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Margins are dropping like flies in the laptop market

Consumers are staying away from the higher-priced notebook computers that sold relatively well in years past thanks to the poor global economy. Instead of buying the high-end and expensive notebooks that may have been the choice in 2007 or 2008, consumers are buying low-cost netbooks in droves.

EWeek reports that the massive increase in sales for low margin netbooks is destroying the notebook market and that Microsoft must work with OEMs to stop the crisis. Netbooks are leading the PC market in sales and according to eWeek destroying margins at a "shockingly alarming rate."

Analysts from both IDC and Gartner say that the netbook category is posting strong numbers as sales for notebooks in higher margin luxury segments are dropping. The victim as netbook sales soar according to eWeek is average selling prices (ASP). Gartner analyst Mikako Kitagawa said, "U.S. mobile PC ASP likely will decline as much as 20 percent year over year in first-quarter 2009. Overall, end-user spending on PCs is likely to have contracted in the upper teens in first-quarter 2009 compared to a year ago."

ASPs for notebooks have traditionally been higher than the ASPs in the desktop market. In August, eWeek reports that ASP for Windows desktops was $569 while the ASP for Windows notebooks was $689. By December 2008, ASPs for Windows desktops had dropped to $533 and ASPs for notebooks dropped to $602.

By February of 2009, Windows Desktop ASPs were only $20 more than laptops at $540 for notebooks and $560 for desktops. The decline in ASPs for netbooks reportedly tracks closely with the increase in sales for netbooks, which makes sense considering the netbook is cheaper than the average notebook.

Windows XP is another way to track the impact of netbooks on the computer marketplace. Windows XP was all but gone from the retail marketplace in August 2008. By December of 2008, XP Home machines were second in market share next to Vista Home Premium. Windows XP Home was most commonly sold on netbook computers. EWeek reports that Microsoft loses a massive margin on Vista each time a PC is sold with XP.

The answer to the problem of netbooks cannibalizing notebook sales according to eWeek is twofold. Computer makers need to reduce advertising and separate netbooks from the larger notebook market. Exactly how that would make for higher margins in reality is hard to fathom. Even if you consider netbooks to be their own category, it seems that ASPs for notebooks would only go up on paper.

One route to better margins is by subsidizing the cost of netbooks for consumers by bundling them with mobile broadband contracts. This would allow the consumer to get a netbook for less money up front and would allow netbook makers to reap more profits by locking users into a mobile broadband contract for a two-year period.

EWeek admits that under this plan, ASPs may go down even further, but margins would go up. Requiring a mobile data contract to be wrapped into the purchase of a netbook with a plan like this would undoubtedly affect sales of the low cost netbooks, as most consumers won’t want a mobile broadband contract at $60 to be able to buy a netbook.

HP CEO Mark Hurd talked about netbook cannibalization in February and said that it would be a while before HP had a usable metric regarding netbook cannibalization.

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By xxsk8er101xx on 4/20/2009 11:29:48 AM , Rating: 5
The people buying netbooks are those that wouldn't have bought a laptop anyway.

It's the classic "we're losing money on music because of downloads" - they can't even prove that. Chances are they wouldn't have bought it to begin with because they don't have the money.

I hate these types of arguements because you can't prove it but the bean counters assume everyone that has a netbook would have bought a laptop. this is wrong.

RE: No
By DASQ on 4/20/2009 11:41:45 AM , Rating: 5
Or, tons of people who are buying netbooks are realizing they don't need a full size 15" to do what they do on a computer (internet, email, music).

RE: No
By tviceman on 4/20/2009 11:54:36 AM , Rating: 2
Or they buy it thinking all they'll want it for is music, internet, and email but find out that when they want to do something else they can't and they'll think it's a piece of junk and feel burned buying it.

RE: No
By DASQ on 4/20/2009 12:05:10 PM , Rating: 4
That goes for just about anything, though. Like those fellows buying $800 laptops for Autocad and finding it's sooooo slow boo hoo.

RE: No
By Smartless on 4/20/2009 2:45:18 PM , Rating: 2
Hehe yeah but I think it can keep up with the user who wants to autocad on a single 17" screen versus having a workstation with dual or quad monitors.

RE: No
By cheetah2k on 4/21/2009 12:06:16 AM , Rating: 2
The new Sony Vaio P netbook has wow factor - aside from the squinting eyes to see the text!

I also have a Netbook MID (viliv S5) and love it (except that it doesnt have native 3G support)

We can all thank the OLPC XO for starting this (r)evolution!

RE: No
By TomZ on 4/20/2009 12:10:07 PM , Rating: 3
80% of people won't ever do anything else. I know lots of extended family members that are not technical users. They are using their computer for all the things you listed, and nothing more.

And I would also add that most general business users I know just add Microsoft Office to the above, that's it. I would think that Office would run just fine on a netbook, although I haven't tried it myself.

The real issue with the industry is that the harware capability far exceeds most peoples' real needs. Sure, there are a lot of us who want/need the higher-end machines, but for the majority of users, even an Atom-based machine will meet their needs.

RE: No
By Suntan on 4/20/2009 4:24:35 PM , Rating: 2
And I would also add that most general business users I know just add Microsoft Office to the above, that's it. I would think that Office would run just fine on a netbook, although I haven't tried it myself.

They run just fine with Office installed on them.

To the guy that thinks only people that wouldn’t buy a laptop would buy a netbook, you’re completely off base.

There are a lot of people that would periodically enjoy the mobility of a laptop (even if it is just to sit on the couch and surf the web while watching TV), but also want the horsepower of a desktop/powerful laptop for other times.

I won’t speak for others, but I am sure I am not alone. I like the portability of a laptop, even if it still stays plugged in while I sit on the couch and watch TV. But I want a big, quality screen with significant horsepower to do digital photo work. Prior to the introduction of netbooks, I compromised with a 17 laptop that had a less than ideal screen (for photo work.)

Before netbooks, it was financially impractical to buy a full laptop *and* a quality workstation. Now I have a netbook for surfing while watching TV and travel (DVDs, emulation, Broadcast HDTV recordings, downloading pictures from the camera, etc.) and I have a desktop with a quality monitor for photo work.

So while I might have compromised with getting another “full laptop” in the past, financially it was pretty much equivalent to buying a much better desktop screen for photo work, a desktop and a netbook. This setup fits my needs much better and (based on the popularity of the market segment) I would guess I’m not alone.

As for the article talking about artificially limiting netbooks by shackling themto data plans… …what a stupid idea. Hey, if you want to stop selling netbooks, just stop selling netbooks. Just don’t be surprised if a competitor comes in and continues offering them to the obvious market that is out there for them (anything more would be considered illegal, anti-competitive behavior.)


RE: No
By dxf2891 on 4/21/2009 9:13:49 AM , Rating: 2
My neice has one and asked me to "trick it out" for her. I loaded office and an internet security suite and all works well. I even went so far as to load Skype and she couldn't be happier. We got her a couple of 16GB thumb drives and she's good-to-go.

RE: No
By mixpix on 4/21/2009 3:06:59 PM , Rating: 2
This is the main reason. I talk to lots of people about my EeePC who just do basic computing and want something smaller.

RE: No
By mholler on 4/20/2009 11:45:31 AM , Rating: 2
The people buying netbooks are those that wouldn't have bought a laptop anyway.

I'd have to say that is only partially true. Some people who buy netbooks would have purchased laptops in the past simply because there was no other option. So, I do believe the proliferation of netbooks has had some impact on the sales of laptops, but to what extent is probably impossible to determine.

RE: No
By invidious on 4/20/2009 12:55:35 PM , Rating: 5
I agree. Unfortunately this article is very obtuse and assumes that people are somehow supposed to be supporting the laptop market. It should be (and is) the exact opposite. People are buying what suits their needs, the market supports them. If the laptop form factor is obsolete (and I dont think it is) then it will die as it should.

I do not see how this ASP has anything to do with the real world. The only thing that matters is sales and profits. I would say that if anything cheap netbooks are resulting in overall higher sales than would be expected during a recession. If this causes microsoft to lose money on potential vista sales then that is their own fault for not forseeing the market change and tailoring their OS to support it.

Bottom line is netbooks are a good thing for consumers, so they are here to stay. And M$'s next OS has a version built to support them, so they have a proactive plan. This story is basically a big waste.

RE: No
By dgingeri on 4/20/2009 2:37:16 PM , Rating: 2
I totally agree with you, Invidious. If the laptop makers are finding that their products are not being purchased, it is not up to the competitors to find a way to curtail their market, it is more that those laptop makers must adjust to fit their product to the market.

I have found myself considering buying one of those netbooks, when I have never considered myself has having cause to buy a laptop. Laptops were just too expensive for the limited use I would have, but a netbook has the capacity I would need for the limited use I would have, but not the huge price tag. For me, that's not eating into the market, that is filling a need.

Granted, some people who would have purchased a full laptop are getting a netbook instead. Perhaps they are losing a little bit, but that is not Microsoft's fault.

I'm thinking the crappy laptop market (the ones that cost <$1000, have Intel integrated graphics and celeron processors, can't do anything more than internet and e-mail on them anyway) is being eroded for the netbook market simply because the netbook fills the need better than the crappy laptops do.

There will always be a bigger market for more capable laptops, with discrete video and higher speed hard drives for business purposes. That market will not be eroded by netbooks.

RE: No
By Oregonian2 on 4/20/2009 3:15:33 PM , Rating: 2
I also agree -- but want to point out the pessimistic sort of position the article presents.

One also could just as well said that netbooks have SAVED the laptop business from disaster caused by the world economic collapse. Hallelujah!

RE: No
By Raidin on 4/20/2009 11:52:56 AM , Rating: 3
Think about this. In the past, there was no wide-spread alternative to a laptop. If you wanted some basic mobile computing, you shopped for the cheapest laptop that would do. Now we have netbooks, which in most people's eyes are even-cheaper laptops. Those who were forced to get cheap laptops because of no alternative are going for netbooks instead.

Makes perfect sense to me. I'd say that probably 80% (just a guess) of laptop buyers are looking for a mobile computing platform, and nothing fancy at that. They now have a product that even better fits that niche, netbooks. Now those who buy full-size laptops are those who want....full-size laptops.

RE: No
By inperfectdarkness on 4/20/2009 12:52:06 PM , Rating: 1
we need to look at netbook sales in relation to total home pc purchases; and also in relation to desktop sales for the same period. if desktop sales haven't increased at the same overall rate--then it stands to reason that some desktop sales are being pilfered by netbook sales (as well as notebook sales suffering).

quite frankly, laptops have been overpriced for a considerable amount of time (gateway the one possible exeption). where this issue worries me is because i'm a power-pc user. i want a top of the line mobile graphics card in my laptop. if the perception is that notebook sales are suffering--nearsighted CEO's may push to further inflate laptop prices...causing a futher collapse in notebook sales.

gaming laptops should have an ASP of $1500; not the $2500-3000 that currently exists. additionally, resellers need to "clear out" the garbage mobile GPU's that are 3,4, and sometimes 5 or more generations old (technologically) geforce 8200m anyone? anyone?

finally, laptops need to get better. no more of this "wxga" crap; that belongs to netbooks. notebooks should have standard:

top-tier mobile graphics cards
6-8gb ram
vista home premium 64bit

it's not like this stuff (materials cost) costs >$2,500; yet that's what they keep selling it like it is. in fact, the best laptop value on the market today (imho) is the sager 8662...which can be purchased at ~2k even with quad-core cpu & all of the above features (albeit only 4gb ram).

stop watering down the laptop offerings, stop pricing them for paris hilton's budget, and start offering quality in sizes other than 17".

p.s. 17" at 200dpi is wqxga. can we get some of these already?

RE: No
By Insomniator on 4/20/2009 1:59:33 PM , Rating: 3
This has nothing to do with the non-problem at hand. Gaming notebooks do not account for any significant percentage of laptops and I don't think people would want a 10 pound quad core/GTX 285 gaming laptop with 40 minutes of battery life even if it were only 1500 bucks.

The whole reason for this problem is that hardly anyone, including business users do anything more than web and email, which the netbook excels at.

Sorry PC manufactures, the vast majority of your market does not need or want anything more than a netbook. This is true for both home and mobile use.

Size, weight, battery life, heat >>> performance in terms of importance, when Firefox and Outlook are the only things open. Digital photography even only needs a P4 and a decent amount of memory to do basic photoshop (and most people don't even do that) just as well as a brand new machine.

The markets will simply adjust naturally based on demand. There will always be people that need powerful mobile solutions but really, no one is going to buy a $1500 dollar part when a $300(!) part does the job just well, good economy or not.

RE: No
By rdeegvainl on 4/20/2009 3:40:20 PM , Rating: 2
Gaming notebooks do not account for any significant percentage of laptops and I don't think people would want a 10 pound quad core/GTX 285 gaming laptop with 40 minutes of battery life even if it were only 1500 bucks.

Maybe not everyone, but plenty of people do. I don't care about battery life, I just want a machine that can game, and I can easily travel with.
The past few years I've averaged about 4 moves a year. 1500 bucks for a decent gaming laptop is exactly where I am looking.
Though I agree that the majority doesn't need more than what a netbook offers. They could focus on the netbooks and good desktop replacements.

RE: No
By Omega215D on 4/21/2009 11:00:15 AM , Rating: 2
Uhh, Gateway has you covered there. It may not be top of the line but it should still do well.

RE: No
By Zingam on 4/21/2009 12:19:55 PM , Rating: 2
You couldn't be more wrong! I would!
I want chea, powerful and sturdy notebook. I can live with it if it is heavy because I'll transport it by car. It is better for me to buy one such notebook than two PCs for the same price one for the office and one for home.
I don't need the battery for more than a backup during power outages that happen here too often.
I just need to be able to carry it around because it is easier than to move a desktop PC.
Actually the high prices of powerful notebooks is what prevents me from changing my 4.5 year old but pretty powerful notebook. I've paid for it alot but it is still quite useful and I could keep it for another year if it doesn't break till than. I just hope I can jump to quad core notebooks directly.
If prices were lower I would replace my notebooks more often.

RE: No
By judasmachine on 4/20/2009 1:07:13 PM , Rating: 2
I agree. I wouldn't have bought a laptop if it wasn't for a netbook that would do what i need it to. Laptops are always overpriced for what I need. MS you still got a customer out of me, as it came with WinXP Home. Before this I just used the laptop my g/f was given at work.

RE: No
By psychobriggsy on 4/20/2009 1:54:28 PM , Rating: 5
I disagree, a little.

I think people are buying netbooks for portability and casual use, and potentially will move back to desktops for the home system, instead of compromising on a laptop as they do now.

There are also a lot of gadget hounds out there, so yes, there will be a lot of people buying something new because it's new and cool.

RE: No
By atlmann10 on 4/20/2009 2:07:30 PM , Rating: 2
I actually see this as a normal market path. As the digital world grows more and more mobile. If the people talking about this on an industry level just wait. When the Nvidia 9400gpu systems get released with a dual core ATOM especially in a platform like the MSI Xslim products there laptop margin will collapse. This will happen on a large scale because they will make at least in a mobile market a high end laptop absolutely unnecessary. This in many ways has nothing to do with the hardware market in a large way. The software is the killer here and that market is nowhere near the hardware's capabilities in a great way.So consumers see and have basically no need to get a computer with higher capabilities except in very specialized markets, these generally being Gaming, Media manipulation, physics or other scientific processing, and CAD/architecture/accounting type needs. Even in those markets the need for the hardware is rather slim. Then who uses a mobile solution for that maybe 2-3% of a specialized part of a specialized market if even that.

RE: No
By myocardia on 4/20/2009 9:24:11 PM , Rating: 2
While I totally disagree about the music (I think ~50% of all stolen downloaded music would have been bought, eventually), I think you're completely right about notebooks. Here's why: I've owned a computer continually since 1980 (before IBM released the first PC), and recently bought my first notebook, a netbook.

See, while I would have loved having a mobile computing solution before Feb. '09, and could have actually afforded one, the price:performance ratio just wasn't there. I've got multiple multi-core desktops for any heavy-duty computing I need to do, gaming, etc. And honestly, being able able to be online when I wasn't home wasn't worth $500.

As a matter of fact, it wasn't worth the $400-450 that the Asus Eee's with an actual hard drive were selling for, either. If it weren't for being able to buy an MSI Wind for ~$300, I still wouldn't own a laptop, and that's after 29½ years of owning a PC.

RE: No
By goku on 4/24/2009 1:33:11 PM , Rating: 2
you could've bought a used laptop... With a used laptop, you'd have the performance, battery life, ports, and screen size, all at the netbook or lower price point.

RE: No
By zaaf on 4/20/2009 10:08:53 PM , Rating: 2
As an IT consultant, I have several clients that want something small and light to travel with and not something that can process like a gamer would need. To accomodate that need, Netbooks are recommended. There are also those (believe it or not) that are not tech junkies and spend their time perusing DailyTech and the sort. Those people don't mind machines that just perform mundane tasks.... i.e. browse the Internet for news, check email, etc. Again, another prospective Netbook user that would have purchased a laptop in the past.

RE: No
By xSauronx on 4/21/2009 2:51:04 PM , Rating: 2
Actually, I went from a T60 Thinkpad to a eee 1000H because its "good enough" and easier to carry around and I have a desktop.

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