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Nov 20, 2008

Beware the Netbook Hype Machine

Analyst: 'big 'bang' to hit PC and handset industry

Posted by Brooke Crothers

A clash is brewing as PC and cell phone chip suppliers vie for new designs that fall outside traditional product categories, an analyst said in a research note Wednesday.

Asus 10-inch Eee PC 1000

Asus 10-inch Eee PC 1000

(Credit: Asus)

Doug Freedman, a chip analyst at AmTech Research, said the "line between cell phones and PCs is clearly blurring" and that consequently "PC and cell phone food chains will battle for market share in these new classes of devices." He calls this the "big bang between PCs and handsets."

This will happen as more tweener products emerge. "New product categories such as Netbooks, MIDs (mobile Internet devices), and smartphones all lie in the spectrum between the traditional PC and handset product categories," he wrote. "Cell phones are increasing in screen sizes, computational power and capabilities, while PCs are seeing declines in screen sizes and increases in connectivity."

This may present problems for chip suppliers as they rush to build inventory for these newfangled devices, resulting in an oversupply for device categories that don't succeed. "It's a safe bet that we'll end up with losers," he said in an interview. Moreover, there will be lower-than-expected gross margins (a crucial indicator of profitability) for some of the chips that go into these products, according to Freedman.

While the Netbook is considered a successful tweener product, it exemplifies a category that may be facing a reality check as the novelty wears off, resulting in an oversupply problem, he said. Intel says it has seen strong demand for the Atom processor on the back of the popularity of Netbooks but there are signs that demand has started to ebb, according to Freedman. This has resulted in cancellations from device makers for chips that go into Netbooks, Freedman said.

Netbooks have been popular because of their novel design--what is essentially a very small, very-low-cost (below $500) laptop, a category that hasn't existed to date. Ultra-small laptops (such as the MacBook Air and Toshiba Portege) have traditionally commanded a very stiff premium, typically going for more than $1,500.

Contrary to what Intel has been saying, Freedman wrote in the research note that the "initial generation Netbook solutions may not succeed in emerging/low income markets as users find feature and performance sacrifice in Netbooks (i.e. 5- to 8-inch screens) unacceptable for a networked family."

He added that Intel will also continue to be challenged by cannibalization of Netbooks: that is, Netbooks will take market share from traditional notebooks.

Down the road, Freedman writes, "we do not expect the PC and handset to converge into a single 'holy grail' device." PC and cell phone makers will continue to build devices that try to bridge the gap. Apple's iPhone is an example of a device at one end of the spectrum, while the 10-inch Asus Eee PC Netbook addresses the other end.

"We expect most users to continue to require two devices: one large form factor device and one small form factor device," he said in the note.

Beware the Netbook Hype Machine

Lance Ulanoff

Netbook PCs are a triumph partly of technology, but mostly of smart packaging.

Buzz up!on Yahoo!

I get a big kick out of the way everyone is falling all over themselves to anoint "netbooks" as the next big thing. My own Editor of Reviews, Dan Costa, is caught up in it. He's so excited that during a recent business trip, he left his boring old laptop behind in favor of a glossy new netbook. And columnist Tim Bajarin has, on this very Web site, covered or at least mentioned netbooks in no fewer than nine columns. Across the Web, examples abound. My friend and former Windows Magazine co-worker Mike Elgan has come up with four reasons why you'll buy a netbook on Black Friday. Okay, I get it. These tiny PCs are important. But, seriously, what is a netbook anyway? What are the defining features, if any?

• Is it the Intel Atom chip? Maybe. Virtually every netbook manufacturer has adopted this Intel-based, low-cost, low-energy, albeit decently powered CPU as their platform of choice.
• Is it the OS? Surprisingly, not one single netbook runs Windows VistaBasic. Instead, it's either Windows XP Home or Linux, with more manufacturers leaning toward Windows—more on that decision later.
• Is it the size? Most of these laptops weigh less than 3 pounds (or around that) and have 95 percent or smaller keyboards. Most also feature 10-inch screens. More on that later, too.
• Is it the price? You can get a good netbook for well under $500. Some, though, run closer to $600.
• Is it connectivity? Dan Costa says that this is what defines netbooks. All have built-in Wi-Fi and/or some form of wireless broadband.

I think it's something else entirely. What defines netbooks is their brilliant marketing. Ultimately, each and every one of these netbooks—the HP Mini 1000, the ASUS EeePC 900, the Acer Aspire One, the Dell Inspiron Mini 9, and the MSI Wind—are all just highly portable, middling-powered notebooks. This is not to say that they won't be popular this holiday season. I think they will. Elgan is right when he says that the economic downturn is the sub-$350 netbook's friend. But I digress. Let's get back to the marketing.

The reason I'm so surprised at the surging popularity of netbooks is that it seemed so unlikely. When I first heard the term "netbooks," I dismissed it. Like an elephant, I have a really long memory, and I recall a similarly labeled and marketed product category that crashed and burned about a decade ago. Called NetPCs, this brainchild of maverick Oracle CEO Larry Ellison was supposed to transform desktop computing. Instead of buying ever-more-powerful PCs, we would, in essence, buy semi-stupid terminal-style PCs, which lacked disk drives and could do some things but relied heavily on the Internet and connected servers to get most of the heavy lifting done.

As Wikipedia accurately notes, the plummeting prices of desktop PCs and increasing availability of components doomed the thin-client concept almost from the start.

Netbooks do owe a bit to Ellison's vision. They're not particularly powerful systems and will, in some cases, trade out the spinning drive or a faster and smaller (though not less expensive) solid-state drive. They usually have just 1GB of RAM and are best suited for Web browsing, e-mail, and document creation. And the heavy lifting is happening on far-flung servers powering a Web site. The netbook is, to a certain extent, a thin client. At some point in any given day, though, all PCs act like a NetPC, accessing data stored elsewhere, running applications, and writing documents in the cloud.— Next: Defining Netbook

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