Analyst: 'big 'bang' to hit PC and handset industry

A clash is brewing as PC and cell phone chip suppliers vie for new designs that fall outside traditional product categories, an analyst said in a research note Wednesday.

Asus 10-inch Eee PC 1000

(Credit: Asus)

Doug Freedman, a chip analyst at AmTech Research, said the "line between cell phones and PCs is clearly blurring" and that consequently "PC and cell phone food chains will battle for market share in these new classes of devices." He calls this the "big bang between PCs and handsets."

This will happen as more tweener products emerge. "New product categories such as Netbooks, MIDs (mobile Internet devices), and smartphones all lie in the spectrum between the traditional PC and handset product categories," he wrote. "Cell phones are increasing in screen sizes, computational power and capabilities, while PCs are seeing declines in screen sizes and increases in connectivity."

This may present problems for chip suppliers as they rush to build inventory for these newfangled devices, resulting in an oversupply for device categories that don't succeed. "It's a safe bet that we'll end up with losers," he said in an interview. Moreover, there will be lower-than-expected gross margins (a crucial indicator of profitability) for some of the chips that go into these products, according to Freedman.

While the Netbook is considered a successful tweener product, it exemplifies a category that may be facing a reality check as the novelty wears off, resulting in an oversupply problem, he said. Intel says it has seen strong demand for the Atom processor on the back of the popularity of Netbooks but there are signs that demand has started to ebb, according to Freedman. This has resulted in cancellations from device makers for chips that go into Netbooks, Freedman said.

Netbooks have been popular because of their novel design--what is essentially a very small, very-low-cost (below $500) laptop, a category that hasn't existed to date. Ultra-small laptops (such as the MacBook Air and Toshiba Portege) have traditionally commanded a very stiff premium, typically going for more than $1,500.

Contrary to what Intel has been saying, Freedman wrote in the research note that the "initial generation Netbook solutions may not succeed in emerging/low income markets as users find feature and performance sacrifice in Netbooks (i.e. 5- to 8-inch screens) unacceptable for a networked family."

He added that Intel will also continue to be challenged by cannibalization of Netbooks: that is, Netbooks will take market share from traditional notebooks.

Down the road, Freedman writes, "we do not expect the PC and handset to converge into a single 'holy grail' device." PC and cell phone makers will continue to build devices that try to bridge the gap. Apple's iPhone is an example of a device at one end of the spectrum, while the 10-inch Asus Eee PC Netbook addresses the other end.

"We expect most users to continue to require two devices: one large form factor device and one small form factor device," he said in the note.

[dascha1]

"We expect most users to continue to require two devices: one large form factor device and one small form factor device,"

Let's not forget the large 37-52" Papa Bear HDTV all-in-wall in our budgets' forecast.

[Mr. Dee]

Wouldn't the Apple PowerBook 100 be considered a Netbook?

[3rdalbum]

Not really; the Powerbook 100 cannot run a modern enough web browser for Mac OS, and it has less processing power than even that $99 Hivision netbook. A NETbook really does require a good web browser :-) If you tried to solve the web browser problem by installing Debian or NetBSD for m68k, I don't think you could run an X server, let alone Firefox, with the low amount of memory in those machines.

[mike.gw]

Vendors should just make devices with 3G and Wifi radios in them. Handhelds, tablets, Netbooks, etc. Cellular vendors have offered "Family Plans" for multiple cell phone devices for years. This allows a family of 4 to have individual phones, yet pool minutes for a savings compared to 4 individual subscriptions. Apply this same model to devices. Verizon, AT&T, etc, should allow me to purchase a basic wireless plan, that will enable me to share the minutes between my cellphone, netbook or whatever specialized wireless device I want to carry. Yet, I would just get 1 bill, with a small premium for being able to use all my devices. To prevent abuses, the carrier could restrict your devices to 1 simultaneous voice/data session at a time. This would allow me to talk on my iPhone, and browse the web with my netbook, but prevent my spouse from using my 3G laptop that I left at home, to browse the web.

[Forked_Tongue]

I think the reason why the demand for the single core Atom processor is wanning is due to the new dual core Atom that's out there now, I expect to see dual core Atom netbooks out soon, it will be interesting to see if the price is comparable to entry level notebooks.

Regarding smartphones, this category won't disappear and will always be restrained by the size that will fit into someone's pocket, the laptop and netbook category is not under any threat of disappearing as long as they have a monitor out that will allow it to connect to hdtv to use as a monitor for prolonged sessions and watching streaming videos.