Netbooks

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Dave Schneider

Netbooks differ from the usual notebooks through their basic functionality and ease of use, leaving them somewhere in the middle of smartphones and notebooks (though, when calculating a company's overall sales of notebooks this includes netbooks). Important, is how netbooks will affect the overall sales of these products. Notebook sales are growing, with quarterly sales of notebook computers topping those of desktop computers for the first time ever in the United States, market intelligence firm IDC reported on Wednesday.^[2] 9.5 million notebooks were shipped during the July to September 2008 quarter, accounting for 55.2% of computer sales; an 18 percent growth over the same period last year and the first time they have surpassed 50 percent. iSuppli also reported that notebook shipments, comprised of laptops and netbooks, will still increase 15% in 2009 largely because of growth in the netbook segment.^[3]Netbooks have begun to take market share away from laptops^[4] and sales are expected to increase up to 50 million by the year 2012.^[5] In Q3 2008, shipments of netbooks grew 160%, overtaking iPhone sales by 900,000 units.^{[6] [7]}

Technology vendors see the future of netbooks as primary computing devices in emerging markets and complements to traditional PCs in developed markets, however, this will depend largely on the proliferation of Internet.^[8]

Who Will Benefit

Market share leaders for netbook sales

Acer – 38.3% share of the netbook market

Asustek – 30.3% share of the netbook market

The chart below shows the netbook market share:

Companies that sell processors for netbooks

Intel - Sells atom processor for netbooks^[10]

NVIDIA - Sells tegra processor for netbooks^[11]

Who Will Lose

Computer companies who do not primarily sell netbooks

Dell - PC company which will suffer from a drop in notebook sales

Toshiba - PC company which will suffer from a drop in notebook sales

Lenovo - PC Company which will suffer from a drop in notebook sales

Sony - PC company which does not sell any netbook equivalent

Apple - Netbooks will compete with Apple on the basis of notebook and smartphone sales

Below is a chart depicting the market share of PC sales by volume. Important, however, is that the chart gives no indication of profit, thus, while although companies such as Apple may be selling less units, they are dealing strictly with notebooks in the $1,000-$2,000 range, as opposed to Acer whose netbooks sell for less than $500.

Companies which sell processors, displays, and software for laptops

PC makers obtain the Windows operating system for netbooks at $15 to $25 per device—less than half the cost of the lowest-priced Windows XP for laptops. Furthermore, processors sells for $35 to $40 with netbooks, compared with $150 for a traditional notebook chip.^[13]

Microsoft - Sells windows operating system, which comes at a significantly lower price for netbooks than notebooks

Intel - Sells processors, which come at a significantly lower price for netbooks than notebooks

NVIDIA - Sells processors, which come at a significantly lower price for netbooks than notebooks

Factors That Influence Netbook Sales

Netbooks and internet connectivity

These small PCs lack significant storage and largely depend on the Internet to access content and documents. Thus, the viability of the device depends on the proliferation of wireless internet. This is certainly attainable in the U. S., where netbooks can find Internet connectivity through multiple means. However, even Asia, which accounts for approximately 40% of world internet usage is seeing a boom in internet connectivity and wireless connectivity.^[14]For example, between 2000 and 2007, the number of Indian people using the internet grew 700%. ^[15]

A trend towards multifaceted units

The proliferation of the iPhone is proof that a very large number of people are increasingly looking to buy a single device -- or, at least, subscribe to a single wireless account -- for all their computing and communications needs, and at the lowest possible price. A way to compete with companies such as AT&T, who holds a monopoly on Apple iPhone sales in the U.S., is to offer very low-cost netbooks outfitted with VoIP capability or, more likely, cell phone/netbook combo deals where for, say, $200 you get a cell phone, an Asus Eee PC and a wireless contract that covers both devices.

A worsening economy

In a worsening economy consumers turn to netbooks as a cheaper alternative to laptops. Netbooks typically cost $300 to $500, but prices may slide as wireless companies such as AT&T and Verizon Wireless may subsidize netbooks if customers sign up for service contracts, opening up the possibility of netbook prices falling to as little as $100.^[16] The average selling price for a portable computer is $1,106, and IDC predicts that this will drop 8% to $1,018 in 2008, and an additional 12% next year, partly because of netbooks.^[17] As it stands, IDC already expects PC sales to be down 5.3 pct in 2009 as consumers search for cheaper units in a bad economy.^[18] This could be a boost to netbook sales in the future, which generally cost below $500.