Intel Vs. Intel: Its Atom CPUs Get Better... And Threaten Its Cash Cow

Intel's Atom chips, once suited for powering anemic set-top boxes and tablet PCs, have been dramatically improved. Unfortunately, their biggest competitor is sitting right next to them: Intel's Core chips for PCs.

Intel announced a new revision to the Atom chips, known as "Silvermont," this week, something that consumers should cheer about. Like an engine that can power cars, trucks and boats, the Silvermont architecture will end up in everything from phones to PCs.

That's where the problems begin. Intel needs the Atom, a low-cost, low-power, Windows-capable chip, to compete with ARM in the phone market — something earlier generations of the Atom notably failed to do. But what if PC buyers actually prefer the Atom to Intel's high-priced Core? What does Intel do then? It takes it in the shorts, that's what. And likes it.

Intel vs. Intel

It's not an abstract concept. Intel executives promised that Silvermont Atoms will deliver twice the performance and consume four times less power than its rival processors, and - more important - deliver about two to three times the performance of the last-generation Atom chips that powered the early convertible tablets.

From a performance standpoint, that means that you'll be able to buy far more powerful Windows tablets that push closer to what the Core offers. And from a price perspective, those tablets will cost about $200 or so - about the price of the Core processor, by itself.

Sure, Intel's Core chips will improve, too, with the "Haswell" revision due this summer. But we're seeing a stagnating traditional PC market in part because there most people don't have much need for constantly increasing processor performance. Remember, Windows 8 was designed to be more efficient than Windows 7, and thus requires less memory and raw computing power.

In other words, Microsoft was intrinsically designing toward the Atom, not the Core.

But if consumers see that the new generation of Atoms provide good-enough performance, that result should be an acceleration of low-cost PCs - possibly even enough to give the PC market a real jolt. That would certainly help Microsoft's hopes for a resuscitated PC market, but it would leave Intel holding the bag. Microsoft has another motive, too: Either it adopts the new chips, or its Surface tablet gets priced out of the market.

Why Does Intel Need the Atom And The Core?

In some ways, the Atom is Intel's do-over. Intel was built upon performance: raw computing power that powered PCs and servers, driven by manufacturing that always remained a step ahead of the competition. Intel really didn't care about low-power chips until a company called Transmeta pushed it into the mobile market. And even then, Intel was trading off power for improved performance, even into its most recent Core chips.

That opened the door for yet another Intel competitor, ARM, a technology company that licenses its chip designs to the likes of Qualcomm and Nvidia for use in phones by Apple, Samsung, and Motorola. (That is, virtually all of the smartphones made today.)

Intel had its own shot to enter the phone market with an ARM design, the StrongARM, but squandered its shot in the early 2000s. Eventually, Intel decided to meet the ARM challenge with an x86, Windows-compatible chip, and designed the Atom.

The industry, however, never really expected the Atom to actually succeed in the phone space. Lenovo's announcement of the Atom-powered K800 in 2012 represented Intel's first smartphone design win ever, and it was certainly the equal of any phone at the time. Unfortunately, the K800 never made it to U.S. shores, being designed for China Telecom. More Atom-powered phones have followed, all in Asia. But a handful of design wins in Asia is a lot better than nothing. 

So we know this: Intel can't give up on the Atom, because of the potential market of billions of phones and tablets it hopes to capture. But within the PC market, Intel runs the real risk of cannibalizing the Core.

So What Happens?

Microsoft doesn't seem prepared to add additional complexity into Windows Blue, the update to Windows 8 that's due later this year. If anything, it seems headed in the opposite direction. That means that at some point, consumers may discover that they prefer the performance - and price tags - of Atom-based PCs versus those powered by the Core chips.
 
If the Silvermont chips deliver the performance that Intel implies they will, that could stretch the PC market out, price-wise. Gamers will have the same high-end options they always do.
 
But for those who want to browse, run some basic apps, and perhaps use the Office suite,lower-cost, $200 PCs are going to look awfully attractive. PC makers are going to be competing more directly with tablet manufacturers, and will be looking to squeeze out every penny they can.
 
Amazon may have tipped the future of Windows tablets this past weekend, when it accidentally took the lid off of the $380 Acer W3-510, a new "mini" 8.1-inch tablet running Windows 8 and the Intel Atom processor. The new small-form-factor Windows tablet lacks a keyboard and seems designed for browsing more than writing, sketching or creation in general. It's the same market that rival tablets like the Nexus 7 are targeting. (On the other hand, creative activities require little more than connecting a Bluetooth keyboard and mouse.)
 
Still, this is not good news for Microsoft's Surface RT tablet, which is currently priced at $499. First off, if Intel and its partners can reach a $200 price point, then the Surface RT appears dead in the water if you can buy a Windows 8-capable tablet with Office for that. Similarly, no one will want to shell out $899 for a full-fledged Surface with Windows 8.
 
From a developer standpoint, anything that boosts the prospects of Windows tablets makes Windows a more attractive platform, especially from the standpoint of low-end, casual games that don't require a lot of performance. Sure, developers will still focus on Android and iOS first, but the largest services will add Windows as a third option.
 
So why would Intel go along with this plan? Because in the long run, it hopes to make the case that everything these new Atom notebooks can do, your phone will be able to, too. But for now, if consumers prefer the Atom to the Core, Intel will just have to grin - weakly - and bear it.