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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 A Stoner on 4/20/2009 1:41:18 PM , Rating: 2
There are many reasons people buy these products, and it is possible that netbooks are eating some laptop lunches. For me, when i go to look at a new purchase, I decide what I need it for, how much that is worth to me, and then go looking for something that meets my needs.

For a laptop, I want something I can replace my desktop with, and I use my desktop mostly for gaming, so I would go for a huge desktop replacement portable, like the Dell XPS 17". Thus, for this instance, a netbook would be totally inadequate and would never get a look.

For a GPS unit however, I want something that fits in my car easily, has a big enough screen to give lots of information, and can surf the internet for new maps, hotels and places to eat and so forth. TomTom just does not fit this bill as they come in 4.3" models, and surfing the internet, I am not sure they do that, and if they do, must be hard to interface with, not having any keyboard. A full sized laptop might fit the bill, but the pricetag is too much of a bill. Here I think a smaller Netbook would be a perfect item.
Many families have many people that all want to be able to do things on the internet, and while owning a desktop and maybe a laptop is doable, when they need to expand the access to 4, 5 or more people, space for desktops becomes a limiting factor, and price of laptops is also a limiting factor, so three or four low priced netbooks along with the primary desktop and a portable laptop would make a great combination.
When a laptop or inferior but pricey single application devices are the only two choices, many times people will chose one or the other or just simply decide not to buy at all. When the choice includes a pretty powerful multi-purpose reasonably inexpensive netbook as a choice, many people will of course chose the netbook, and this is going to take sales away from the Laptops as well as the single application devices, but it will also open up a new customers.

"So if you want to save the planet, feel free to drive your Hummer. Just avoid the drive thru line at McDonalds." -- Michael Asher
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