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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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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
quote:
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.


"I modded down, down, down, and the flames went higher." -- Sven Olsen

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