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During Intel's earnings conference call on Tuesday, CEO Paul Otellini talked about the growth of notebook PCs versus Netbooks, and Windows 7 adoption in business, among other topics.

Otellini was quick to trumpet the fact that its mainstream notebook business beat Netbook growth. "We saw the sequential unit growth rate of notebook processors and chipsets actually exceed the growth rate of Atom processors and chipsets," he said.

Later in the call, Otellini said: "While Atom and Netbooks are important growth drivers for us, our traditional notebook business remains one of the primary drivers of revenue growth and we expect that to continue in the future."

Otellini, again in the call, expanded on this theme, adding that while Netbooks should see significant growth in 2010 over 2009, the notebook market is flourishing. "We're still bullish (on Netbooks) but what we've seen this quarter though is that the notebook market is alive and well and Netbooks are market-additive for Intel and the industry," he said. "Market-additive" is code for an ancillary product, not a mainstream product.

Intel CEO expects more attractive ultra-thin laptops in the coming months

(Credit: Intel )

He also addressed the new category of ultrathin laptops, which are inexpensive laptops--between $500 and $900--that slot in above Netbooks. "The bulk of the units that have shipped to date were single-core versions of the products. Late last quarter, we introduced the dual-core version of those products. You'll see a number of laptops show up in retail with the dual-core versions for the holiday season...more ergonomically designed, thinner, lighter."

Responding to analyst questions, Otellini also addressed Windows 7 adoption in business. "We see a lot of interest at corporations around Win 7 and the new Nehalem-based (PC models)," he said, referring to Intel's new Nehalem-based Core "i" series of processors. "They're made for each other in terms of the performance and power management and security characteristics."

He continued: "I would expect that the (corporate Windows 7) evaluation process will happen over the rest of this year and we'll start seeing corporate purchases on a refresh basis begin in 2010."

Here's a rundown of other comments:

• Consumer segment strong: "The strength in our business remains primarily consumer driven with broad-based demand across all geographies."--Otellini.
  
• Growth phase: Refuting a question about Intel becoming "smaller" next year: "We're finished with the cutting phase of our efficiency efforts and now in the growth phase of that efficiency efforts."--Chief Financial Officer Stacy Smith.
  
• Inventory hubs: At large PC customers, component inventories levels are at roughly half of the peak level late last year and approximately flat throughout 2009. Intel has a better handle on inventories now using a mechanism called inventory hubs. "We hold the inventory for our large OEM customers, who then pull inventory only if needed...This give us increased visibility into real-time production levels."--Otellini
  
• Nehalem server processors: (dual-processor). "It's not so much an upgrade cycle that's driving the volume right now, it's economics of the data center. People are looking at swapping eight to nine older-generation servers for a single Nehalem server."--Otellini.
  

It's still dog days for those in the business of making and selling PCs.

Global PC shipments fell 2.4 percent in the second quarter of the year compared with the same quarter last year, and the value of those shipments dropped 19.1 percent over the same period, according to a report released Wednesday by IDC.

Desktop shipments dropped 17 percent for the quarter as more and more people continue to opt for portables, according to IDC's Worldwide Quarterly PC Tracker report. Consumer laptops and Netbooks accounted for the only bright spot, with overall shipments growing 44 percent over a year ago from a low of 28 percent.

However, the growth in portables came at a cost. Traditional laptops saw shipment growth of 13 percent for the quarter, but the financial value of those shipments declined 6 percent.

Netbooks proved the most popular, with shipments rising almost 25 percent, from 5 percent a year ago. But again, this trend brought down overall value, with Netbooks costing around $400 compared with $900 for traditional laptops.

(Credit: IDC)

IDC sees better times ahead, expecting the market to improve for both unit growth and value. Desktop volume is forecast to be flat in 2010, but portable PCs will grow 16.5 percent, said the report.

The Netbook market will continue to rise. But the trend toward thin, light laptops using CULV (consumer ultra-low voltage) processors will limit the market share of Netbooks, boosting the value of overall PC shipments.

"Although mininotebooks have hurt margins of traditional notebooks, we can expect Ultrathin Notebooks based on new low voltage processors from Intel and AMD to somewhat stem the tide," said Jay Chou, research analyst for IDC's Worldwide Quarterly PC Tracker.

Over the longer haul, shipments of portable PCs should rise 17 percent on average through 2013, delivering 11 percent growth in total PC shipments and close to 5 percent in the value of those shipments.

Updated at 1:30 p.m. PDT: adding information about Core i7, i5, and i3 branding.

Intel's upcoming "Arrandale" will be the first highly integrated chip of its kind from Intel and is expected to run the gamut of laptop designs, from ultrathin to mainstream.

Dell ultrathin Adamo: a category of laptops that will likely use a number of different Arrandale chips

(Credit: Dell)

Due by the fourth quarter, it will be the first Intel product to put two processor cores and a graphics function together in the same chip package. Intel covered the underlying architecture in a presentation at the Hot Chips conference in Palo Alto, Calif., this week and in a recent blog described the design, saying it "will be the basis of all upcoming new Core chips (Core i3, i5, and 7) over the next few months."

Arrandale will come under the Core i3, Core i5, and Core i7 brands, using the chipmaker's most advanced 32-nanometer technology (Intel chips are currently built on a 45-nanometer process) and will populate consumer and business laptops.

The compact chip, however, is not without its challenges. "A high level of integration is always a compromise. There's never a free lunch," said Ashok Kumar, an analyst at investment bank Collins Stewart. "It's a question of how much performance you have to compromise to get that level of integration and low power consumption."

"There won't be a significant jump in performance, but price and power consumption will be lower," said Jon Peddie of president and founder of Jon Peddie Research.

Last month, Japanese-language technology Web site PC Watch published specifications for Arrandale and other upcoming Intel processors that were, PC Watch says, obtained from an OEM (original equipment manufacturer) computer manufacturer. It shows Arrandale coming in mainstream as well as low-voltage and ultra-low-voltage versions. The latter two classes of chips have typically gone into upscale svelte designs such as the Dell Adamo and Apple MacBook Air.

Arrandale-based chips, however, are expected to quickly go downmarket and bring Intel's new Core i "Nehalem" microarchitecture to the new category of laptops called ultrathins, which resemble the MacBook Air and Dell Adamo but are about half the cost.

A separate series of new chips for Netbooks, codenamed Pine Trail, will also appear by early 2010 and feature a high level of integration.

The first Core i7 mobile processors will arrive by September or October. This quad-core series, codenamed Clarksfield, will be for high-end gaming laptops and mobile workstations. (For the codename buffs who actually keep track of these things, Calpella is the platform for Clarksfield, Westmere is the platform for Arrandale.)

Cheaper or faster?

That's going to be the burning question for computer shoppers perusing the aisles of electronics retail stores this fall. That's when the new line of notebooks powered by consumer ultra-low voltage (CULV) chips will start appearing in force. They'll be sitting right next to the trendiest offering in portable computing, Netbooks. Netbooks have come to be viewed as the best way to get cheap, portable computing, but CULV notebooks could change that.

CULV-based notebooks are poised to give Netbooks a run for their money.

(Credit: Macles)

Netbooks are mini-notebooks with screens between 9 and 11 inches, that have lower-power processors, and fewer features, but very attractive price points. CULV-based notebooks are ultrathin notebooks. They come with a more traditional 12- or 13-inch screen, but are also very low-power, so they have great battery life. Starting at $600 to $1,000, they'll occupy the price range just a step above Netbooks, which run between $200 and $500.

That's where the choice comes in. Will consumers go for a Netbook, which is less expensive, sometimes harder to use, but very portable? Or a sleek-looking notebook with great battery life and a slightly higher price? Just a bit more money could mean a far more fully featured computer. Who would still go for a Netbook?

Some analysts suggest many won't.

For its part, the provider of these ultra-low voltage chips, Intel, would prefer to steer people toward CULVs. Sure, Intel is also responsible for the Netbook phenomenon, but those devices carry much lower profit margins. Intel CEO Paul Otellini on Tuesday talked up CULV notebooks and their advantages over Netbooks, saying, "Now, if you want a thin and light notebook, you don't have to just pick a Netbook. You can pick an affordable notebook that has more functionality."

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During Intel's earnings conference call Tuesday, CEO Paul Otellini said inexpensive "ultra-thins" will give users what they're missing in Netbooks, a theme that the chipmaker has been reiterating in various forums lately.

Acer Aspire Timeline ultra-thin laptop

(Credit: Acer)

Intel continues to try to maneuver this new and more profitable category of laptops into territory where Netbooks continue to hold mindshare. Ultra-thins are low-cost laptops, typically with 13-inch screens, based on Intel's ultra-low-power (ULV) chips. Netbooks have screens usually no larger than 11 inches and use Intel's lower-cost, lower-performance Atom processor.

Echoing prior comments by other executives, Otellini said that ultra-thins address the Netbook's shortcomings. "When people try to do 3D games on these things (Netbooks) or try to run their office applications on them, they tend to think it's a bit slow and that isn't just the processor, it's the entire architecture," he said in response to analyst's question during the conference call, which was streamed on Intel's Web site.

"Now, if you want a thin and light notebook, you don't have to just pick a Netbook. You can pick an affordable notebook that has more functionality," Otellini said.

Well-established consumer perceptions of Netbooks and the higher prices of ultra-thins, such as the $699 Acer Aspire Timeline, makes the latter a challenge to position in the marketplace.

"When we first released our ultraportable (ultra-thin) a lot of people looked at it and said, 'oh it's Netbook,'" said Kelt Reeves, president of enthusiast PC maker Falcon Northwest. "No, it's close to a Netbook in size but it's much, much more capable," Reeves said, addressing user misconceptions.

Windows 7 may not go very far in correcting all the confusion. "Windows 7 runs well even on a $199 Netbook," said Ashok Kumar, an analyst at investment bank Collins Stewart. Kumar said Intel may continue to have trouble managing consumer perceptions of Netbooks and ultra-thins.

Otellini also revisited the subject of cannibalization--that is, the tendency for Netbooks to take market share from more mainstream laptops. "We're talking about a total cannibalization that's probably no more than 20 percent," Otellini said, in response to another analyst question.

The Intel CEO also said that Netbooks may become increasingly popular as a wireless 3G device sold by telecommunications companies. "I think in 2010 that's likely to be a large part of the business...There was a Best Buy, Sprint Netbook ad last week at $0.99 if you signed up for two years...And you'll start seeing more of that," he said.

Updated at 3:45 p.m. PDT: adding comments from earnings conference call.

Intel on Tuesday posted a second-quarter loss of $398 million, stung by a fine imposed by the European Union, but the chipmaker is optimistic about the second half of the year as it beat analyst estimates.

The loss of 7 cents a share compares with a profit of $1.6 billion, or 28 cents a share, reported a year ago. Without the $1.45 billion EU fine, Intel had a profit of $1 billion, or 18 cents per share. Analysts had expected a profit of 8 cents per share.

"Intel's second-quarter results reflect improving conditions in the PC market segment with our strongest first- to second-quarter growth since 1988 and a clear expectation for a seasonally stronger second half," said Paul Otellini, Intel CEO in a statement.

In an earnings conference call Tuesday afternoon, Otellini qualified this statement somewhat, saying that there won't be a "recovery to prior levels."

Revenue was $8 billion, down from a year-earlier $9.5 billion. Revenue from Intel Atom microprocessors, used widely in Netbooks, and chipsets was $362 million, up 65 percent sequentially.

Gross margin, a crucial profit indicator, was 51 percent, up 5.5 points sequentially but down from 55.4 percent posted a year earlier.

The replenishment of inventories by customers was a positive sign, said Stacy Smith, Intel's chief financial officer, speaking during the conference call. "In anticipation of a seasonally up second half, the supply chain (buyers of Intel chips) began refilling inventory positions that had been depleted over the past two quarters," Smith said. "As a result, we experienced better-than-expected demand for microprocessors and chipsets."

"Consumer purchases led the way," Otellini said in the conference call, referring to consumer laptops that saw growth.

Corporate enterprise business, however, was "weak," Otellini said. Though the Intel CEO expects companies to update aging computers, "we're not counting on that in large measure in 2009," he said. Dell executives said Tuesday that global technology spending will likely remain weak for the near term as companies delay computer purchases, according to an AP report.

Otellini said he had "no opinion" on the impact of Windows 7--due later this year--in the consumer market but expected businesses to "get ready for buying next year."

Market researcher iSuppli said Tuesday that for the first time since the Dot-Com bust of 2001, the global PC market will suffer a contraction in unit shipments in 2009, due to a combination of falling IT spending and plunging sales of desktop computers.

Global PC shipments are expected to decline to 287.3 million units in 2009, down 4 percent from 299.2 million in 2008, iSuppli said.

"If you look across the pond in Europe demand is decidedly weak," said Ashok Kumar, an analyst at investment bank Collins Stewart. "And in China all the anecdotal data points are no better than tepid. None of the geographies are firing," Kumar said.

Updated at 12:15 p.m. PDT: adding Intel comment and additional discussion about laptop casing.

An analyst said Wednesday that some PC makers are hitting snags as they try to bring out ultra-thin laptops.

"Early production units being built in plastic, with the bottom case being plastic, are cracking," said Broadpoint AmTech analyst Doug Freedman, in a phone interview, referring to discussions he had with original equipment manufacturers (OEMs) and and original design manufacturers (ODMs). Typically ODMs don't market under their brand name but supply devices to OEMs, which then slap on their own brand.

Freedman wrote about the problem in a research note distributed Wednesday morning.

"So, to get that really thin form factor that they're after, they're probably going to have to go with a metal case," he said.

Pricey ultra-thin laptops like the MacBook Air and Dell Adamo are made of metal. Lower-cost ultra-thin laptops are typically made of plastic.

In the report, Freedman refers to ODMs and OEMs trying to bring out laptops based on Intel's "CULV" technology. CULV, or consumer ultra-low voltage, is a strategy Intel launched at Computex in June to engender a category of low-cost ultra-thin laptops that offer the portability of Netbooks but are more powerful--and more expensive. These laptops use low-power "ULV" (ultra-low-voltage) processors, as dictated by the space-constrained, ultra-thin designs.

"ODMs were advising their customers to switch to full-metal cases," Freedman said of his discussions with ODMs. "Cost-reduction features are going to be hard in that form factor on the industrial design side," he said.

Intel issued a statement Wednesday saying that the case problem that Freedman refers to has nothing to with Intel processors. "Case design issues reported to be found by an ODM, not consumers, in early production units for ultra-thin laptops have nothing to do with Intel processors whatsoever. We want to be clear that this is not a CPU design issue," Intel said in a statement.

Freedman said some PC makers are opting for large, 11- and 12-inch Netbooks with the Atom processor--and Nvidia's Ion chipset in some cases--instead of ultra-thin ULV laptops based on Intel's Pentium, Celeron, or Core 2 architectures.

"Just look at Lenovo. They're the guy that is not falling in line with Intel's aspirations of 'we don't want 12-inch Netbooks.'" he said.

This summer, both Samsung and Lenovo will begin marketing 11- and 12-inch class Netbooks, respectively, based on the newest Atom processor and Nvidia's Ion chipset.

Intel has updated its price list with new processors, including new Core i7 chips and a bevy of mobile models.

HP m9600T features the top-of-the-line Core i7 975

(Credit: Hewlett-Packard)

Many gamers have been waiting for the update of the "Nehalem" Core i7, which was introduced last November. Intel's update Tuesday includes the newly minted i7-975 (8M L3 cache, 4 cores, 8 threads, 3.33GHz, 6.4 GT/s QPI). This is priced at $999.

For the uninitiated, threads effectively double the number of tasks a processor can do, GT/s stands for giga transfers per second, and QPI is Intel's new Quick Path Interconnect technology.

But there's more. The i7-950 boasts identical specifications except for a lower 3.06GHz clock speed and 4.8 GT/s. It is priced at $562.

Hewlett-Packard's m9600T tower can be configured with the i7-975 and a 1GB Nvidia GeForce GTS 250 graphics card for just over $1,900.

Other vendors such as Falcon Northwest offer decked-out systems at a big price. The Falcon Northwest Mach V is priced at more than $4,000 with 6GB of memory, 1GB Nvidia GeForce GTS 250 graphics card, and a 256GB solid-state drive.

Equally anticipated are the new Intel ULV (ultra-low-voltage) processors. Though some of these were were listed at the end of March (such as the 5-watt, single-core SU3500 and 10-watt, dual-core SU9600), the 10-watt Pentium architecture-based SU2700 (1 core, 2M Cache, 1.30 GHz, 800MHz front-side bus) is new. Intel is not listing this chip, nor is it publishing a price. Though notebooks with this chip are expected to go as low as $499, according to Intel.

Laptops using the ULV chips include the ultra-thin Asus UX30, which will feature the 1.6GHz SU9600, among other chips, and the MSI X340 X-Slim, which sports the SU3500.

Intel also listed new mainstream mobile processors, including the 35-watt T9900 (6M L2 cache, 2 cores, 2 threads, 3.06GHz, 1066MHz FSB). This goes for $530.

Also listed as new is the 28-watt P9700 (6M L2 cache, 2 cores, 2 threads, 2.80GHz, 1066MHz FSB). This lists for $348. The existing T9600 (2.8GHz) fell in price 40 percent to $316 from $530.

Intel marketing chief Sean Maloney

(Credit: Intel)

Unleashing innovation is key no matter what laptop category you're talking about--whether Netbooks or low-cost notebooks, said Intel's sales chief, ahead of this week's Computex trade show in Taipei.

I spoke briefly with Intel's marketing chief Sean Maloney--who is at Computex this week--on Monday night and asked him about how the wave of low-cost, thin notebooks based on his company's "ULV" (ultra-low-voltage) chips may affect Netbook sales.

New, aesthetically appealing, inexpensive notebooks, such as the $699 Acer Aspire Timeline, could make Netbooks less attractive, which pin a lot of their popularity on bargain-basement pricing.

Maloney said Intel is not going to fret over sacrificing one category of laptops because it needs to protect another.

"It's a loser mentality to not develop one segment because you're worried about the other," he said. "I think we have several years ahead of us where we can innovate the heck out of any of these categories without getting defensive about the other one. You just need to unleash innovation in all of the segments and see what happens."

And what about the new 3G-capable Netbooks--which Qualcomm had dubbed "smartbooks"--appearing at Computex from Asus and upstarts like Mobinnnova which are tied to the ARM processor and sold through telecommunications providers? "The more the merrier. The more innovation there will be. It's good for the industry to have competition," Maloney said.

New ULV notebook wave: Acer Aspire Timeline has a number of the same specifications and attributes of the upscale Dell Adamo but is priced more than $1,000 below the Adamo

(Credit: Acer)

Maloney continued. "We've shipped very large numbers of Netbooks through service providers in the last year and a half. Most of the service providers around the world have been shipping Netbooks for some time," he said. Hewlett-Packard, for instance, is now selling an Intel Atom-based Netbook at Verizon stores in the U.S. with 3G built in.

And, how important is the rollout of the new ULV chips? "This is a big announcement and it's kind of on par with the original announcements we made with the original Centrino," Maloney said.

"Fashion is going to play an ever-bigger role (in notebooks). It's like the cell phone industry four or five years ago. An incredible number of designs are coming out in the thin form factor."

"Very light, very thin, and incredibly long battery life," he said of the ULV laptops. Sounds a lot like the evolution of the Netbook--except it isn't called a Netbook. But, as Maloney said, may the best product category win.