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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

The chief executives of Intel and Advanced Micro Devices indicated this week that competition will heat up in the market for sleek, inexpensive laptops running Windows 7.

Both CEOs addressed this new market during conference calls after their companies reported earnings this week. Ultrathin laptops are inexpensive, light laptops--typically between $500 and $800--that are sold in a market segment just above less expensive Netbooks.

Intel CEO Paul Otellini on Tuesday said his company is gearing up to supply more power-efficient chips that contain two processing cores for better performance. "The bulk of the units that have shipped to date were single-core versions of the products," Otellini said. "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," Otellini said.

HP's Pavilion dm3 starts at $549 with an AMD processor and $649 with an Intel processor.

(Credit: Hewlett-Packard)

And AMD's CEO Dirk Meyer chimed in on Thursday. "You'll hear more...next month about the product lineup that we'll be rolling out over the next two years, which will include increasing focus on those small form factor notebooks," Meyer said during AMD's conference call. In the more immediate future, Meyer said AMD will have a "broader assortment of (ultrathin) platforms walking into the Christmas cycle."

To date, this new category of laptops has had a minuscule market-share impact because there was little perceived difference between a Netbook and an ultrathin, according to Bob O'Donnell, IDC research vice president. "A lot of people said this is not actually that much faster, so you're going to see a very rapid transition to all dual-core," he said.

Windows 7 should accelerate sales too. "I think we will see better sales next year," O'Donnell said, as HP, Dell, and others bring out ultrathins with Windows 7.

The category received a boost recently with the rollout of HP's Pavilion dm3, which starts at $549 with an AMD processor and $649 with an Intel processor. The dm3 is expected to be available starting October 22 with the launch of the Microsoft Windows 7 operating system.

Other high-profile ultrathins include the $548 Acer Aspire Timeline (at Wal-Mart) and the $549 Dell Inspiron 13.

Because ultrathins are more expensive than Netbooks, they are more profitable for Intel. "Part of Intel's strategy is to pull people up from a Netbook," said O'Donnell.

AMD, on other hand, is focusing solely on the space "between Netbooks and mainstream notebooks," Meyer said, adding that AMD, in effect, created the ultrathin category with the introduction of the 12-inch HP Pavilion dv2 back in January. "We created that category really in partnership with the HP," Meyer said.

A rip-out-the-carpet PC refresh of both software and hardware is in the offing as Microsoft's latest operating system and new laptop designs converge later this year.

Intel's Mooly Eden, general manager, Mobile Platforms Group, speaks at the Intel Technology Summit in San Francisco

(Credit: Brooke Crothers)

At the Intel Technology Summit in San Francisco on Wednesday, an executive described the imminent mobile future, including a major refresh of Netbook silicon, better-designed "ultrathins," and turbo-powered high-end laptops.

Netbooks may undergo the biggest change. Models that appear after Windows 7 ships in October will see the most significant overhaul internally since the Netbook category debuted back in the spring of 2008. Intel's new "Pine Trail" Atom silicon will collapse most of the core chips onto one piece of silicon, improving the power efficiency and boosting performance.

"There will be integrated graphics inside the same (processor) core so you get better performance," said Mooly Eden, general manager of the Mobile Platforms Group at Intel, describing how the graphics processor and main processor will be grafted onto the same chip--an Intel first.

The segment just above Netbooks is ultrathins. These sleek, sub-$1,000 laptops should appear in greater varieties from more PC makers later this year, according to Intel--about the same time Windows 7 hits the streets. Aesthetics will be crucial. "You can't sell a keyboard and a screen," Eden said, describing the ideal ultrathin laptop design. "You have to sell something that somebody will desire. We need to go beyond the great CPU, great performance...to something that a normal consumer can look at say 'I want that.'"

One of the challenges for Intel is making sure these sub-one-inch-thick designs don't overheat. Eden described the use of laminar air flow technology to cool a laptop's outer skin. "This is the difference between thin comfortable and thin uncomfortable," he said.

Intel is also designing new fans that are better at getting hot air out faster. "We are putting a lot of effort into designing fans," said Eden. Intel demonstrated the fan technology at the conference Wednesday.

Intel described laminar air flow technology to cool the skin of ultrathins

(Credit: Intel)

And how does Intel see these segments breaking down into screen sizes? Netbooks will have 10-inch class displays, while the "sweet spot" for ultrathins will 13.3-inch, though some larger ultrathins may have 15.6-inch screens, according to Eden. He also said there may be "some experimentation" with 11.6-inch designs.

Higher up the laptop performance scale are Core i7 mobile processors, also due around the same time that Windows 7 hits the streets. Eden showed how the gigahertz speed--or "clock speed"--of individual mobile processor cores will instantly spike in performance to accomplish a task then, in the next instant, go idle--what Intel calls HUGI or Hurry Up and Get Idle.

HUGI is a power-saving technology: the faster a task is accomplished, the faster the processor can return to idle mode--a state that uses only the bare minimum of power. Along these lines, Eden did a demonstration of Turbo Boost technology.

In the demonstration, one of the cores (inside, let's say, a mobile quad-core chip), would jump well over the processor's rated speed. For example, a processor rated at 2.0GHz, for example, may run one of the cores at 2.60GHz (or higher) while the other cores are idle. In the gaming world, this is referred to as overclocking.

A common theme of all these laptop designs was power efficiency, above and beyond Intel's traditional message of performance. All-day computing--on battery power only--seems to be one of the major rallying cries within Intel.

A few tweaks of the MacBook and Apple could render the Netbook a non-issue.

At the risk of adding to the cacophony of gratuitous advice directed at Apple, the company could bypass the Netbook and go directly to the inexpensive "ultrathin" category--where Apple seems to be headed anyway with the incredibly shrinking price of the MacBook Air. In short, take the thin, aluminum unibody enclosure that is a MacBook and move it downmarket.

(Credit: Apple)

Ultrathins are Netbooks without the compromises. A light, small, pick-up-and-go design that has a reasonable size screen and the horsepower do to what a conventional laptop can do. That is, a slightly smaller, discounted--but not so cheap to be unprofitable--version of the MacBook Air or 13-inch MacBook Pro. (OK, there's the $999 white MacBook but that's not exactly the future of Apple design.)

And Intel chip designers are doing their best to enable this category (while keeping Netbook silicon static) by delivering a wide range of low-power processors that deliver mainstream laptop performance (I count 12 ultralow-voltage, or ULV, processors offered by Intel at present). Intel executives are doing their part too, spending a lot of time talking up inexpensive ultrathin laptops and, by insinuation, putting down Netbooks.

Ultrathins--when and if they arrive in volume--are expected to have a median price point of about $850 and be, at the most, one-inch thick (and, according to Intel, usually thinner).

The timing could be right. This report from CNET's Crave blog suggests that Apple needs to tone down its pricing to maintain market share. (Whether Apple really cares about maintaining market share is another discussion.) And there is a fairly steady drumbeat of commentary saying Apple needs to consider a cheaper laptop.

That said, there's nothing like the here and now. A consumer today can buy an approximation of an inexpensive ultrathin: a refurbished MacBook Air for $999. That's a start.

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.

Hewlett-Packard was one of the early trendsetters in the ultrathin laptop market with its Voodoo design. But the product has languished for more than a year. What happened--or what will happen--isn't clear.

The ultrathin laptop market is hot and one of the most visible laptop segments today. And activity in this segment has spiked recently in the wake of a raft of new, inexpensive thin laptops from MSI, Acer, and Lenovo, using low-power Intel chips.

HP's Voodoo Envy was a trendsetting ultrathin laptop but it hasn't been updated in a year.

(Credit: Hewlett-Packard)

The Apple MacBook Air and Dell Adamo are two of the most prominent designs. The Air has now been refreshed twice. Dell's svelte Adamo was announced in March, complementing its ultrathin business laptop, the Latitude E4200.

But the razor-thin 0.7-inch-thick Voodoo Envy 133--first announced in June 2008--has stood still. ... Read more

Netbooks had a rocky start last year in some markets, Intel's marketing chief said at the Intel investor meeting Tuesday.

"In the first period--June, July, August of last year--there were some in the retail channels that were shipping (Netbooks) as notebooks," Sean Maloney said in a question-and-answer session that was streamed over the Web. "They were running ads that had a continuum of notebooks and had this Netbooky thing in there--it was called a notebook. They had very high return rates and a couple of these guys had return rates in the 30 percent range, which is a disaster."

Maloney continued. "So we gently went back to some of those chains and said if you segment them differently and state up front what they do and don't do, things will be healthier. You've seen some of the European channels saying this (Netbook) product does not do X and being very black and white and very clear."

Intel's marketing chief Sean Maloney showed this slide Tuesday and did a live demonstration showing what a Netbook can't do.

(Credit: Intel)

At the investor meeting, Intel demonstrated on stage the performance gap between a Netbook and a mainstream notebook. In the demonstration, a Netbook and a notebook ran the same high-definition video of the NBA basketball playoffs. The video on the Atom processor-powered Netbook was jerky and dropped frames, while the Core 2 chip-based notebook's video was smooth.

The point was obvious: the Netbook's Atom silicon falls short in performing some tasks that a mainstream notebook handles with relative ease.

Along these lines, it also became clear at the meeting that there is a struggle brewing to clearly define to consumers the difference between Netbooks and upcoming ultra-thin notebooks, also referred to as the Consumer Ultra-Low-Voltage or CULV category of laptops. CULV notebooks--due in June--are expected to be priced in a market segment just above Netbooks.

Intel executives were peppered with questions from the audience--mostly representatives from Wall Street firms--about Netbooks. One audience member wondered whether Intel "had considered doing an informational advertising campaign" and asked: "Do you find that at all necessary to clear up some of the misapprehensions about what you can and cannot do with these devices (Netbooks)?" This question elicited the response from Maloney quoted above.