Las Vegas (NV) - If I had to pick one computing topic that determines this year’s CES then it would certainly be small notebooks - and netbooks in particular. Intel has conquered the segment with its Atom processor and Via is still trying to get some design wins here and there. We know that AMD does not have a small enough processor that could fit into a netbook and we also know that the company may not have such a chip for several years. However, the company told us that it is not interested in developing a competitor for Intel’s Atom anyway, since it believes that the market right between cheap netbooks and Apple’s Macbook Air will be much larger. Is AMD right?

It is no secret that AMD has been struggling to compete with Intel in most market segments pretty much since Core 2 Duo has become available back in Q3 2006. There is a certain perception that AMD has fallen back into a solid #2 spot behind Intel with products that may be good enough for mainstream computing, but do not offer the best possible performance in any processor segment at this time. However, we can’t deny that the company has introduced products for users who are on a budget and are looking for a more balanced platform consisting of a good-enough quad-core processor and decent graphics – a combination Intel can’t offer as an in-house product. This is especially the case in desktop systems. 

The market growth and the big margins, however, are in notebooks and despite AMD’s progress, it obvious that mobile processors remain a weakness of AMD. This scenario is especially shown by the firm’s absence in the netbook market, which had a size of just a few hundred thousand units in 2007, grew to an estimated 14 million in 2008 and is generally expected to more than double in the next two to three years. What is significant in this market is that netbooks are not replacement systems, but purpose-oriented systems that are typically added to a household or business. In that sense, it might turn into a perfect business strategy for Intel: While Core 2 Duo sales may be cannibalized somewhat due to the current recession, it is expected that Atom sales will increase the number of chips produced – a key business goal of semiconductor manufacturers. Intel is the key supplier to this market with Via’s Nano being pretty much the only rival for the near future.

Going after this market should be a no-brainer for AMD, especially since the company had products for this market - such as the Geode - for several years. But AMD senior vice president Randy Allen told us that the company will not market a rival to Intel’s Atom, but rather focus on the slim and light segment with a 15 watt Athlon Neo processor (part of the Yukon platform), which is basically a single-core K8 Athlon CPU. It consumes four to seven times more power than Atom and is substantially bigger, which means that the processor is likely to be more expensive to produce than the tiny Atom chip and that we won’t see Neo in netbooks because of its physical dimensions.

Instead, the processor is targeted at what AMD calls the “Macbook Air for the rest of us”, an affordable slim PCs that resemble the Macbook Air form factor, but force the user into less compromises than a netbook does. A first product in this class is the $700 HP DV2, a 0.9” slim 12.1” notebook that runs Vista and integrates AMD/ATI discrete graphics.

I had a chance to play with the DV2 for a few minutes and have to admit that it is a nicely designed notebook that will run all basic applications you throw at it and even play Blu-ray movies if you opt for the external Blu-ray drive option. Put next to the HP Mini netbook, the performance advantage is immediately apparent. We also noticed that both devices have the same thickness and use exactly the same keyboard. That isn’t necessarily a bad feature for the DV2, since the HP Mini has the best keyboard in the netbook market today and may not be suited to author a book, but is perfectly fine for brief documents such as emails, certain games and web browsing. Realistically, the DV2 has no advantage in data input over the Mini, but it does have a larger keypad, which makes the system far more usable than the netbook.

Probably the most significant advantage of the AMD approach is the simple fact the company isn’t running into any design restrictions that are limiting the innovation in the netbook category today: In notebooks, there are no soft limitations for hardware designers. If you purchase a netbook today, you will notice very distinct product limitations that have been set by Intel and Microsoft: Screen sizes and operating system determine, for example, the size of the hard drive. Atom is slowly but surely turning into a gold mine for Intel and the current competitive landscape allows the company to overcharge netbook vendors for its power-efficient Atom Z-series CPUs with Silverthorne core as opposed to the more power-hungry N-series, which is common in most netbooks today, but was initially expected to be integrated into nettops only. The result of this environment is that most netbooks available today have very similar specifications and show only slight differences in appearance.

This circumstance may AMD’s biggest opportunity to succeed in mainstream notebook market. Enabling slim notebooks that are slightly more expensive than top-of the line netbooks, but offer more computing and graphics horsepower, more memory and more storage space could be an enticing offering for many consumers. HP’s DV2 is a promising first product for AMD’s Neo CPU, but it is hard to believe that AMD simply chooses to forego the netbook opportunity. It doesn’t take much to see the netbook category to grow and evolve quickly with alternative hardware platforms that will come, for example, from Freescale.

Time will tell whether AMD is right in guessing that the slim-notebook market is the segment where the most money can be made. We are not convinced just yet.

Chime in and let us know what you think. Are netbooks just a niche? What should AMD do?