Has Intel Scored A Spectacular Own Goal?

Has Intel scored the most spectacular own goal with its Atom microprocessor? After all, Intel and Microsoft did an amazing job in keeping PC prices high for about 25 years when Moore’s Law said the prices should have halved every eighteen months.

 

When you think what happened with digital watches and electronic calculators, where prices dropped to peanuts within five years, it was amazing that the desk-top PC price topped $1,000 for a quarter of a century.

 

Wintel’s Big Trick was to persuade people they wanted more and more processing power, and more and more functionality, and the customers kept buying that proposition and paying the price for it.

 

That meant Intel could charge lots for its processors, and Microsoft could charge lots for its operating systems.

 

Then, when Intel found the desk-top PC beginning to erode, it switched its focus to lap-tops where prices were still high.

 

Now, it seems that Intel, with Atom, have shot themselves in the foot and are saying: ‘If you want basic laptop functionality here it is for a peanuts price’ – so bringing about some 10 years of Moore’s Law price erosion in the lap-top sector in a matter of months.

 

When Freescale and Qualcomm get into this low-cost-processor-for-lap-tops business, they’re intending to cut the price of low-cost lap-tops by half – to around $200.

 

Of course Intel have tried to be clever by saying that these low-cost lap-tops are not really lap-tops, that they’re a separate category of  product called ‘netbooks’ or ‘MIDs’, but AMD’s CEO Dirk Meyer is probably right when he says:  ”The distinction between what is a Netbook and what is a notebook is going to go away.”

 

The name of the new game is going to be low-cost lap-tops – as Moore’s Law always said it should be.

 

After all in those Neanderthal Times before Intel went sole-source on its x86 processors, it was generally regarded as absurd to charge $1,000 for a microprocessor – only the military ever paid that.

 

In Neanderthal Times, chips might be introduced at $100, but they darn quickly went to $5 as Moore’s Law economics kicked in.

 

If Intel is now going to be locked into a Neanderthal Times market again, it’s going to have to do some very hard thinking about the edifice it has built on the back of the high-priced, high-margin, PC processor.

 

Because that particular animal may be about to become extinct.

 

TOMORROW: THE TEN BEST ELECTRICAL INVENTIONS

Tags: AMD, freescale, Intel, processors, qualcomm

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4 Comments

  1. David Manners
    January 29, 2009 20:44

    Fascinating stuff, Andy, thanks very much.
    I suppose it fits in with Microsoft’s rather accidentally obtained monopoly as well.
    There was a very good book called ‘Accidental Empires’ about this period of Silicon Valley history.
    Interesting to think that so much happened by chance. But I suppose that’s life
    Food for thought
    All the best
    David
    (P.S. It looks as if the ‘liquidity event’ occurred just in time!)

  2. Andy Haines
    January 29, 2009 18:24

    You are correct in your recollections about LJ Sevin and Ben Rosen. Paranoia is often useful as Andy Grove has said, however, in this case it might just be paranoia. The case study included a discussion about how cunning the plan actually was. It seems to have developed as a series of moves over a couple of years. The moves were logical steps but the end result does not seem to have been completely in sight. Andy Grove stated this explicitly in a video clip. Tedlow pointed out that most CEOs would jump at the chance to take credit for creating a virtual monopoly in microprocessors, but not Grove. Grove’s view is that no one at the time really saw the implications.

  3. David Manners
    January 27, 2009 19:46

    Thanks Andy, that’s fascinating. Maybe I’m paranoid but I seem to remember that Compaq was backed by a VC outift set up by LJ Sevin (TI & Mostek) and Ben Rosen (an analyst at Morgan Stanley). And Rosen was very close to Intel (with the Ben Rosen Newsletter) and Sevin was very close as an Intel fab licensee, and IBM was reluctant to use the 386 because it would mean 386-based PCs would compete with their low-end minis.
    And then it all turned out exactly as you said.
    So my paranoia suggests to me that Intel put up Sevin and Rosen to set up Compaq and produce a 386 PC and wrest the lead from IBM in the PC business and then proceed to control the PC industry ever after.
    Now I know the Intel triumvirate were smart enough to dream up such a cunning plan, but am I being paranoid in thinking that they actually did it?

  4. Andy Haines
    January 27, 2009 18:41

    David,
    Interesting article. As it turns out, last night I listened to a Harvard Business School Professor, Richard Tedlow, talk a the Computer History Museum here in Silicon Valley about the “Neanderthal Times”. Actually he didn’t call it that; the talk was billed as a Harvard Business School Case Study on the 386. It was a fact filled and very entertaining dive into the history of Intel and the 386 with the main focus being on how the Neanderthal Times ended. In the mid-80s, Intel was in deep financial trouble when they came out with the 386 and decided to break from the industry’s standard practice of second sourcing. A key motivator was the increasing cost of design. The 386 cost in the vicinity of $100M to design and Andy Grove decided that just handing that over to AMD, one of the second source licensees at the time, was not in Intel’s best interests. At that moment, a brash startup called Compaq one-upped IBM by coming out with a 386 PC ahead of IBM. IBM was forced to follow and Intel had 100% of the market. This has put Intel in the very unusual position of being a component supplier that carries more clout than the end product supplier. Professor Tedlow pointed out that just about the only other case where this happens is in Hollywood where the components (the actors) are more well known that the producers and directors who put everything together. Professor Tedlow ended with some thought provoking questions including: what’s going on today that will have such large ramifications as the 3b6 sole-sourcing decision? I think you have put your finger on it.
    All the best,
    Andy Haines

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