Friday, November 28, 2008

The time is ripe for a rip by netbook PC

With the economy in the tank and families planning to pull back on
holiday spending, the stage is set for this season's big premiere of
netbook PCs.

The slimmed-down laptops, which are designed primarily for Internet
use and media consumption, are having their big coming-out party this
season, with most major computer manufacturers offering at least a
model or two for the first time. Starting at around $350 to $400, the
lightweight netbooks are significantly cheaper than their more powerful
brethren, but offer a compelling mix of features that are suited to a
growing number of Internet-only consumers and modern computer users.

The category includes the HP Mini 1000 family of netbooks and Dell's
Inspiron Mini 9 and 12. Lenovo has the IdeaPad S10; Acer is selling its
Aspire One; and Asus continues to expand its line of Eee PCs.

The category is expected to be a big seller, but because it's so
new, analysts and manufacturers are still waiting for the contours of
the market to emerge. Will it be a great mobile companion for
established laptop users who want a second, more nimble device? Or will
it play more to new users or students who don't need all the bells and

The biggest question for vendors is how much this category will
cannibalize existing laptop sales, snatching away dollars that might
have gone toward a pricier replacement machine.

"Right now this is the topic everyone wants to discuss because no
one fully understands it," said Richard Shim, an analyst with IDC.
"Will this threaten the notebook market, which was the growth market
for the PC industry? How do you invest in this opportunity? Is this the
device that bridges the gap between smart phones and notebooks?"

Shim and others agree on one thing: Most manufacturers - aside from
Apple with its premium approach to computing - can't afford to sit on
the sidelines while this market develops.

"It's an emerging market that's rapidly growing, but how big is an
open question," said Jonathan Kaye, director of consumer notebooks for
Hewlett-Packard. "But for HP, as a leader in computers, it's in our
best interest to participate."

Ultimately, consumers will decide, and early indications are that
there will be a good number of takers for this emerging sector. IDC
said worldwide there were just 100,000 netbooks sold last year by Asus,
which led the field with its Eee PC. The category, which has gotten
crowded in recent months, is expected to hit 10.9 million units in 2008
and 40.8 million by 2012.

The emergence of netbooks follows a couple of trends in computing
and hardware that have changed the proposition for computer buyers.

Before, slim and portable laptops were often sold at a premium and
packed with expensive features. But with the release of smaller,
lower-energy and lower-cost processors like Intel's Atom chip,
manufacturers have been able to construct tighter and cheaper packages
that can be focused on a smaller list of tasks.

"We can build a lot of (Atom chips) at a relatively low cost and
deliver them to customers at a very affordable price," said Intel
spokesman Bill Calder. "That allows manufacturers to make products that
get good performance with good battery life at the right price. It's
the exact right chip at the right time."

And that dovetails with the second trend: With more services offered
through the Internet "cloud," a growing number of consumers are content
to just browse, use social networking sites, e-mail and consume their
favorite media on their laptop.

"This is for people who really don't need to create a video on a
mobile system, they really just want to use their PC as a consumption
device," said Dell's John New, senior manager of global product
marketing. "By focusing on that, you can take out costs that are not
valued by those people who just want access to the Web."

Manufacturers are quick to point out, however, that netbooks are not
robust enough for heavy content creation and interaction with some
complicated applications. That role should still belong to the home
desktop or laptop.

Sumit Agnihotry, director of notebook product marketing for Acer
America, said so far netbooks have added incremental growth and have
not eaten into sales of higher-priced notebooks. He hopes that will
continue, but even if it doesn't, he believes increasing sales of
netbooks can offset any pressures created by the new category.

"We believe netbooks will accelerate growth and as users embrace
more of these devices, there will be a shorter life cycle for them,
similar to smart phones," Agnihotry said. "Consumers will be looking
for a new look and feel more often, and from that perspective ... it
can offset lower price points."

Rob Enderle, principal analyst for the Enderle Group, said that
although manufacturers worry about cannibalization, they should be
thankful they have this new category, which will be one of the few
products that really move this holiday season.

"They fall right into the sweet spot," Enderle said. "The problem this holiday is probably not having enough netbooks."

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