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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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Netbooks will kill the open PC.
By reader1 on 4/20/2009 11:57:11 AM , Rating: -1
Netbooks with Google Android installed on them will be a critical turning point for PCs. Android apps are downloaded through a controlled system called Android Market. Android does allow any software to run on it now, but that will change. Most developers will choose to distribute their software through the market, and allowing unauthorized software to run will become unnecessary and a liability. Android will become a closed OS. That will lead to a closed desktop, and the end of the Micro$hit Windows monopoly.

Oddly enough, Google's next opponent will be itself. Unrestricted web content will become detrimental to Google's other revenue streams. They will be forced to filter results from their search engine, thus closing the web.

Freedom is anarchy.

RE: Netbooks will kill the open PC.
By rdeegvainl on 4/20/2009 12:01:40 PM , Rating: 5
I think I need to adjust my tin foil hat, cause I can't seem to pick up on the frequency you're putting out.

RE: Netbooks will kill the open PC.
By akugami on 4/20/2009 3:22:27 PM , Rating: 2
That's gotta be a 6. And make that part of the quote rotation in the bottom of the blogs.

RE: Netbooks will kill the open PC.
By Pirks on 4/20/09, Rating: -1
RE: Netbooks will kill the open PC.
By TomZ on 4/20/2009 4:47:08 PM , Rating: 2
Whoa, Pirks would bet on an Apple ARM based netbook? What a surprise!

Seriously, Apple would be foolish to come out with a netbook - foolish unless they could get people to pay $800 for it. Oh wait...that might actually work...

RE: Netbooks will kill the open PC.
By Pirks on 4/20/2009 7:16:24 PM , Rating: 2
that might actually work
Well, even TomZ agreed. I may be onto something then!

"It's okay. The scenarios aren't that clear. But it's good looking. [Steve Jobs] does good design, and [the iPad] is absolutely a good example of that." -- Bill Gates on the Apple iPad
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