As Netbooks Fade Away, Intel Repositions Atom for new Markets

With tablets obliterating the netbook market, Intel is looking for new places to sell its Atom chips. Fortunately, there are some outlets.

Netbooks may set some kind of technological record for coming and going in a major hurry. As quickly as they arrived in 2008, they are now fading out, slaughtered by their own shortcomings and the popularity of tablets (well, one of them).

And as they go, so are the fortunes of the Intel Atom processor. The scaled-down x86 processor, meant to go into low-power, ultralight devices as an alternative to the ARM processor, was pretty much tied to netbooks even though Intel aspired to cover many markets. So as one sinks, so does the other.

Last year saw the mobile Atom market hit serious decline: down 7% in Q1 2011 from 2010 sales; then down 14% in Q2; down 28% in Q3 and plunging 59% in Q4, according to Mercury Research, which follows the semiconductor market. By mobile Atom market, he means mobile devices, which is about 90% netbooks.

“This is a highly localized problem around netbooks,” said Dean McCarron, president of Mercury Research. “That’s when the iPad really started ramping up. I have been a skeptic of iPad eroding the tradition PC market, but from a discretionary, second system perspective you can see how someone might pick an iPad over a netbook.”

The message the market seems to be sending is that it really cares about performance and screen resolution, and netbooks had neither. Even in emerging markets, where netbooks and computers running Intel’s old Pentium and Celeron processors are targeted, sales fell in favor of better processors, McCarron said.

The Core i3/i5/i7 lines are selling well in places like Brazil as their economies grow and the dollar exchange favors foreign markets. Throughout 2011, exchange rates accounted for half of the average selling price improvements in places like Brazil.

Intel acknowledges the downswing in netbooks but says there is still life in the product. “We see some growth in places like Latin America and southeast Asia and parts of Europe. There's also a Classmate PC program using netbooks. The market for netbooks based on the numbers I've seen is in the tens of millions each year,” said Kathryn Gill, a spokesperson for Intel.

Gill said that this year the Atom is going into smartphones, tablets and hybrids and specialized verticals like intelligent systems for health care and retail. “I would caution you to remember Atom is not just netbooks,” said Gill.

True. McCarron notes that nettop and thin client devices are doing very well for Intel, with 73% year-over-year growth in Q4 of 2011. As for smartphones and tablets, McCarron would only say “They have been investing in this for a while and the investments are on the verge of paying off.”