Atom processors and netbooks were “made for each other” for many of the low-cost netbook manufacturers. However, the scenario is slowly changing as Intel (News - Alert) is now facing severe shortage of Atom processors, reportedly due to a bottleneck in the testing process.

 

Intel CFO Stacy Smith had first highlighted this bottleneck in July. According to Smith, the problem occurred as Intel “underestimated the level of end-user demand for the chips found in the netbooks.”

 

Intel may not be able to fix the hitch soon. Intel had designed cheaper Atom processors to make money from the low-cost market segments. Atom processors are not surely the priority for testing process at Intel because expensive models earn higher average selling price (ASP) for the company.

 

An email quote from Dean McCarron, president of Mercury Research, said, “It would not be fiscally prudent to take capacity away from Core processors, with a (US) $100-ish ASP, to service Atom, which have a $25-ish ASP.”

 

The Atom market still remains ambiguous. Atom is in the initial stages of development and it is not yet clear how big the netbook market will be and how it will develop. Considering the fast-rising pace of demand for Atom, McCarron repeatedly revised his own shipment forecasts for Atom upwards, doubling them every six weeks since January. IDC (News - Alert) has recently predicted worldwide sales of netbooks would rise from just 430,000 units in 2007 to 9.2 million in 2012.

 

Smith said, “The supply constraints we're seeing with Atom are specifically the back end, the test constraints. We have plenty of die (chips). As demand's going up, kind of month by month, we're jumping to keep enough test capacity in place.”

 

Atom, as its name suggests, is characterized by its extremely small size. Intel can pack 2,500 Atom processors on the 300-millimeter silicon wafers it uses to make chips, significantly reducing the production costs. However, the testing and assembling of raw silicon involves tedious labor – the reason why Intel is not able to speed up the testing process.

 

An Intel spokesperson reportedly admitted that the shortage still exists and is likely to continue for some time in the future. Intel is setting up a $1 billion test and assembly facility in Vietnam. This plant will be Intel’s largest testing facility, and is expected to begin production next year.

 

The uncertainty in Atom supply forced Asustek to use the older model of Intel chip, the 900MHz Celeron M 353, in two of its new Eee PC netbooks Eee PC 1000HD and Eee PC 4G.