Easy Come, Easy Go
The netbook was an interesting idea at first: build an inexpensive, small form factor PC that is adequate for most "general" usage patterns. In the 2008-2009 timeframe, these things actually sold quite well. However, as mainstream computer hardware has improved dramatically, the market became filled with much higher performing and higher quality devices in the traditional notebook form factor for what are very affordable prices. And since the whole point of netbooks was to bring affordable computing to the masses, especially in developing nations, they are now rendered essentially obsolete.
Oh, and it seems that the top two netbook vendors, Asustek and Acer, seem to agree, as both companies plan to halt production of their netbook lines.
Tablets Have Replaced The Netbook
When I look at netbooks, I see cramped keyboards, terrible software, junky hardware, and very small screens. It's just not a good consumer experience and not something we would put the Mac brand on.
To further illustrate Mr. Cook's point, it's interesting to note that netbooks overwhelmingly feature Intel (NASDAQ:INTC) Atom processors or AMD (NYSE:AMD) C-Series APUs. These are low power and low performance chips. To further add salt to the wound, netbooks generally come equipped with 1GB of memory and slow 5400 RPM hard disk drives (this is as slow as they make them these days), making them about as fast as mid range notebook from 2004 (albeit in a smaller form factor and more attractive power consumption characteristics).
Tablets are powered by similarly-powerful hardware (a notable exception is that tablets come equipped with flash memory, giving the devices a significant boost in snappiness over slow hard disk drives), but also have much more pleasant touch interfaces, better and higher quality screens, less pre-loaded OEM bloatware, and attractive power consumption characteristics.
In short, netbooks aren't good enough to take the place of a "real" notebook; they have always been complementary devices. And for those looking for a less powerful computing device to do basic tasks such as e-mail and web browsing, tablets seem to be a much more compelling alternative.
So, Who Loses Here?
The major question on the minds of investors, then, is which companies suffer and benefit as tablets supplant the netbook?
Well, the obvious "losers" would appear to be Intel and AMD, as a shift from netbooks to tablets means that these two x86 vendors lose business in the low end CPU space. The two certainly will have a presence in the mainstream tablet market, especially as Microsoft's (NASDAQ:MSFT) Windows 8 will run on x86, but there will also be Windows RT for ARM (NASDAQ:ARMH) processors. Let's also not forget that Apple's iPad as well as the countless Google (NASDAQ:GOOG) Android based tablets will be running exclusively on chips from the ARM vendors.
However, AMD and Intel do not rely on the netbook-level chips for the majority of revenues. Intel's "other Intel architecture group", which includes (but does not consist solely of) the Atom, saw 20% year-over-year decline in sales driven partially by "lower demand for netbooks". This segment came in at $1.1B in sales, or roughly 8% of total revenues. AMD does not appear to break this down separately, but I would imagine that its numbers are about in line with Intel's.
It would also seem that both Western Digital (NYSE:WDC) and Seagate (NASDAQ:STX) may feel a slight sting from this shift as well, since the overwhelming majority of netbooks use hard disk drives while tablets rely on flash memory solutions.
The final thing to note, though, is that netbooks have already been dying and any pain that any of the aforementioned companies will feel from this ultimate "nail in the coffin" is likely to be minimal. The netbook is finally dead, as higher quality solutions at reasonable price points have taken its place in the compute continuum. The real question, and one I will be exploring in great depth in future articles, is whether tablets will become good enough to displace the traditional notebook going forward. Stay tuned.
Disclosure: I am long INTC, AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.