When Intel and the One Laptop Per Child Project buried the hatchet—a love-in that brought resources to OLPC and the prospects of Intel gaining a CPU role in the XO laptop—the questions were many. Where would this leave AMD? What would Intel really do with its competing Classmate PC? The answer is now clear: with AMD still in the XO's "driver's seat," Intel is continuing its efforts to sell the Classmate PC in markets where it will compete head to head with the OLPC, including the much sought-after Chinese education market. Intel is currently working with China to solidify a promotional deal aimed at bringing the Classmate PC to nearly a million Chinese students next year.

Intel's interest in China should not be surprising. Not only does the country have a surplus of potential Classmate PC users, but Intel has committed to building a new, historic 90nm fab there. The company has a design center in China currently tasked with finding new uses for computing power among China's largely poor, rural population. In short, Intel is serious about China, and the 90nm fab is a perfect place to see why.

The Classmate PC has been a sore spot for Nicholas Negroponte, chairman and visionary of OLPC. In May of this year, Negroponte bashed the Classmate PC project on 60 Minutes, saying that "Intel should be ashamed of itself" for offering the Classmate PC at what he says is a "loss" to foreign governments. Negroponte said that Intel is afraid of the OLPC "because the numbers are so large, they look at those numbers and they say, 'If we're not in those, we're toast.'"

Several months later in the wake of a public friendship between the two companies, Intel still isn't "inside" the XO. As we reported previously, the final design stage of the XO is essentially closed, and AMD has gone on the record to say that its position in the XO isn't up for grabs anytime soon. According to AMD, "the whole device would need to be redesigned" were OLPC to adopt an Intel CPU. This leaves Intel twiddling its thumbs, to a certain extent. If Intel really sweats the OLPC and what it could do for AMD, there doesn't appear to be much it can do about it from within the confines of the OLPC partnership.

Hence we're not too surprised that Intel is talking directly to the Chinese government about adopting the Classmate PC in trials that would begin next year, according to the Chinese-language Commercial Times. John Davies, VP of Intel's World Ahead program, confirmed that the company would like to begin seeding schools with Classmate PCs next year. If a deal can be reached, it could generate more than 1 million orders next year alone. Make no mistake about it: those are orders that OLPC wouldn't mind servicing.

We believe that the competition between Intel and OLPC will heat up greatly in the coming year, despite the official involvement of Intel in OLPC. While philanthropic, the rush to equip the world's "poor" with laptops is big business, and given that there are signs of trouble at OLPC, it can only be expected that Intel would continue with its own project. In fact, the situation may be worse now than it was when the original flare-up between the two companies occurred. We believe that there's a lot riding on the success of OLPC's "Give 1 Get 1" initiative, because there are signs that OLPC is having difficultly gaining the big orders needed to leverage scale and push the cost of the XO laptop down.

Cost increases have pushed the OLPC from its $100 target all the way up to $188, putting it dangerously close to Intel's Classmate PC, which is currently pegged at $225 in its most basic configuration. The two systems cannot be compared on specs alone, of course, but for governments considering either option, the close parity in pricing now makes the decision much more difficult than it would have been had the XO price not deviated so far from its original target.