The Line Between Netbooks and Notebooks Is Blurring

Netbook manufacturers are bastardizing the netbook market with bells and whistles that are blurring the lines between a netbook and a notebook.

We noted in a Seeking Alpha article on March 10 that subsidized netbooks will start appearing.

Along with the growing competition among software service providers, we will see a new infrastructure taking hold, modeled after Hewlett-Packard (HPQ) (cheap printer, expensive ink) and the mobile service providers (cheap cellphone, expensive monthly wireless charge). This subsidized bundle model will grow the ARM netbook to greater market shares.

AT&T (T) seems to think it was a good idea. The wireless provider is offering subsidized netbooks for as little as $49.99 in two markets, Atlanta and Philadelphia. The catch is that buyers must sign a two-year contract for an AT&T data service plan, which starts at about $60/month.

The $49.99 gets you an Acer Aspire One with an 8.9-inch display, 1GB of memory, and a 160GB hard drive. One needs to sign a two-year deal for AT&T's Internet at Home & On the Go service, which starts at $59.95 a month.

We are seeing a blurring of lines between a netbook and a notebook. We envision netbooks for multimedia purposes for watching streaming video and DVDs. Asus (AKCPF.PK) is already marketing a netbook with a DVD player. Problem is, the netbook market is migrating upward to be a low-end notebook with a small screen for a few hundred dollars less, yet it is still a few hundred dollars more than the original intention of what a netbook was supposed to be.

Intel (INTC) probably hates the situation because it is getting practically nothing for its chip, which is eroding the notebook market. Microsoft (MSFT) gets smaller licensing fees as well. The only real winner is Asus, which is a 2nd or 3rd tier notebook supplier that is trying to get market share in the mobile space.

Stock position: None.

Comments

[orionoir:]

intc and msft may have short-term margin trouble with the printer/ink model, but as w/ the original razor/blade scheme, brand strength tends to prevail.

Apr 03 10:51 AM

[marv08:]

While they (MS and Intel) might get less out of the initial netbook sales, this picture is not complete. People buying netbooks might have bought a cheap desktop instead (entry-level desktop CPUs do not carry great margins either), nobody needing mobile computing power and decent ergonomics would buy a bare-bones netbook instead. MS might loose the chance to up-sell to more expensive versions of the Windows OS and Office (who would put a 350 USD OS on a 49.99 machine and Office might not even fit onto the hard disk?), but both companies should profit from the shorter lifetime of the netbooks (a quality laptop can be used for 3-5 years, I doubt that most people will use a netbook for anything exceeding 12 months – screens, keyboards, speed... everything about them is abysmal).

I doubt that Asus is a "winner" here (remains to be seen). Market share does not mean profit. Asus must sell 15-20 netbooks to meet the margin of one Apple MacBook Pro (or high end Dell, HP or Sony models)? They have to support and repair them, all out of a paper-thin margin and without compensating profits from better models. Who buys high end Asus notebooks? Never seen one in the wild.

Apr 03 11:21 AM

[Spook:]

I don't think this will be a short tern trouble, Here's a similar story.

Back in 2004 when Vitese came up with a silicon chip for smart networking switches, it was position between an unmanaged and managed switch, to successfully sell this switch means that the company who have a larger market share in unmanaged switch will have to cannibalize its unmanaged share for smart switch to success, but for company like Netgear who does not have a large market share in unmanaged switch, this is a perfect product.

However down the road, as you add more bell and whistle to the smart switch, you blur the line between managed and smart, the more smart switch you make, the less chance you want to tackle the managed switch market, which is where Netgear is today.

In short, as companies like Asus, Acer and MSI add more bell and whistle to netbook, more share is taken away from their notebook market shares, the more share taken away from notebook, the more pain it will for Intel and Microsoft, the more advantage it will be for ARM and Via who happen to have no presence in notebook chips.


On Apr 03 10:51 AM orionoir wrote:

> intc and msft may have short-term margin trouble with the printer/ink
> model, but as w/ the original razor/blade scheme, brand strength
> tends to prevail.

Apr 03 08:05 PM

[rajeev bajpai:]

Intel led the charge in the microprocessor market and thanks to Atom they have been able to increase their market share in 2008. One can also say that AMD lost market share because they missed the Netbook march. Netbook market is expected to grow in excess of 30 Million this year thereby at least giving companies opportunities to grow revenue even with less profit margins. Consumers seem to love it owing to its lightweight, longer battery life, and having the required functionality which one uses - not to forget the price.

Netbooks for sure will cannibalize the notebook market and is doing that. The display size is already getting bigger. from 7.0 inches to 8.9 and 10.1.....the march should continue forward. At the end of the day its not the technology limitation but the cap on the display size provided (perhaps) by Intel. Consumers will trade their choices with the features they give more weightage.

Netbooks also provided a new revenue stream for the operators and for the computer companies a new channel to sell their products to wider set of customers. Netbooks based or arm or any other processor , netbooks running on android or any other operating system would bring innovation to the industry and respite to the customers and perhaps spawn new relationships in the PC/Telecom industry.

Apr 04 12:06 AM

[William Cowie:]

Let's not forget: with a netbook you get XP, and live another day without (hasta la) Vista.

Apr 05 01:04 AM