AT&T announced that customers in Atlanta could get a type of compact PC called a netbook for just $50 if they signed up for an Internet service plan an offer the phone company may introduce elsewhere after a test period. This year, at least one wireless phone company in the United States will probably offer netbooks free with paid data plans, copying similar programs in Japan, according to industry experts.
But this revolution is not just about falling prices. Personal computers and the companies that make their crucial components are about to go through their biggest upheaval since the rise of the laptop. By the end of the year, consumers are likely to see laptops the size of thin paperback books that can run all day on a single charge and are equipped with touch screens or slide-out keyboards.
The industry is buzzing about these devices at a telecommunications conference in Las Vegas, and consumers will see the first machines on shelves as early as June, probably from the netbook pioneers Acer and Asustek.
The era of a perfect Internet computer for $99 is coming this year, said Jen-Hsun Huang, the chief executive of Nvidia, a maker of PC graphics chips that is trying to adapt to the new technological order. The primary computer that we know of today is the basic PC, and its dying to be reinvented.
An unexpected group of companies has emerged to help drive this transformation firms like Qualcomm, Freescale Semiconductor and Samsung Electronics, which make cheap, power-saving chips used in cellphones and are now applying that expertise to PCs.
As in any revolution, the current rulers of the kingdom Intel and Microsoft, which make the chips and software that run most PCs face an unprecedented challenge to their dominance. Microsoft is particularly vulnerable, since many of the new netbooks use Linux software instead of Windows.
A broad shift in the consumer market toward low-cost PCs would clearly put pressure on the revenues of nearly every player in the value chain, from component suppliers to retailers, wrote A. M. Sacconaghi, a securities analyst with Sanford C. Bernstein & Company, in a report last month. However, we believe the impact would be especially negative for Intel and Microsoft, who today enjoy near monopoly positions in their respective markets.
So far, netbooks have appealed to a relatively small audience. Some of the devices feel more like toys or overgrown phones than full-featured computers. Still, they are the big success story in the PC industry, with sales predicted to double this year, even as overall PC sales fall 12 percent, according to the research firm Gartner. By the end of 2009, netbooks could account for close to 10 percent of the PC market, an astonishing rise in a short span.
Netbooks have trouble running demanding software like games and photo-editing programs. They cater instead to people who spend most of their time dealing with online services and want a cheap, light device they can use on the go. Most of the netbooks sold today run on an Intel chip called Atom, which is a lower-cost, lower-power version of the companys standard laptop chips. And about 80 percent of netbooks run Windows XP, the older version of Microsofts flagship software.
The new breed of netbooks, built on cellphone innards, threatens to disrupt that oligopoly.
Based on an architecture called ARM, from ARM Holdings in Britain, cellphone chips consume far less power than Atom chips, and they combine many functions onto a single piece of silicon. At around $20, they cost computer makers less than an Atom chip with its associated components.
But the ARM chips come with a severe trade-off they cannot run the major versions of Windows or its popular complementary software.
Netbook makers have turned to Linux, an open-source operating system that costs $3 instead of the $25 that Microsoft typically charges for Windows XP. They are also exploring the possibility of using the Android operating system from Google, originally designed for cellphones. (Companies like Acer, Dell and Hewlett-Packard already sell some Atom-based netbooks with Linux.)
The cellphone-chip makers argue that the ARM-Linux combination is just fine for a computer meant to handle e-mail, Facebook, streaming video from sites like YouTube and Hulu, and Web-based documents.
Freescale, for example, gave free netbooks to a group of 14- to 20-year-olds and watched what happened. They would use it for Internet access when eating breakfast or on the couch, or bring it to class for taking notes, said Glen Burchers, the director of consumer products marketing at Freescale.
Mr. Burchers said a number of companies already making netbooks would show a new round of machines using cellphone chips at the Computex trade show in Taipei, Taiwan, this June.
Qualcomm, the San Diego company that built an empire on chips for cellphones, recently introduced Snapdragon, a chip created for smartphones and ultralight computers. Already, the company has announced deals to sell the chip to 15 major device manufacturers, including LG, Acer, Samsung and Asustek. Qualcomm said some Snapdragon devices appearing this year would have screens of 10 to 12 inches.
Intel and Microsoft warn that consumers should remain skeptical about the performance of a computer that costs less than $300.
When these things are sold, they need clear warnings labels about what they wont be able to do, said Sean M. Maloney, the chief sales and marketing officer at Intel. It would be good to wait and play with one of these products before the industry gets carried away.
Still, the rise of netbooks could hurt both companies. In its last quarter, Microsoft posted the first sales decline in its history for the PC version of Windows. It blamed netbooks for the drop. On average, Microsoft charges computer makers $73 for Windows Vista, the version of Windows used in desktop and high-powered laptop PCs. That is triple what it receives for a sale of Windows XP for a netbook.
For Intel, the Atom chips represent lower-profit products, which could turn into a major sore spot if consumers become comfortable with netbooks and start to view them as replacements for standard computers.
In his recent report, Mr. Sacconaghi speculated that 50 percent of consumers could get by with an Atom-based computer for their everyday tasks. PC makers like H.P., Acer and Dell, which face razor-thin profit margins selling laptops, could use the rising competition to place more price pressure on both Microsoft and Intel, Mr. Sacconaghi said.
The big winners in the rise of netbooks that use cellphone chips could be the cellphone carriers, which would have access to a whole new market: PC users.
Intel, meanwhile, expects cheap netbooks to expand the PC market to include hundreds of millions of children who have cellphones but no computers. The company has dozens of deals in the works with service providers to seize on this potential, Mr. Maloney said. As for the emerging competition, he said Intel would show off some surprising computer designs at Computex as well.
Mr. Huang of Nvidia said the PC industry sat at an inflection point. Disruption will come in from the bottom and forever change the market.