The first Atom processors actually had extremely competitive power characteristics. The only supporting chipset, however, was a) a power pig, because Intel just didn't bother despite it being a much easier task than making a processor (I have a little file server running a dual-core Atom, the processor being air cooled while the chipset has a fan. As a humorous aside, altogether that micro-PC uses about the same power as my new i7 Mac Mini under standard loads), b) completely built for traditional PC uses. Do you need IDE on your smartphone, for instance? How about an A20 line?
The "glut of inventory" notion is not realistic. It doesn't work that way.
Intel had no intentions in the smartphone industry at the time. If they did, not only would they have actually made a decent chipset (they happen to be the most advanced chipmaker in the world, with the world's best fabs), they would have made a prototype (which is what all manufacturers do when they try to enter a market - a proof of concept). There were absolutely none until later Atom variants.
People forget it now, but it was initiatives like One Laptop Per Child that initiated the netbook craze -- that program talking about ultra-inexpensive laptops, leading to a lot of people saying "You know...I too would like an inexpensive laptop that I could just bang around and leave in the car and..." (Slashdot was full of people trying to repurpose such devices), and with that an industry was born.