Qualcomm, Freescale Bet on 'Smartbooks'

The rival chipmakers are attacking the Intel-Microsoft dominance in netbooks by marketing small laptops with a name that suggests a smartphone

By Olga Kharif

Qualcomm and Freescale Semiconductor are hoping that a netbook by another name smells as sweet. In hopes of eroding Intel's lead in the burgeoning market for small, inexpensive laptops, the chipmakers are putting marketing muscle behind a category of stripped-down computers called smartbooks.

Cell-phone chipmaker Qualcomm (QCOM) defines smartbooks as mobile computing devices that boast screens of 5 to 12 inches, designed for viewing Web video clips and e-mail. If that sounds a lot like netbooks, it should. These low-priced mini laptops have emerged as the PC industry's best sellers in the past year. Netbook sales are expected to almost triple, to 30 million units in 2009, according to investment bank Collins Stewart (CLST.L). The main difference lies in which company makes the chips. Intel (INTC) has a lock on the netbook market.

San Diego-based Qualcomm began using the term smartbook internally last fall and recently launched a Web site promoting the devices. Freescale, the chipmaker spun out from Motorola (MOT) in 2004, is devoting a big share of its marketing budget to smartbooks.

The smartbook branding effort reflects an industrywide shift toward a deeper array of products. No longer content with such broad categories as desktops, laptops, and servers that run corporate networks, Qualcomm, Freescale, Advanced Micro Devices (AMD), and other companies are creating categories of new devices sized somewhere between a smartphone and a small notebook.

Now Comes Massive Marketing

They're trying to appeal to consumers' appetites for specialized mobile-computing devices at a fraction of the cost of a desktop or high-end laptop. Rivals are also gunning for players such as Intel, which serves upwards of 80% of the netbook market, and Microsoft (MSFT), maker of the Windows operating system that comes with more than 90% of netbooks. "The name netbook we liked for a while," says Glen Burchers, a marketing director for Freescale, which on June 1 officially began using the term smartbook. "But after more and more products came out with the netbook name, they've come to be defined as 'Wintel,'"—machines containing Intel chips and the Windows operating system. Freescale wants manufacturers to build smartbooks that instead run its chips and open-source Linux software.

Smartbooks will make up the "largest segment" of Freescale's consumer marketing budget this year, Burchers says. "This is the most important consumer product we are focusing on." Qualcomm has begun running print ads in support of the smartbook brand. Neither company says how much they are spending, but marketing experts say it's not cheap to define a product category from scratch. Creating the netbooks category, for example, cost chipmakers and PC manufacturers "a couple hundred millions of dollars," says Philip Kotler, S.C. Johnson & Son professor of international marketing at Northwestern University's Kellogg School of Management. "These are major, major investments…It's not enough to make a product. You have to create a story around it."

Other new product categories in development by various players include Mobile Internet Devices (MIDs), mini notebooks, ultra-mobile PCs, and thin-and-light notebooks. Component suppliers and PC manufacturers are trying new labels to differentiate their products from those of rivals.

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