Hope For Future Earnings At Chip Firms: The Rise Of The Little Machines (AAPL)(RIMM)(INTC)(NVDA)(QCOM)

The sales of PCs and servers, especially in the US and Europe, is slowing due to market saturation. The same holds true for cellular phones. Chip companies now have to rely on improved sales in emerging markets to drive demand for the products that they power.

But, looking for growth in China and India is not sufficient for the likes of Intel (INTC), Qualcomm (QCOM), and Nvidia (NVDA). They plan to create chips for a new generation of products and assume that the availability of these chips will force the development of a series of machines that are more than a handset but less than a PC. These new electronics devices will run on all current broadband networks from WiMax to WiFi to 3G.

According to The Wall Street Journal, the gadgets are called "mobile Internet devices." While they are only the size of an Altoids box, they have keyboards, operating systems, and little screens.

The machines sound nice, but there will probably not be much demand for them. PCs come smaller than they used to and smartphones from Apple (AAPL) and RIM (RIMM) already fit the bill as being quasi-computers. These devices are constantly being improved, so it may be a hard luck story to think slightly larger, more expensive products will take much share.

Intel and its peers want to believe that a new generation of devices will drive more chip sales. The next generation is already here and their silicon isn’t a part of it.

Douglas A. McIntyre