Netbooks: Cheap young cannibals of laptop PCs
By Doug Young - Analysis
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:
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