Alexei Oreskovic
SAN FRANCISCO -- The chip isn't available yet and the products are still prototypes.
But the promise of handheld Internet gadgets, featuring Intel's(INTC Quote - Cramer on INTC - Stock Picks) new power-efficient Silverthorne microprocessor, was enough to make the chipmaking giant one of the stars of the Consumer Electronics Show in Las Vegas this week. However, one aspect that has received less attention amid all the hoopla is how Intel's plan to branch out from the PC and into the consumer realm will affect its profit margins. It's no secret that the consumer electronics market, where low prices are crucial, isn't known for rich profit margins. And Intel is still in the process of mending its profit margins, following a brutal price war with rival Advanced Micro Devices(AMD Quote - Cramer on AMD - Stock Picks) in 2007. After seeing its gross margin bottom out at 47% in the third quarter, Intel saw gross margins bounce back to 52.4% in the third quarter, and it's projected to hit 57% for the fourth quarter, which will be reported Tuesday. Investors would like to see a return to the 60% level that was common in past years. Whether the Silverthorne effort brings Intel closer towards that goal -- or might work against it -- is still unclear. The standard playbook for chipmakers on the consumer electronics field goes something like this: Find a market with a product that's sold to a massive number of consumers, such as cell phones, and rely on a large sales volume to offset the chip's low average selling price.
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