Netbooks: Cheap young cannibals of laptop PCs
TAIPEI (Reuters) - PC makers are taking a gamble that the popularity of cheap, portable mini-laptops in an economic downturn will offset any business stolen from their traditional laptop business.
These small computers, also known as netbooks, are already tempting cash-strapped consumers away from fully functioning desktops and laptops, and as the market grows, cannibalization has become the big white elephant in the room that no one wants to discuss.
Only two or three PC makers, such as Taiwan's Asustek (2357.TW), and Acer (2353.TW), are likely to get the sufficient scale to succeed in the burgeoning market for cheap, Internet-enabled mini-laptops, which typically cost between $400-$600.
But all manufacturers will see sales of full-blown laptops, which start upwards of $1,000, lose out to netbooks, analysts say.
"It's really gotten quite bloody," said Gartner analyst Lillian Tay. "In order to be successful in this game, you need volume -- companies need to make money from volume."
Up to a third of netbook sales reflect customers ditching their old desktops and laptops, analysts say, because they just need a computer for surfing the Internet, checking emails and viewing photographs and no longer require all the functions of a larger computer.
Concerns that offering cheaper laptops during a global downturn will only pressure traditional computer sales may be behind the world's biggest PC maker Hewlett-Packard's (HPQ.N) decision to shun this growing market.
The world's second biggest maker, Dell (DELL.O), has also been cool on the sector, with what some consider to be limited offerings and half-hearted promotion.
And it's not just the likes of HP and Dell that will see traditional laptop sales stolen away. The very companies that blazed the trail -- Asustek and Acer -- will also suffer.
Although margins for notebooks and netbooks are roughly the same, the low cost of each netbook means companies must sell several of them to bring in the same profits from just one average notebook.
"This group definitely has potential because of its low cost. There's definitely a market," said Calvin Huang, an analyst at Daiwa Institute of Research. "But Dell doesn't agree, saying this is a small market, and HP isn't promoting it. They're worried that if they promote it too much it may eat into their current market," he said.
Estimates on netbook sales vary, with iSuppli forecasting they could account for 12 percent of a total notebook PC market that is expected to reach 235 million unit sales in 2012. IDC predicts they will remain smaller, at 5 percent or less.
For a graphic on growth of netbooks as a percentage of total notebook sales, click on:
SECONDARY BOOST
Another way to boost sales is to attract buyers who are looking for a second or third computer for elsewhere in the home, or for kids to take to school.
Gartner recently revised its notebook PC sales forecast for 2009 up by 3 percent from a previous June forecast, partly due to netbooks, Tay said.
She and others said only a handful of players that can bulk up quickly by finding and aggressively promoting the right mix of laptops will succeed.
Asustek and Acer are both offering netbooks through promotions with telecoms carriers offering advanced Internet access as a way to quickly beef up sales.
Dell and Lenovo (0992.HK), as well as smaller companies, such as Taiwan's MSI (2377.TW), are also getting in on the act.
Stores in Taiwan's popular Kuanghwa computer market said Asustek and its Eee PC line lead the netbook market by a wide margin. The company is offering third- and fourth-generation models as the company searches for the optimal price-size combination.
Meantime, Dell's offerings have stumbled out of the gate, at least in Taiwan, in part due to the higher price of about $600 per unit versus $450-$500 for the Acer and Asustek models, said Shih Chieh-yuan a store salesman in Kuanghwa.
"People like them because they're low in price," says Shih, pointing out features on the prominently displayed Eee PC models near the front of his store. "Most people who buy them also like their convenience."
Some say those that fail to enthusiastically embrace the market, most notably HP so far, could be missing a big opportunity. But others say netbooks could be more a passing fad, ending up more as a niche product than a mainstream offering.
"I'm more a pessimist," said IDC analyst Bryan Ma.
"I think these devices' functionality is severely limited. After people get used to these things and realize the limitations, they'll say 'I'm going to buy a full-fledged notebook.'"
(Additional reporting by Argin Chang; Editing by Louise Heavens)
