Apple and Nokia: ARMed for a Netbook Fight

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by: Joel West

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 (NASDAQ: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 (NASDAQ:QCOM), Freescale (NYSE:FSL) and TI (NYSE: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 (NYSE: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 (NASDAQ: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 (NYSE: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 (NASDAQ: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 (OTC:LGERF), 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 (OTCPK:FJTSY), Panasonic (PC), Sharp (OTCPK:SHCAY), Sony (NYSE:SNE), Toshiba (OTCPK:TOSBF)) 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.

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