Sunday, October 19, 2008

PC makers think small

In times of cutbacks, computer makers put hopes in small devices
Tuesday, October 14, 2008

TAIPEI: An upstart Taiwanese company blazed the trail. Now, the world's top three computer makers are hot on its heels. The prize: dominance of the emerging market for low-end, mini-laptop computers.

The big three — the American companies Hewlett-Packard and Dell, and Acer of Taiwan — are betting that such products will have broad appeal. They are offering these laptops, also known as netbooks, in the developing world as an affordable alternative to desktops and high-price laptops, and advertising them in the United States and other advanced markets as a second or third computer used mostly with the Internet.

And in belt-tightening times like now, they are hoping consumers in mature markets will also snatch them up as a more affordable option.

"It's a potentially exciting area, particularly when people worry about the U.S. economic outlook, in which people might want to cut spending," said Steven Tseng, an analyst at ABN AMRO in Taipei. "So it fits into the macro trends quite well."

There is no clear-cut definition for the segment, and analysts say the lines get blurry. But most of the new crop of minicomputers have screens that are less than 10 inches, or 25 centimeters, across diagonally and priced from about $300 to $600, but still have full operating systems like Windows XP or Linux that can support third-party applications.

The new market reflects a broad shift toward mobile devices and away from desktop computers, and changing tastes in mature markets like the United States and Europe, analysts say.

"Three or four years ago, this kind of product couldn't have had such a big success, because people were still purchasing their first laptop," said Eszter Morvay, a researcher at the technology consulting company IDC in London. "Now, their needs are becoming more sophisticated — the consumer has evolved. They might just need an Internet device, or a second or third laptop for work, or for mom or the kids. So this is giving a boost to the market."

Until recently, the big computer makers paid scant attention to this niche. They had built mini-laptops — like Toshiba's Libretto — but they were either too expensive (the Libretto costs about $2,000) or poorly designed to catch on in the mass market.

Then, about a year ago, Asustek, a Taiwanese computer maker little known outside the country, introduced the Eee PC. Priced under $300, the first version featured a seven-inch screen and used the Linux operating system. The idea was simple: Consumers are increasingly using laptops for surfing the web, checking e-mail messages and viewing photographs, and do not need all the bells and whistles of a full-blown computer. The Eee PC was also an attempt to offer a commercial version of the XO laptop, the product of the nonprofit One Laptop Per Child project, which aims to distribute computers in the developing world.

The Eee PC was a surprise success. Last year, it hit the top of the "most wished for" laptop list on That got the industry's attention. Now, the three leading computer makers have released mini-laptops.

In April, Hewlett-Packard, the world's No. 1 computer maker, introduced its Mini-Note with an 8.9-inch screen, with models starting at $499. Last month, Dell, the second-largest maker, began offering a mini-laptop, the Inspiron Mini 9 with a 9-inch screen, for $349.

Acer introduced its Aspire One mini-laptop, with an 8.9-inch screen, at the Computex trade show in Taipei in June, with models starting at $399. The company has high hopes for netbooks because of their appeal as portable Internet devices.

"Going on the Internet is now indispensable in people's daily lives, and this is a very convenient, useful Internet device," said Henry Wang, an Acer spokesman. "That's the main reason why we're so optimistic for the future."

Acer expects to sell more than five million Aspire One mini-laptops by the end of the year.

Asustek, which uses the brand name Asus, says it will ship five million units this year; it released in Taiwan a pricier version of the Eee PC that can run Windows XP as well as Linux. The company expects total worldwide shipments of netbooks to hit 10 million next year and a billion by 2018.

Intel has forecast that more than 50 million netbooks will be sold by 2011. The chip maker has a reason for following the trend: many mini-laptops use its Atom microprocessor, and Intel is also pushing its own low-cost Classmate PC in education markets around the world.

But not all are convinced. Tseng, of ABN AMRO, said that the market for mini-laptops was uncharted territory and that computer makers still were not sure how much functionality consumers would sacrifice for price.

If mini-laptops take off, the big beneficiaries will be contract makers in Taiwan who already have or will get orders from the top three computer brands, as well as from Asustek. These contract makers include Pegatron, which Asustek spun off last year; Quanta Computer; Inventec; and Compal.

Helen Chiang, a market researcher at IDC in Taipei, said that component supply problems could hamper growth in the short term, and that the market was too untested for companies to be confident of a long-term bonanza. The main component issue is batteries, because suppliers earn a lower profit from mini-laptop batteries, making them a lower priority.

A fire at the South Korean facility of LG, the leading supplier of laptop batteries, in March exacerbated the supply problems, highlighting the vulnerability of the supply chain to such disruptions.

Over the long term, Chiang said, the jury was still out on whether the mini-laptops would take a bigger piece of the market from more expensive products, or expand the size of the entire market.

"This year is the first important year to watch," Chiang said.

The mini-laptop boom is in line with broader industry trends. Researchers see the industry moving sharply away from desktops to portable options, especially in the United States. This is because laptops that offer the same functionality of desktop computers are now far less expensive than a few years ago.

Global sales of portable computers are expected to surpass sales of desktops and servers for the first time in 2010. Worldwide, shipments of portable computers are likely to see double-digit growth rates through 2012, while sales of desktops and servers, already a shrinking market in the United States, will slow to 3.1 percent growth annually by 2012 from 4.8 percent last year, according to an IDC forecast in March.

In addition, companies are eager to push their miniature computers. Beginning in 2005, computer makers shifted their emphasis to laptops and other portable devices, and began intense marketing campaigns, said Morvay, of IDC. The mini-laptop craze is a logical outgrowth of that trend.

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