Apple and Nokia: ARMed for a Netbook Fight

The netbook world — or at least netbook speculation — continues to be a growth industry. One of the key questions is whether future netbooks will be more like laptops or like smartphones in their platform choices.

Towards that end, last month an industry expert predicted a shift from laptop (Intel Atom (INTC)) to smartphone (ARM-licensees) processors:

ARM-based processors will take market share from Intel Corp.'s Atom in the netbook segment and hold 55 percent of the netbook market by 2012, according to Robert Castellano, president of The Information Network.
…
The movement is toward the original intention of a netbook—an inexpensive device for accessing the Internet, Castellano said.

A shift to ARM-based processors would benefit existing suppliers of smartphone CPUs like Qualcomm (QCOM), Freescale (FSL) and TI (TXN).

The key question about making a viable ARM netbook platform remains the software. Fortunately, there are a plethora of software choices used by smartphone makers, and a lot of investment and activity here.

Forbes Wednesday reported a rumor that HP (HPQ) is considering an Android-based netbook. (Android of course is a smartphone OS with a Linux kernel and its own GUI APIs). I wouldn’t be surprised if Dell (DELL) copied this approach, certainly more plausible than the reports that Dell (the ultimate commodity IT company) will buy Palm(PALM) (with its custom OS).

Nokia (NOK)has been eyeing the netbook space with envy — the N97 is a little more phone and a little less laptop replacement; Many have speculated that Nokia is considering offering a netbook, to the point that even Nokia admits the interest.

ArsTechnica thinks it will be Linux powerered. However, given the lack of Linux applications, I find more plausible the speculation by The Register that the first netbook will be based on Symbian (like the N97).

And then there is Apple (AAPL). Both its laptops and smartphones run OS X and its Safari web browser, so the question would appear to be which GUI and applications it thinks best for netbooks.

I strongly suspect that the Apple netbook (expected this summer) will be using the iPhone OS, because otherwise Apple risks cannibalizing its core laptop business.

However, it’s clear that there is an even better reason to predict this: the iPhone App Store. Apple controls the distribution of 3rd party software for the iPhone in a way it never has in its previous 30 year history, and also takes 30% of the action. Steve Jobs always got mad sharing profits with the middleman and now that sharing is over.

So in one swell foop, Apple can put itself at the head of the migration from laptops to mobile devices, finish transitioning its developers from the desktop to the phone, change the software industry business model from bloatware upgrades to consumer fads, and switch from a business where it has 5% in North America to one where it has more like 30-50% (depending on your denominator).

Of course, there still are some important product details to be resolved, likescreen size, weight, battery life and keyboard. Something less than 2 lbs with a real keyboard would be huge for the US market, but I suspect that’s not what Steve has in mind.

But if this the wave of the future, what it does say for the rivals?

• Nokia has Ovi which has a solid infrastructure but not a lot of excitement. Still, more than any other firm they control their own destiny.
• HP (and others) would depend on the Google-run Android Marketplace which is gradually maturing but will never provide them a revenue stream
• RIM (RIMM) (creator of the BlackBerry thumb disease) has its new App World but is a long way from making laptop replacements.
• Other cellphone makers (Samsung (SSNKF.PK), LG (LGERF.PK), Motorola (MOT)) have neither app stores nor PC competencies. The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones. Neither camp has their app store or is good at software.
• The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones and even less in their own software and app stores.
• Many diversified Japanese CE companies (like Fujitsu (FJTSY.PK), Panasonic (PC), Sharp (SHCAY.PK), Sony (SNE), Toshiba (TOSBF.PK)) are players in both spaces, and thus are well equipped to make portable devices but leave the app stores to the OS player or (especially in Japan) the operators.

Near term, it looks like Apple and Nokia are best situated to push ARM-enabled jumbo smartphones. Between notebooks, netbooks and PDAs, HP is a well situated challenger, but nearly all their portable devices use Windows, so going to Android (or some other choice) could be stretch.

Comments

[Steve Biren...:]

Great thoughts on Apple and netbooks, Joel. I had not made the connection between the App Store and an Apple netbook. I've said since the day it was announced that the iPhone was basically a netbook and that became more obvious with the success of the touch. A larger touch is really all the Apple netbook will be.

I also think that this is another in what for Apple is now evolution. The product path is set which takes a bit of pressure off the Steve Jobs future worries.

Since its revival Apple has been fantastic on the day-to-day operating front, something the street generally ignored. Netbooks will be another area where that is what matters, even more so that the Jobs vision thing.

I post on RealMoney.com. If you don't mind, I'd like to quote you. It would also appear on my blog at northlakecapital.com/m...

Apr 03 10:01 AM

[Momintn:]

I read that Nokia was opening up retail stores. Their stock has started going up, and seems to be a better price than Apple right now. There is alot of room for offerings for the consumer worldwide in my opinion. No reason to think there will only be one vendor.

Apr 03 11:02 AM

[another.ana...:]

I think, for whatever it is worth, that AAPL's "netbook' will be a Newton II although not named that. APPL still has all the technology/patents that went into the Newton & Newton's failure was basically that it was ffffaaaaaarrrrrrr ahead of its time.
Suppose a Newton size device, much thinner because of the progress in nano tech since 1997, with a chip to get on the internet from anywhere using a Telcom data plan & the Newton handwriting recognition system that was & still is, the best handerwrting recognition software out there. People who complain they don't have a "hard" keyboard could write what ever they needed, tap & presto its text! Most people can write a hell of a lot faster than they can type. Meanwhile, those who MUST have a "hard" keyboard can have a 3rd party add-on now that the connector has been "opened".
If you think about it the Newton was a NETBOOK---too early, too expensive, & too slow (at that time w/ those processors)--but it stiil had a great impact I know several doctors, both medical & research that still use them w/ special purpose dictionaries/software.

Ayuh

Apr 03 07:11 PM

[rajeev bajpai:]

Another exciting product in terms of price from the arms stable and available commercially is SmartQ 5, which could strengthen Arms march into the smartphone/netbook market (are not the lines between smartphone/netbook blurring- if only by a bit-and we are yet to see the so called MIDs).

It comes with an ARM CPU and 800× 480 4.3-inch touchscreen display, 802.11b/g networking, and Bluetooth 2.0. The device runs on Linux (ubuntu) and is priced at $132 which is roughly 3 times cheaper than Nokias arm based N810 tablet (arm based)
.

Apr 04 12:23 AM

[William Cowie:]

It wouldn't surprise me to see users going back to simple (small, easy) cell phones, and transfer all other functions to a netbook of some sorts. Remember the first clunky Motorola cell phones? If we keep stuffing more and more functionality and applications into a phone, that's where we might end up again.

Apr 05 01:18 AM