Intel, Microsoft Look Away as Beefed-up Netbooks Blur Lines

Microsoft and Intel's attempts to confine netbooks to the low end of the market to protect mainstream notebook PC sales have taken another hit.

Asustek Computer Inc. confirmed on Saturday rumors that an upcoming model of its popular Eee netbook would ship with an internal DVD drive. The Eee PC 1004DN will come with a 10-inch LCD screen that supports 720p HD video, a 120GB hard drive, and a reported price tag of between $531 and $590.

While the Asus 1004DN's DVD drive and 720p video playback appear to be firsts for netbooks, its other attributes, many of which exceed the guidelines for netbooks set out by Microsoft and Intel last year, trail other competing models.

Hewlett-Packard Co.'s Mini 2140 will have a 1366x768-resolution screen with the same horizontal resolution of 19-inch widescreen monitors. Its maximum price tag is $649.

Dell Inc.'s Inspiron Mini 12 netbook comes with a 12-inch screen and a nearly-full-laptop sized keyboard.

Samsung's NC20 netbook does Dell one better, with a 12-inch screen and a full laptop-size keyboard.

"Everything is shifting upwards quickly," said Philip Solis, an analyst at ABI Research Inc. "Netbooks are already very PC-like." ABI predicts that 39 million netbooks will be sold worldwide this year, more than double the 16 million ABI said shipped in 2008.

When success attacks

Along the way, they will likely continue to steal sales away from conventional laptops. Gartner Inc. says revenue from the sale of PCs plummeted between 15% and 20% during the key Christmas quarter, as sales of cheaper netbooks ate into laptop sales or forced vendors to cut prices on mainstream laptops.

Netbooks are also worming their way into big businesses.

That's one nightmare scenario that both Intel and Microsoft tried to avoid when it sought to co-opt the rising netbook phenomenon, but on their own terms.

On the one hand, they have succeeded beyond expectations. Intel's low-energy, low-cost Atom N270 processor is being used in all but a handful of netbooks today. And despite Linux's early lead, Windows XP now shipson the vast majority of netbooks today.

But Microsoft and Intel's attempts to limit the specs of netbooks have met with far less success.

For instance, OEMs wanting to build Atom netbooks had to limit their screen sizes to 10 inches or less, and to 1GB of memory maximum.

Meanwhile, Microsoft said it would license Windows XP Home until mid-2010 only for machines it called ultra-low-cost PCs (ULCPC), which could have no greater than 1GHz processors, 1GB of RAM, 80GB of storage and 10-inch screens. Both Intel and Microsoft wanted to protect sales of its higher-end products. In Intel's case, this was higher-priced mobile CPUs, such as its Core 2 Duo processor, which at one point last year cost 10 to 20 times more than Atom. Similarly, the price to license Windows Vista is far higher than XP.

In Intel's case, the chipmaker was also genuinely worried that end users would be disappointed by netbooks that aimed too high, said Solis. "It [the netbook] has got Intel's name on it, after all."

Mixed messages?

Intel appears to have relaxed its attempts to control how netbooks are made.

"The guidelines are still in place. Those are our recommendations, but OEMs may decide to do something differently," an Intel spokeswoman said.

A bigger question for OEMs: If they built netbooks outside of Intel's "recommended" limits, would they still buy them directly and cheaply from Intel? "OEMs ultimately choose to make their designs however they wish, and yes, they can still buy from us," the spokeswoman said.

Trying to keep netbook makers in check was probably unrealistic, said Solis. PC makers have long been conditioned to compete by continually adding new features whenever they are available.

Intel is also giving the market mixed messages.

For instance, the Asus 1004DN is only able to support HD video because of its powerful on-board graphics chipset, the GN40, which is made by Intel.

Also, while Intel sought to tamp down the specs of netbooks using its N-series of Atom CPUs, Intel unabashedly targeted its nearly-identical Z-series of Atom processors at laptops with larger screens and more RAM.

Intel is still trying to prevent PC makers from using its even more powerful N330 Atom CPU in netbooks. The dual-core chip is ostensibly available only for miniature desktop PCs called "net-tops."

Intel's efforts may be futile. Companies such as Taiwan's ASRock, a subsidiary of Asustek, showed off its N330-based netbook at the CeBIT show earlier this month.

New market, no worries

Microsoft, meanwhile, loosened its restrictions on netbooks last July to allow screen sizes up to 14 inches and touch-screen capabilities. It also doubled the maximum storage to 160GB.

A Microsoft representative declined to disclose the current full guidelines for licensing XP Home, but said that "Microsoft software does support optical drives on netbooks, including Windows XP Home."

Solis says that Microsoft is "smart" in being flexible.

"In the end, they are going to want that business," Solis said. "Netbooks are a growth market in a struggling economy. And it'd be much worse if the netbook makers went to Linux, instead."

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