell for help. That demand and this opportunity is stronger than it has been in the past," Ward said.

And Dell is already getting its service organization in gear for Windows 7. "Our professional service organization is beginning to structure service offerings specifically designed to help customers migrate their images, their applications, and their management infrastructure, security capabilities and so forth."

More than half of Dell's business customers are still using Windows XP and these customers will eventually have to upgrade, according to Ward. "XP cannot live forever," he said.

To help users migrate from XP to Windows 7, Dell supports the upcoming operating system's XP mode. "It's one of the things that Microsoft is doing that we think is helpful. Putting an instance of XP virtual machine in the higher end SKUs (models). This is another alternative for compatibility. We'll fully support that in our product and consulting services." he said.

Driver readiness is good, with some exceptions. "Driver readiness--it looks pretty healthy compared to the past. (There are) some things that haven't been worked out. The WHQL (Windows Hardware Quality Lab) drivers for AMT VPRO is a little behind," he said, referring to Intel's Active Management Technology, which allows remote access to PCs for security, maintenance, and management.

Generally, however, Windows 7 is much further along than Vista was at this stage, he said. "But if you look at the ecosystem enabling for Windows 7, it is much further along that it was at the same time for Vista," he said.

Updated on May 14 at 2:40 p.m. PDT with additional comments from AMD.

The chip choices that Dell has made for its business PC line provide some insight into the challenges facing Advanced Micro Devices in the wake of the European Union ruling Wednesday against Intel.

Dell has no AMD-based laptops in its corporate line

(Credit: Dell)

"At this point in time we have one AMD desktop but no AMD notebooks," Darrel Ward, director of product management for Dell's business client product group, said in a phone interview Wednesday on a topic unrelated to the EU case. "If you talk to us a year from now, it's probably going to be different. What we try to do is optimize our portfolio based off where we see demand and where we can get the best ROI (Return On Investment) for our engineering dollars."

So, is Dell involved in some venal backroom dealings with Intel in order to box out AMD? We don't know the answer to that question, but most likely not. Dell is simply trying to provide what it considers to be the best systems for its customers.

AMD's 2001 complaint to the EU and subsequent 2005 antitrust lawsuit against Intel have propelled many of the allegations against Intel. And AMD's argument has been made abundantly clear via the EU decision: that is, Intel is leveraging its dominant market position in an illegal manner to exclude competitors from the PC processor market.

But what about AMD competitiveness? And, as a corollary, why do vendors like Dell choose Intel over AMD?

"In part it's because Intel's manufacturing is so superb," said Dan Hutcheson, CEO and Chairman of VLSI Research, a marketing research firm. "And the fact that Intel has such huge economies of scale. That's been one of their big advantages."

Hutcheson said that many companies have tried to take on Intel over the years and failed--but not necessarily because Intel behaved in an illegal manner. "Transmeta said they were going to knock Intel out with the foundry (factory) model. And then there was Cyrix," Hutcheson said. "We've just had dozens of companies over the years that said they would be more cost effective (than Intel). AMD is the only one that's come close."

AMD's struggle to gain market share isn't rooted so much in Intel's behavior but AMD's own strategies. "I'm not quite sure how much of AMD's bad luck over the last few years can really be traced to Intel's behavior," said Charles King, Pund-IT's president and principal analyst. "They've largely missed the burgeoning market in mobile computing because of decisions that they've made. Whatever injury AMD may have suffered due to Intel's rebate and discount programs, the company has really injured itself more severely over that same period of time."

AMD spokesman Drew Prairie had this to say in response to the above discussion about AMD's lack of competitiveness in the mobile PC market. "Focusing on the current market dynamics misses the fundamental point of the EC findings: it doesn't matter how much innovation AMD pours into its products, Intel broke the law to ensure that that PC manufacturers and retailers were not free to base their decisions on which products to bring to market based on the merits of Intel's and AMD's offerings," Prairie said.

Updated at 6:25 p.m. PDT with comments from Hewlett-Packard.

Longstanding latent demand for PCs packing a new version of Windows is set to be unleashed, following Microsoft's nod Monday for a holiday release of Windows 7.

Laptop shipments should get a boost from Windows 7.

(Credit: Hewlett-Packard)

"There's a lot of pent up demand for Windows, particularly in corporate, which by and large passed on Vista," said Roger Kay, president of Endpoint Technologies, a market research firm. "Dell and Lenovo should be relieved."

PC sales ground to a halt in the fourth quarter of 2008, after several years of consistent 15 percent quarterly growth, according to an IDC report issued earlier this year.

Windows 7 could change that. "The holiday timing will, of course, benefit consumer-oriented (PC makers) like HP and Acer," Kay said.

Windows 7 may also slow the migration to Apple's operating system. "Defections to Mac may slow. So, Apple won't be entirely happy," Kay said.

And how big is Windows 7 for hardware makers? "Win7 will have the fastest adoption curve of any new rev since Windows 95...I think you'll see adoption earlier than usual in commercial because the code is so stable. The old adage about waiting for SP1 (Service Pack 1) may not be as relevant this time around," he said.

Intel--whose processors will power the lion's share of Windows 7 PCs--is upbeat. "Our early testing is showing improved battery life for consumer notebooks, so Windows 7 should continue to improve the consumer experience," said Jeff McCrea, vice president of Intel's Consumer PC group, in response to an e-mail query. McCrea added that Intel's processors and chipsets work well with the initial beta version of Windows 7.

Hewlett-Packard is working closely with Microsoft, looking toward Windows 7 upcoming release. "We are working closely with (Microsoft) as they develop Windows 7 to make sure our customers can take full advantage of the latest features," HP spokeswoman Anne Finnie said Monday.

And PC graphics chip suppliers like Nvidia have been finessing their Windows 7 drivers in anticipation of a release of the operating system. "Windows 7 users now have the absolute latest in performance and support," said Dwight Diercks, vice president of software engineering at Nvidia, in a statement, referring to various technologies Nvidia is now supporting in Windows 7.

Updated on May 6 at 6:35 p.m. PDT with additional comments from Intel.

A small brouhaha is erupting over Windows 7 and Intel processors. The hubbub is centered on which Intel processors will not support "XP mode" in Windows 7 and, by extension, which PCs will not support XP mode. Retail laptops may be one of the most prominent segments affected.

Sony Vaio laptops sold at retail stores are among a number of models from a variety of PC makers that have processors that don't support Windows 7 XP mode

(Credit: Best Buy)

What is XP Mode? Here's how Ina Fried of CNET News describes it: "XP mode consists of two things, the Windows Virtual PC engine and a licensed copy of Windows XP Service Pack 3 as a packaged virtual machine. Although neither piece will be included in the Windows 7 box, XP Mode will be a free download for those who have a license to Windows 7 Professional, Windows 7 Enterprise, or Windows 7 Ultimate."

XP Mode (XPM) is aimed at businesses that have Windows XP-specific applications that they need to run on Windows 7. XPM allows XP applications to run seamlessly on Windows 7, according to Microsoft. The catch: Intel processors must have Virtualization Technology, or "Intel VT," in order to run XPM. (I won't cover Advanced Micro Devices processors here but will address AMD in a later post.)

Ed Bott's Microsoft Report says that "some of the most popular PCs on the market today...won't be able to use the vaunted Windows XP mode in Windows 7."

Bott lists Intel desktop and mobile processors that will and will not support XP Mode here and here, respectively.

Intel mobile processors may be the most problematic in supporting XP mode; not because of the raw numbers--most newer Intel mobile processors do, in fact, support Intel Virtualization Technology--but because a disproportionate number of those that do not have VT (and therefore don't support XP mode) are laptops sold at retail. (And, undoubtedly, some small businesses purchase laptops at retail.)

In the Core 2 mobile camp, the P7350/7450, the T5200/5250/5270/5300/5450/5470 series, and the T6400/6570 do not support VT, according to Bott's blog. And this can be confirmed on Intel's Web site.

A quick glance at Best Buy shows a somewhat lengthy list of laptop SKUs (models) with, for instance, the T6400 (non-VT) processor. The list includes Dell Studio, Toshiba Satellite, HP Pavilion, Sony Vaio, Asus, and Gateway laptops.

In the $600 to $899 laptop range, I found about 30 different SKUs with T6400 processors, though it should be noted that some of these SKUs are simply models with slightly different configurations.

And a quick search on CNET Shopper turns up a number of consumer models with the T5270. The point? To state the obvious, consumers will have to verify which processor their laptop has.

In an Intel blog, Nick Knupffer asserts this won't be a big issue. "Having VT on these consumer laptops is not going to be an issue--because the consumer versions of Windows 7 (Starter, Home Basic, and Home Premium) do not include Windows XP Mode," he writes.

And Intel, in a statement, had this to say. "Intel introduced its Virtualization Technology in 2005 and has shipped over 100 Million chips with the feature. Windows XP Mode is targeted for business customers. It is available on the mid to higher end versions of Windows 7 and is supported in hardware by many Intel processors."

Intel continued: "Intel vPro technology PCs are required to have an Intel VT capable CPU and Intel VT capable BIOS. They are the best platforms for testing and deploying Microsoft Windows Virtual PC and Windows XP Mode."

Refurbished laptops from Apple and Hewlett-Packard are relatively inexpensive and, in many cases, virtually new. But it all depends on how you define "new."

Let me begin by saying that I would not recommend a refurbished laptop. That's just my experience, of course. I recognize that others have had positive experiences and that some would swear it's like buying a new computer, just cheaper. But I have purchased two refurbished laptops--one from Apple, another from HP--that were both defective out of the box.

"Refurbs" really a great deal?

Apple case first. I recently purchased a refurbished Apple MacBook Air. Unpacking it revealed a pristine, brand-new looking MBA. Until I turned it on. The screen was dimmer than the screen on a one-year-old Air I have been using and the backlighting was uneven. In short, the bottom 25 percent (roughly) of the screen was noticeably darker than other 75 percent of the screen.

Moreover, upon closer inspection I could see that the screen had rather prominent dark blotchy areas (more prominent than the "normal" blotching you get on these screens). Ironically, the much older Air did not exhibit this. Now, I realize that I may not have considered the screen defective if this had been my first Air and I hadn't been using another MBA (which, by the way, I had intended to pass on to someone else) that had a gorgeous, uniformly backlit screen. But nobody, I would submit, likes trading down from something great to something less than that.

And what is the single biggest difference (aside from specifications) between the two Airs? The non-defective, problem-free one was purchased new.

I have a lot of scary, unpleasant theories about refurbs--none of which could ever be proven unless I actually worked at a PC manufacturer--but I think I can safely say this much: some refurbs are less than meets the eye. They may look pristine on the outside but mask internal problems.

Which brings us to my HP business laptop refurb. This is a much longer story that I will summarize briefly as follows: out of the box, the keyboard was defective and the unit randomly shut down (that latter problem, I concluded, was due to overheating). I had to go through a pretty painstaking series of steps to get both of these problems resolved.

The moral of the story may be this: you get what you pay for. A buyer of a refurbished HP business laptop can save a lot of money--sometimes more than 50 percent off the list price of a new unit. The cost savings on a refurbished MacBook that is still being actively marketed by Apple is less: in the case of the Air, a few hundred dollars.

So, what is a refurbished laptop? Here's what HP says on its FAQ page:
"Stringent guidelines are followed. All units are brought up to fully functional condition, with defective parts replaced by working parts...Refurbished business products go through two quality control checks before being re-boxed for sale to ensure high reliability."

I'm sure both companies strive to offer just-like-new refurbished laptops but my experience is that refurbs may be more trouble than they're worth. I would like to hear the experiences readers have had.