In the Oct. 9 piece, "Great News for Intel," I noted that the ASUS Transformer T100 -- a hybrid laptop/tablet powered by Intel's (INTC +0.22%) latest Z3000 series of processors -- was already a top-10 best seller on Amazon.com in preorders. This appeared to be a signal that at the right price point and form factor, Windows 8.1 2-in-1 devices had a very real shot of seeing success in this market. During preorders, this device was ranked No. 7 on Amazon's notebook PC sales list. Now that the device is available for sale, it's clear that the preorder ranking was just the beginning. This tablet is a hit, and many more devices like it will allow Microsoft to answer the Chromebook threat.
No. 2 best seller on launch day
The current sales rank for the ASUS T100 convertible -- a 10.1-inch tablet with a keyboard dock -- is now No. 2 in notebooks and No. 26 overall in computers and accessories, including all tablets, PCs, notebooks, and so on. This signals something incredibly important about the PC and tablet markets: Price matters, and quality matters. For a while now, pure tablets such as the Apple iPad have been displacing the low end of the PC market, and in particular, the high-volume segment once dominated by netbooks.
That's a big part of the reason that investors are seeing the broader PC markets drop by high-single digits/low-double digits, while Intel's PC client group revenues decline only by low-single digit percentage points year over year; the high-value, high-end chips are largely safe from the tablet onslaught, but the lower end of the market has gotten slaughtered. Devices in this segment have been plagued with slow hard disk drives, lousy battery life, and terrible-quality screens. Why should users have to settle for that when a nice tablet is available for about the same price?
Intel's low-cost, low-power tablet processors under the Atom brand name finally fix this problem. While Intel isn't getting as much revenue per chip as it would be, these new Atom chips are much cheaper to make and as a result, gross margin percentage and likely gross margin dollars are better. On top of that, these chips are low-power, meaning that the systems are thinner/lighter, and cooling solutions are less expensive. Another added bonus is that the lower selling prices on the chips allow OEMs to spend extra on other areas of the system to help them be more desirable to end users.
Can Microsoft fight the Chromebooks with this?
A look at the Amazon best-sellers list shows that the No. 1 selling laptop is actually a Samsung-built Google (GOOG +2.73%) Chromebook running an ARM-based, Samsung-built Exynos 5 Dual processor for $248. Interestingly enough, the No. 7 best seller is actually the Hewlett-Packard Chromebook 11, and the No. 4 and No. 10 best sellers are Acer Chromebooks powered by Intel Celeron processors. It's clear that Microsoft (MSFT +0.56%) has a problem here -- many of the best-selling laptops aren't Microsoft-based.
With Intel's new, low-cost Atoms, Microsoft can -- if it is good about letting up on its Windows license fees -- fight the wave of these low-cost Chromebooks that have been hurting low-end Microsoft-based PC sales. Microsoft still has the unique value proposition of offering a full PC operating system that can run the applications that users are used to on their PCs. But time is running short as the Android, iOS and Chrome ecosystems continue to grow each and every day. That being said, it looks like Intel has finally given the Windows OEMs a nice weapon with which to do battle. The results will become more apparent over the next few quarters.
Foolish bottom line
It's a bit puzzling that Microsoft is still actively pushing its Windows RT via its Surface 2 in light of the fact that the traditional PC OEMs like ASUS are putting out these tablets that appear to already be selling like hotcakes. While the ASUS machine is first out of the gate and is doing well, if the rest of the hardware OEMs can put out equally interesting -- or even better -- devices that can run full Windows 8.1 at good price points, then Microsoft has a real chance of not only winning share in tablets, but it can stave off the threat that Google poses with its ChromeOS and low-cost Chromebook hardware.
