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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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Finally hitting the apex?
By 7Enigma on 4/20/2009 2:25:04 PM , Rating: 4
It's been brought up almost every new generation of software/hardware, but I really feel we are hitting an apex in terms of computing need and computing power (both laptop and desktop). XP and a Pentium M cpu with 1-2gigs of ram is more than 99% of the consumers need. This changed with Vista. Vista pretty much overnight did what all hardware manufacturers pray for....a need. It crippled notebooks that were getting by fine on XP, and the cycle continued.

The truth is for years we've always had a need for more performance, and IMO the driving factor has been because of monitor resolution (when the OS wasn't to blame). 15" monitors with 640X480 or 800X600 resolution really wasn't that great for upclose viewing and so there was a practical need for more performance. The problem is 19" monitors are pretty much perfect for the general viewing distance of 2-3 feet. Anything more than that is really just overkill. Sure gamers and deveopers want the 22-30" behemoths, but the general consumer has no need for larger viewing area.

But this wasn't going to be a problem for manufacturers if Windows 7 was going to follow the general Microsoft trend of increased hardware requirements. But a monkey wrench was thrown in with Windows 7. I don't think anyone dreamed of an OS that was gentler on the hardware requirements than the previous version. When you've reached the point where the monitor size is adequate, and when you have a new OS that runs better than Vista, what is your NEED?

The truth is, there isn't one. And in this economic situation, it makes it even worse. Vista is a very nice OS now and happens to be very secure for the general consumer that is click happy. Windows 7 is likely to not get worse in the security standpoint, and with the weaker system requirements, laptops and desktops that are currently running Vista have no need to upgrade specs as they would get a "free" speed boost by going to 7 (or just sticking with Vista as few people need a new OS in the first place).

There will always be a need for new computers (students, kids moving away from home, people that want the newest and greatest), but the general trend for the next couple of years (again IMO) is drastically different than before.

I think hardware manufacturers' best angle to stem this future is malware; at least then they can crud up an older system to make the person believe they need a new system. But if the average consumer learns that they can spend a bit of money, or have a techy friend to reinstall the OS, they are in big trouble.

*This is coming from a gamer who only installed Vista for DX10 (which to date has not been worth the price of entry).

RE: Finally hitting the apex?
By dastruch on 4/21/2009 7:14:12 AM , Rating: 2
We are very far from hitting any apex yet in technology at all levels.

I would be glad to remind you about your post in let's say 15 years.


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