Hardware freaks flocked to San Francisco last week to hear Intel (INTC) talk about microprocessors, the electronic brains in PCs. But Advanced Micro Devices (AMD) made some pretty brainy claims of its own.

The smaller Silicon Valley microprocessor maker expanded its focus several years ago by buying ATI Technologies, known for the chips called graphics processing units that generate realistic-looking scenery in videogames. AMD says the high-end GPU it announced last week sports a whopping 2.15 billion transistors.

That’s more features than any chip now for sale by Intel, which prides itself on packing the most tiny components on a given square of silicon. AMD used a production process at Taiwan Semiconductor Manufacturing Co. (TSM) that creates lines of circuitry measured at 40 nanometers, or billionths of a meter; that is a bit finer than the most advanced chips currently on the market from Intel, which have features rated at 45 nanometers.

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Silicon Valley has been talking for 15 years or so about marrying TV and the Internet. For the most part, it’s still just talk; most people still use their PCs when they want interactivity, and rely on their TVs when they want to be passive content-watchers.

But Intel (INTC) is not giving up. The chip giant, having run along with partners down most of the blind alleys of interactive television, gave an update this week about a reformulated TV strategy that might be paraphrased as follows: it’s the software, stupid.

In other words, people don’t want to visit Web sites or engage in other PC-like activities while relaxing in front of their big-screen TV.

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Shares of both Seagate (STX) and Western Digital (WDC) are getting battered on fears that the hard-drive sector could once again soon find itself with a glut of supply.

At least in part, the Street is reacting to this morning’s downgrade of Marvell (MRVL) by Barclays Capital, which–as I noted earlier–was in response to indications from Taiwanese component makers of a slowdown PC demand. Barclays chip analyst Romit Shah wrote that “every company that we met with [in Taiwan] indicated that PC order rates are slowing into the back-to-school season.”

Meanwhile, Collins Stewart analyst Ashok Kumar today notes new data on drive production that he thinks raises ominous clouds for Seagate in particular. Kumar says data from Techno Systems Research, a Japan-based market research firm, find that hard-drive unit production was down 18 percent sequentially in the March quarter, comparable to a 15 percent decline in PC shipments.

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Intel (INTC), which helped shake up the PC industry last year by promoting low-priced laptops called netbooks, is at it again. But there’s not such a memorable name this time.

The chip giant is expected to use the Computex trade show this week to discuss a category of portables that fall in a price band between netbooks–which can start at less than $300–and full-featured notebooks, which often cost more than $1,000. Price is not the only distinguishing feature; these ‘tweener portables also will be touted as sleek and stylish–think of Apple’s MacBook Air, but with a starting price of $600 to $700 instead of $1,799.

“Thin is in,” summed up Sean Maloney, Intel’s top salesman, during a speech to analysts in May that provided a sneak preview of the strategy. He predicted a steep sales ramp for the new category, which he labeled on one slide as “ultra-thin affordable.” Just to confuse things, many analysts refer to the niche as CULV, which stands for “consumer ultra-low voltage.” (Instead of Intel’s Atom–a microprocessor used in most netbooks that starts at a list price of $29–the new systems are expected to be based on price-reduced versions of its Core 2 design, which now starts at $113 and up).

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Semiconductor luminaries honored at a black-tie ceremony in Silicon Valley Saturday night didn’t get a lot of time on stage. Most posed a few seconds for a photo with their award, said a few words about how honored they were, and left the stage. Andy Grove couldn’t resist doing a little more, including comparing commerce in patents to the actions that brought down Wall Street.

Intel’s (INTC) former chief executive and chairman was given a lifetime achievement award by the National Inventor’s Hall of Fame. The group helped celebrate the 50-year history of the semiconductor by inducting 15 chip innovators Saturday, along with a description of their seminal patent and its number.

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Now that we’re experiencing Q4 earnings reports in all their glory, the time has come to shift focus to Q1. That’s what Needham chip analyst N. Quinn Bolton did this morning. And the picture is not pretty.

Bolton says he now expects Q1 revenues for most of the companies he covers to be down 15-20 percent sequentially, with Q2 sequentially flat. (His previous theory was that Q1 would be down about 10 percent.) He says that currently depressed orders have been depressed by supply chain-wide inventory reductions, but that “visibility into a snapback in orders remains uncertain.” His current theory: Slash estimates to the bone, and hope the companies can start to beat them in the second half.

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Broadcom (BRCM) has developed a new chip that will allow cellphone manufacturers to offer HD video cameras in their handsets. In an interview Friday with Tech Trader Daily, Broadcom CEO Scott McGregor said the chip will be available later this year, with large volumes shipping in 2010. McGregor said one handset maker was displaying a prototype phone using the chip privately at the show, but he declined to identify the manufacturer. McGregor said the first version of the chip will produce video at 720p resolution–full HD at 1080p or 1080i will be in the next-generation chip, which he says is “not that far away.” McGregor says the chip will be able to shoot six hours of video on an average cellphone battery.

Broadcom, like many chip companies at the show, was displaying its wares in a private display area. But on Friday afternoon the spacious booth was bustling with visitors. Broadcom had some interesting technologies on display:

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At Intel Corp.’s big developer conference this week, the chip giant was extolling the virtues of its newest little chip, called the Atom. The Atom has surprised both company executives and analysts with its popularity among hardware makers. The chip was introduced in March and is aimed at an emerging market of very low-cost mobile devices, especially in developing countries.

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Good news for the memory sector: The players seem to be acting rationally for a change.

One clear message from the Applied Materials’ (AMAT) earnings call yesterday is that there has been a dramatic reduction in capital investment in the DRAM and NAND memory chip sectors.

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Having seen Apple’s MacBook Air notebook computer up close, I’m as dazzled as everyone else who’s had a chance to examine this delicious piece of industrial design.

Dazzled doesn’t translate to handing over a credit card, however–at least not yet, and not solely because it’s almost never a good idea to buy Apple’s (or anyone else’s) hardware immediately after its initial release.

Even if serious flaws didn’t frequently surface in the company’s first batch of new models, I’d hold off on buying one of these, despite my admiration for the genuine accomplishments in this one. Cost isn’t the issue; rather, there are just a few too many feature compromises for my work-style.

My friend and your co-host here, Walt Mossberg, explained them well in his recent review. They include a nonremovable battery; non-expandable RAM; a paucity of ports; lack of an on-board optical drive; and a relatively small 80GB hard disk. (I wouldn’t even consider the flash-memory model for the moment, due to its high price and lower 64GB capacity.)

The somewhat modest central-processing power is a non-issue. Intel’s new Merom-architecture chip, running at up to 1.8GHz, has plenty of muscle for the kinds of duties a machine like this would typically handle. Graphics and media professionals would disagree, no doubt, but this ultra-svelte device isn’t aimed at them in any case.

I certainly can imagine why some folks have already ordered one. A frequent traveler whose computing tasks include little more than email, document-handling, Web browsing and watching a video will have lots to love.

But if she’s one of the increasingly global members of the workforce, and (unlike Steve Jobs) flies coach internationally except when she’s lucky enough to get an upgrade, she’ll discover that the roughly 5-hour battery life is good enough for domestic travel. And if the battery gets flaky or fails on the road, as has happened to me in two laptops, one an Apple, she’ll be up a creek.

Laptop batteries wear down eventually. Apple says it’ll replace batteries for the same price as MacBook batteries, with no labor charge, but there’s a serious inconvenience factor in having to take or send the machine to a repair shop.

Our otherwise happy purchaser will encounter other problems. She’ll arrive at her hotel one day and discover that there’s no Wi-Fi in the room. Out will come a dongle that fits into the single USB port, which is contained in such a tiny space that lots of USB devices will need extender cables, allowing her to use the room’s wired Ethernet connection.

In fact, it’s already clear that anyone doing serious computing will be hauling around a slew of dongles for the MacBook Air. The adapter for video presentations is a fact of life already for Mac notebook users. You’ll need a small USB hub just for starters, plus various adapters for things like an EVDO or other high-speed cellular modems that many serious travelers now rely on for domestic connections.

Apple’s design choices were surely aimed at one goal: creating the thinnest, lightest and most beautiful notebook around. You can find lighter Windows machines, but they have even more compromises, often including dreadful keyboards. (Not that I’m a fan of the Chiclet-y keyboards Apple now includes with everything but the MacBook Pro; some folks love them but I’m distinctly underwhelmed.)

The best keyboards on any notebook computers are in the ThinkPads from Lenovo, which bought the line from IBM a while back and, so far, appears to have maintained high standards. The smaller ThinkPads, especially the X models, are sturdy, reliable, capable and smartly designed in their own right, though not remotely jaw-dropping like the new Macs. But the ThinkPads have been the absolute class of notebook computers for many years.

Which leads to the obvious point–something I and at least a few other people have been publicly advocating for a long time, not that Apple is paying any attention. We keep wishing that Apple would either make a deal with Lenovo to sell ThinkPads with Mac OS X as an option, or make a deal with whatever company actually manufactures the ThinkPads. Then we’d enjoy the best of both worlds. (An upcoming ultra-portable, ultra-capable ThinkPad model would be the perfect machine for the Mac OS.) I would pay a premium, and so would plenty of other folks.

Some day, I predict, Apple will make such a deal. While we wait for Steve Jobs or his successor to realize why it’s a good idea, we can expect a host of improvements to upcoming versions of the MacBook Air. Not incidentally, some of these will also make Apple even more money.

Keep in mind that the relentless pace of technological improvement means that the processing power, memory and storage capacity of the MacBook Air will get dramatically better in coming months and years in any case. So that 80GB drive will be 160GB next year, and the 64GB in the solid-state version will double, too, for the same cost. As always, customer patience solves some issues.

But if I were czar of the MacBook line, I’d do two things right away. First, I’d find a way to make the current model modular, with one additional port that would connect to a dock in the home or office or both; the dock would in turn connect to a monitor, keyboard, mouse, printer, Ethernet line, external storage and other typical gear. This would resurrect the still-classic mode of the old Mac Duo notebook systems, which even now are fondly remembered as the best hardware combination of Apple’s portable-machine history. (Of course, the PC-laptop world–and, yes, the ThinkPads–have been doing this for a long time.) The docks would, like other Apple-made peripherals, become a profit center in their own right.

Second, I’d launch another notebook model. Call it the MacBook Air Pro. It would weigh a half-pound more than this one, and it wouldn’t be quite as gorgeous. But it would add back ports such as Ethernet and Firewire, along with a more capacious hard disk, removable battery, MacBook Pro keyboard, built-in EVDO and expandable RAM, among other things.

Meanwhile I’ll count on all you early adopters to find the inevitable bugs in the first batch of MacBook Airs. And I’ll count on Apple, as always, to be a pace-setter in design.

But I suspect I’m in a large class of potential customers. I’d love a computer that’s high art, but I need one that’s right for hard work.