Intel’s Atom CPU being used in servers as power becomes more important than raw performance
With the rapid growth of the netbook market courtesy of blowout products like Asus’ Eee PC (which enabled Asus to grow its European share to north of 5% in Q2/08 according to Gartner), PC sales continue to sell very well, growing by 15-16% YoY in Q2/08. The driver has been cheap mobile PCs, which grew by around 53% YoY. The key takeaway in my view (as first discussed in Intel’s quarterly results) is that netbooks have had a material impact in bringing down price points for all mobile computers - with consumers buying very capable netbooks with fantastic form factors in droves, there is only so much that people are willing to pay for arguably clunkier, less portable, but more powerful notebook computers - the exception being Apple of course.
With Intel seemingly well-poised in this growing but lower margin (around 10 points less than its corporate average) market segment with the release of its Atom CPU, what will the overall impact be, especially on high-margin desktop and server CPUs? As seen by a recent announcement from a U.K. hosting company called Bytewise which will be using the Atom 230 desktop CPU to power low-cost servers running Linux, companies have a huge incentive to move to the new 45nm Atom CPUs - power efficiency. Simply put, as the cost of energy rises, a capable power-efficient chip becomes cost-effective not only for data centers but also the end customers. It’s quite possible that customers may adopt Atom in more applications that expected, cannibalizing valuable margin dollars for Intel. As was seen when Intel put out its very hot Paxville CPU, customers generally chose AMD’s power-efficient Opteron CPU even if its sticker price was higher because of the massive difference in power efficiency.
In summary, power efficiency is becoming an increasingly important characteristic in the chip game, and Intel may in the short-term be cursed by the success of Atom (if it’s able to deliver enough chips to the market that is, with current limitations in terms of back-end test capacity). From a stock investment perspective, this could result in near-term turbulence for Intel’s stock, but laying the groundwork for very good long-term performance versus the competition.
