Business Tech

The settlement between Intel and Advanced Micro Devices isn't just a matter of business between companies.

Sure, it's a big financial deal when the biggest chipmaker in the world forks over $1.25 billion to its closest competitor. And the settlement, announced Thursday, officially puts an end to a five-year battle over licensing disputes and AMD's complaints of unfair competition.

Beyond that, there will also be an effect on the two chipmakers do business with PC makers, and how they price their chips. Still, the settlement won't likely foment major changes for consumers shopping for a new laptop or desktop.

Choice
AMD processors are readily available from most PC makers, the major exception being Apple. If you really wanted one before the settlement came along, it's not like you couldn't get an AMD-based machine in stores or online. Intel now has agreed basically to not punish PC makers that choose to put AMD chipsets in some of their machines, but that doesn't mean Hewlett-Packard, Dell, Acer, Apple, and others will suddenly want to use AMD's latest chip in their flagship products. AMD will probably continue to be used as the "value" option for PC makers looking to offer cheaper notebooks.

PC prices are already pretty low thanks to the Netbook movement brought on by Intel, Acer, and others.

(Credit: Acer)

That said, there is room for AMD to increase its share in processors used in laptops. The company has made improvements in that area recently, particularly in the ultrathin category, according to observers. So if you're paying attention, you might see more from AMD when shopping for a new laptop.

Prices
My colleague Brooke Crothers made an excellent observation last week, that Intel, while accused of dampening competition with AMD, has actually kept prices very low for consumers buying laptops. Thanks to the Netbook movement, which Intel spurred with its Atom chip starting in late 2007, the average price of the small, lightly featured Netbooks is now below $500. While not everyone is in the market for a Netbook, all shoppers have ended up benefiting. In order to recoup some of the lost profit due to the popularity of Netbooks, the industry--led by AMD and its consumer-ultra-low-voltage chips--has now focused on selling ultrathin laptops, which typically cost somewhere between $500 and $900.

Though one might assume that Intel and AMD hitting reset on their competition and going head to head would bring prices down, that's not likely. If anything, prices may actually go up a bit, said Gartner analyst Martin Reynolds.

"This [settlement] potentially means that products cost a little more to manufacture because we don't have this irrational competition between the two," he said. "[PC makers] won't be able to pit the two against each other as much."

Speed to market
What matter to consumers most are price and capability. What matters to Intel and AMD is getting faster, cheaper processors that enable better battery life in laptops into as many new computers as possible. The speed of this cycle is very important. The faster the two companies come out with new products, the more often people will go shopping for new laptops.

AMD's product road map has severely suffered in comparison to Intel's over the last several years. Intel whips out new products on a regular yearly schedule. A quick infusion of $1.25 billion from Intel should do a lot to help AMD fund new product design in order to better keep up. Again, there won't be a significant change immediately, but over time we may see their speed to market pick up, Gartner's Reynolds noted.

Besides money, the end of the legal squabbling also means that AMD is freed up from focusing on the lawsuits and what Intel has done wrong, and can help the company focus on the task at hand: making good products at reasonable prices. So if not directly, the settlement will at least indirectly benefit those looking for laptops and desktops at their local retailer or online.

Of course the vast majority of shoppers, outside of those tuned into technology, probably won't pay much mind to whether there's Intel or AMD inside the laptop as long as it meets their expectations, said analyst Michael Gartenberg.

The buying decision is actually very simple usually, he said. "Does it even matter anymore? It's about who's delivering the cool machines at the price that I want."

After three quarters of losses, Lenovo has turned a profit again. The computer maker announced Thursday that its fiscal second-quarter earnings more than doubled to $53 million versus $23 million a year ago.

Profit for the quarter ended September blew way past estimates of only $24 million from analysts surveyed by Bloomberg.

Despite a 5.2 percent sales decline to $4.1 billion from $4.3 billion in the year-ago quarter, Lenovo achieved its profits through extensive cost cuts and a record leap in market share.

(Credit: Lenovo)

The company had previously kick-started a major restructuring program designed to trim expenses and streamline business operations. As a result, Lenovo was forced to lay off a sizable number of employees and take a one-time restructuring charge of $3 million in the second quarter. But the company now expects to save around $300 million annually.

During the quarter, Lenovo says it also saw its worldwide PC shipments surge 17 percent over the prior year, dramatically outpacing the industry average of only 2.3 percent.

"In the last quarter, our share in the global market climbed to a historic high and we returned to profit," said Lenovo CEO Yang Yuanqing in a statement. "At the same time, our expenses-to-revenue ratio improved notably, reaching the best level since the acquisition of IBM's PC division. These achievements bear witness to the clear strategies we set at the beginning of the year and our effective execution of those strategies."

Lenovo's quarterly results were powered by its notebooks, which contributed 63 percent to overall revenue. Though notebook sales dipped 1 percent from the prior year, shipments shot up 37 percent, compared with an industry average of 16 percent.

During the quarter, the company unveiled a few new products, including the IdeaPad U450p, a thin and light consumer laptop, and SimpleTap, an application to help users navigate the touchscreens on Windows 7-enabled machines like the ThinkPad X200 Tablet and ThinkPad T400s.

Desktop sales, however, fell 13 percent from the prior year's quarter, kicking in only 35 percent to Lenovo's overall revenue. Desktop shipments fell 2 percent, but outpaced the industry average of a 12 percent decline. The company said it has reacted to the PC market shift from desktops to laptops by introducing new entry-level low-cost desktops and revamping its product line for small and medium-sized businesses.

Lenovo enjoyed a stellar second quarter in its home base of China where sales jumped 9 percent to $2 billion. Shipments in the country jumped 28 percent compared with the average of only 0.1 percent. Already the leading PC vendor in China, the company boosted its market share there to 29.4 percent.

Earlier this year, Lenovo said that it would refocus its efforts on China and other emerging markets, a strategy that appears to have paid off.

"Our results are moving in the right direction and we are particularly pleased with our performance in China and in the transactional business model," said Lenovo Chairman Liu Chuanzhi in a statement.

The year had been a volatile one for Lenovo. The company was hit a string of quarterly losses, leading to the resignation of President and CEO William Amelio in February. Job cuts and the restructuring also took their toll.

But based on its second quarter, Lenovo is optimistic about the near term.

"In the coming quarters, we will continue to reinforce our leadership in China, improve the sustainability and profitability of mature markets, seize growth opportunities in emerging markets and our transactional business, continue to strengthen cost structure, and innovate with raising efficiency and customers' needs in mind," said Chuanzhi.

Acer recently outpaced Dell as the second largest PC seller in the world. Is No. 1 Hewlett-Packard next on the list?

Acer Chairman J.T. Wang reportedly intends to ship 40 million notebooks in 2010, a number that could help the Taiwanese company challenge and even overtake current champ Hewlett-Packard for the top spot in portable PC sales.

To achieve this goal, Acer is looking to kick up revenue by more than 70 percent over the next three years, said Wang in an interview with Reuters.

Credit: Acer

J.T. Wang

Much of that revenue growth is likely to come from an anticipated 50 percent gain in sales for low-cost Netbook PCs. As the economy improves, Wang expects to sell an ever greater number of low-priced, portable PCs, a segment that has been very kind to the company.

As chairman since 2008, Wang has led Acer as its sales and market share have shot up over the past year. And with revenue expected to hit $18 billion this year, he's already targeting the next milestone.

Netbooks continue to soar in sales at the expense of the venerable notebook, according to a new report from DisplaySearch.

Revenues for Netbooks, or mini-notebooks, rose to $3 billion in the second quarter of the year, a leap of 264 percent over the second quarter of 2008, according to the new "Quarterly Notebook PC Shipment and Forecast Report" released Thursday. With those gains, Netbooks now enjoy an 11.7 percent share of the portable PC market.

(Credit: DisplaySearch)

Though traditional notebooks still command an 89 percent slice of the market, their second quarter sales fell to $23.2 billion, a 14 percent decline from the second quarter of 2008.

Measuring 2009's second quarter against the prior year's quarter, sales fell in all subcategories of the portable PC market, including ultraportables and desktop replacements, the report noted. PCs in the 13-inch to 16-inch range managed to eke out a gain, but only measured against the first quarter of 2009.

The low prices of Netbooks appeal to consumers looking for a second PC and to those in emerging markets who don't need the rich and costly features of a large laptop. The market has also been buoyed by cable and telecommunications providers who have doled out Netbooks to customers who sign up for lengthy contracts.

It made a splash with the Eee PC. Now Asus, once known chiefly as a components maker, is looking to make the leap to consumer gadget maker.

One of the largest manufacturers of motherboards for two decades, albeit it a largely unsung one, the Taiwanese company finds itself smack in the middle of a transition from components maker to serious contender in PCs and accessories. Asus (pronounced "ah-soos") is attempting to establish itself as a brand name worldwide while making new forays into software and design.

The original Eee PC, launched in 2007.

(Credit: Erica Ogg/CNET)

In addition to creating a new line of consumer products like TVs, VoIP phones, e-readers, and streaming Web video gadgets, the company's leadership has its sights squarely set on being the third-largest notebook manufacturer in the world by 2012, while remaining the world's largest supplier of motherboards. While it sounds somewhat ambitious for a company known more for nuts and bolts, there's precedent: Fellow Taiwanese company Acer was in a very similar position a few years back and was able to transition from microchip maker to one of the largest laptop producers in the world.

Could Asus could be another Acer in the making?

Repeating Acer's success is, no doubt, difficult. But the two companies have a lot in common: Both started as components makers in Taiwan, and made the leap into making PCs and smartphones (Acer acquiring E-Ten, Asus partnering with Garmin). Asus' very existence was also made possible by its rival--it was founded by former Acer engineers.

In terms of market share, Asus is about where Acer was in 2004. Back then, Acer had a tiny, 3.6 percent share of the worldwide PC market, according to data from IDC. Today, Asus is in a remarkably similar place, with just 3.63 percent share. Meanwhile, the surging Acer has tripled its hold on PC buyers from where it was five years ago to more than 10 percent, right behind perennial leader Hewlett-Packard, and Dell.

Acer, of course, is one of the PC industry's most recent success stories, quietly blossoming from computer parts maker to established player in the PC world. It put the rest of the industry on notice when it scooped up Gateway in a $710 million deal, which included the E-Machines brand, and later acquired Packard Bell. It's a collection of lower-tier brands, but one that's been able to sell a lot of machines.

Acer's best-selling Netbook, the Acer Aspire One.

(Credit: Acer)

Asus, in building its Eee family of computers and gadgets and Asus-branded laptops, is relying on its team of Chairman Jonney Shih and CEO Jerry Shen to transform the perception of the company into a recognizable brand. Shih, who came over from Acer (along with Asus' original founders in 1989) is the ideas guy, and Shen puts them into action. It was Shih's idea for the Eee PC and the upcoming Eee Keyboard, and Shen is responsible for making sure the company's vast design and engineering teams make it happen.

But while Asus has some things going for it at that same point in their history that Acer did not--a recognizable product in the Eee PC--it's also facing very different challenges.

Acer was able to ride the huge growth in notebook PCs in the middle part of this decade. Eventually, it was able to buy its way into brand recognition in the U.S. with Gateway and in Europe with Packard Bell. Acer also timed the Netbook craze perfectly with its Aspire One, and was one of the first Netbook makers to strike deals with mobile carriers to offer 3G service on subsidized Netbooks.

Netbooks now make up one fifth of the PC market and are still chugging along--unit sales are expected to double from 16 million last year to 33 million by the end of 2009--but there's less room for dominating the market now because there are so many brands in the space, including much more recognizable names. Asus, for its part, is not intimidated. "We're used to it," Shih said recently in an interview. "Starting from the motherboard industry, competition is very normal."

Instead, it continues to churn out new versions of its Eee PC Netbook, with larger screens, better design touches, and slightly different form factors, like the convertible touch-screen version that debuted at CES this year.

More focus on aesthetics
But what Asus really has going for it are the leeway to be creative and the ability to come up with genuinely interesting ideas. Apple, they are not, but the company culture is now focused on making better-looking products.

"We're moving from our original culture of fundamentals and results, and we're now focused on innovation and aesthetics," said Shih.

It showed that with the Eee PC and graphics cards that are designed to resemble a Formula One race car. And now it's thinking beyond the personal computer with plans for a line of e-readers, televisions, and a streaming video device. Sound familiar? Acer also ventured outside of laptops when it bought smartphone maker E-Ten last year, in an admittedly less ambitious plan to diversify.

The upcoming Eee Keyboard.

(Credit: Asus)

The Eee Keyboard also shows something which Taiwanese component companies aren't normally known for--ingenuity. The Eee Keyboard looks like a standard desktop keyboard but it has a computer inside, as well as a small 5-inch touch screen where the number pad should be. Using a wireless high-definition signal, it allows anything on the computer, like a Web page, or a video site like Hulu or YouTube to be viewed on a larger TV or monitor via a small adapter. You can also multitask while watching video and check Twitter, Facebook, or e-mail in the smaller touch screen in the keyboard.

It's a computer masquerading as a home appliance, an area we'll see Asus operate in even more. Since the initial success of the Eee PC, Asus has introduced a number of Eee-branded products, including the Eee Monitor, the Eee Box, Eee VoIP phone, and soon the Eee Keyboard and even the Eee Reader.

"We had to grow and diversify. But we didn't want to do things that are too far apart. We have to do technology that is related: communications, video, audio," Shih said. "The whole world is changing because of the Internet. Everything digital is converged. We have to take our vision for the whole Eee family there."

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.

More than 38 million Netbooks shipped in the second quarter of 2009, helping them capture a 22.2 percent share of the portable PC market, according to a report released Monday from DisplaySearch.

Quarterly demand for Netbooks, or mini-note PCs, jumped 40 percent over the first quarter, according to DisplaySearch's latest "Quarterly PC Shipment and Forecast Report." This surge contrasts with notebook shipments, which grew 22 percent over the same period.

Former Netbook pioneer Asus has been losing sales to other manufacturers, notes the report. Acer, HP, Dell, Lenovo, and Toshiba have all jumped into the mini market with their own offerings.

The lower price of Netbooks has helped them win a bigger market share over notebooks in Latin America and China, notes DisplaySearch. These regions have many first-time PC buyers bypassing notebooks with lots of bells and whistles in favor of simpler but cheaper Netbooks.

Netbook makers can also thank telecommunications providers, who have been subsidizing mini-note PCs to lure customers. In many Western European countries, telecom companies subsidize 100 percent of the Netbook's price tag when customers sign up for a two-year data plan, says DisplaySearch. Cable providers have also gotten into the act, offering heavily-discounted Netbooks for people who sign up for cable TV, Internet, and phone service.

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.