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uDuino: Very Low Cost Arduino Compatible Development Board

Step 3Decide whether to make absolutely minimal boards, or external-oscillator based boards

Decide whether to make absolutely minimal boards, or external-oscillator based boards
The decision of whether to build an oscillator based board is based around a few things. One, do you have access to an AVR programmer and the time to program a special bootloader onto your ATmega168 chips? two, can you do without accurate serial communication with the chip? three, is your application low enough impact that the board can run half as fast and everything will still work fine?

ATmega168 chips have an internal oscillator which can be enabled; it runs at about 8mHz, which is half the speed of most Arduino boards (with the exception of Lilypads). The internal oscillator is guaranteed to be calibrated to within 10% (which is not tight enough tolerance for guaranteed good serial communications). In my experience, the factory calibration at 5v has always been fine for uploading programs, but YMMV. I wouldn't use the internal oscillator for Important Things Which Need To Speak Serial, however. For blinkylights it should be just fine though.

Arduino chips with the bootloader pre-loaded that I've found always run at 16mHz, and these will require an external oscillator. If you don't have access to an AVR programmer, you will probably want to buy a pre-loaded Arduino chip. I highly suggest Ada Fruit Industries as a source.

Note that the oscillators really aren't all that expensive (generally $.50-$.75 at Mouser); they're just another part which is often not necessary, and the pin layout sucks for really clean breadboarded Arduino layouts.
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