(By Salman - iStockAnalyst Writer)
In recent times, much of the debate in the PC industry has focused on whether netbooks are a complementary product or a substitute to more expensive PCs, which are normally high margin product.
Netbooks, which normally sells for less than $400, lacks the sophistication required for the heavy-duty applications, but are ideal for students and professionals who need perform basic functions such as internet browsing, e-mail, blogging etc. Industry players like PC makers, chip makers and software makers have rushed to enter the market segment as sales of netbook registered an astounding growth in 2008.
According to market research firm NPD, netbooks constituted less than 1% of laptop sales in the first half of 2008. Sales of the device remained lackluster till the third quarter of the year. In December, netbooks accounted for 12% of unit volume, their highest total of the year. About 50 percent of all netbook sales for 2008 occurred in December.
NPD also came up with few interesting numbers regarding average selling price (ASP). The impact on overall laptop ASPs was significant. In January 2008, laptop ASPs were $861, by December they had fallen to $740. Without netbooks price erosion in 2008 would have been much smaller as non-netbook ASPs were $795 in December compared to the $861 at the start of the year. Clearly, low profit notebooks have begun to take a heavy toll on industry players dependent upon PC sales.
Slowing PC sales and rising netbooks shipment has been adding to the woes of Microsoft (NASDAQ: MSFT). An estimated 30% of all netbooks sold come with free and open-source Linux operating system. Moreover, Microsoft has been selling its Windows operating system at a discount to get it installed in the machines, which in turn is hurting its software business. Last month, the Redmond, Washington based company reported a meager 1.6% rise in quarterly sales. While announcing 5,000 job cuts, the software giant blamed netbooks for a drop in Window sales. "Client revenue declined 8% as a result of PC market weakness and a continued shift to lower priced netbooks," the company said in a statement. Windows sales were down 8% in the latest quarter.
However, Hewlett Packard's (NYSE: HPQ) Chairman Mark Hurd would like to wait before arriving at any conclusion. “I’ve seen in print, from people who claim expertise, that 80 percent of netbooks is new [sales] and 20 percent is cannibalization of the bottom part of the notebook market. We have some time before I can give you a good metric and good consumer data back." Phil McKinney, chief technology officer for Hewlett-Packard Co's personal systems group, said the company continues to consider netbooks as a companion device. “We kind of look at the minis as what we call a tweener product,” he said.
Paul S.
