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March 12, 2006

Price Concerns Dampen Hopes For Intel's New Notebook Initiative

Courtesy of CRN

Intel has spent several months talking about making notebooks more profitable. At its annual Intel Solution Summit Sunday, the chip maker finally laid out its plan, which calls for standardization of key notebook components, a validation program, and first-level Intel support on validated products.

Though system builders' reaction was largely positively, many also expressed concern about the effects deep price discounting by top-tier OEMs will have on the market Intel is trying to create.

One of the key tasks Intel had was enlisting support from original design manufacturers (ODMs) in Asia, which build the bulk of the world's white book and branded notebooks.

These notebooks have, up until now, been proprietary in their design, and system builders have complained that their white book models are often knock-offs from previous models designed for large OEMs.

Bill Siu, vice president and general manager of Intel's Channel Platform Group, said ODMs Quanta Computer, Asustek and Compal Electronics have agreed to support Intel's initiative to standardize key components of notebooks to make them cheaper to produce and easier to service.

"Together these three manufacturers provide close to 70 percent of the white book market," said Siu.

The Common Building Blocks, as Intel calls them, include keyboards, AC adapters, batteries, optical drives, hard drives and LCD panels. Some of these components, such as hard drives, already are standardized. Up to 11 notebook SKUs will be rolled out in three weeks, said Siu, including one that looks similar to Apple's new x86 portable, an industry standard for design quality.

The notebooks will be released with a platform verification program that requires specific testing for the CCBs and quality. Those systems that pass the test will ship with an "Intel Verified" letter and will entitle system builders to access Intel-run first-level service.

Intel President and CEO Paul Otellini, in an interview with CRN prior to ISS, said one of the company's priorities is to make notebooks more of an appealing sell for system builders.

"You will see us continue to work with the industry to improve the selection and quality and availability of solutions from the ODMs, but also increasingly the interoperability of components," he said during that interview.

Siu said the first notebook to roll out under this initiative would be dual-core Core Duo models. He expected they would be priced from the high hundreds to $1,500, depending on the configuration, with Intel expanding the SKUs in the future.

"We believe these products will be competitive," said Siu. "And standardization opens up new service capabilities."

VARs were cautiously optimistic about the program's ability to boost sales of mobile computers. Branded notebooks have been an area of significant growth over the past two years and system builders are anxious to get a cut of that market.

Several system builders who currently have trouble selling white books said they thought the new program would be a help, also expressed concern about the cost of the notebooks, noting that competing against Dell, which offers small business models as low as $449, is a daunting task.

David Rizzo of Cobalt Computer, an Allentown, Pa., system builder that already sells Asus notebooks, said standard components will make supporting the models much easier. But he also noted that Cobalt has not yet had an opportunity to evaluate the new models.

"We'd really have to see them," he said, before making a final judgment.

Paul Liebat, sales manager at Winotek, Cincinnati, said the system builder will look more seriously at getting into the white book market as a result of Intel's new initiative. But he is concerned about price competition with large OEMs, such as Dell.

"That is what has kept us out of notebooks in general," he said.

System builders have said aggressive pricing well below $1,000 from top-tier OEMS had been a huge blow to their business.

For example, in a recent interview David Su, president of Jetta International, Monmouth, N.J., said most customers will end up paying far more than Dell's advertised price for a basic notebook -- Dell's $449 low-end product, for example, includes an Intel single-core Celeron 1.4GHz, no built-in wireless, and Windows XP Home. But, Su said customers still taunt him to match the price even though economics for system builders fail to allow him to build profitable products that cheap.

Steve Dallman, Intel's director of distribution and channel sales and marketing, said Intel is teaming up to work with Microsoft on a plan to promote the white book ramp. But at press time, details of the plan were not available.

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