Stronger Economy May Weaken Netbook Sales

Stronger Economy May Weaken Netbook Sales

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Written By Jamie Spencer

When gasoline spiked to $4 per gallon a few years back, Hummer salesmen were crying in their coffee while Toyota couldn’t make the Prius fast enough.

Market researcher iSuppli thinks something similar is bound to happen to the netbook and notebook worlds. Netbooks, the smaller, less expensive portable devices that typically sell for under $300, are thriving in these otherwise dismal economic times, but when the economy recovers, it could be netbooks that slow.

The firm is not predicting a crash-and-burn scenario like the Hummer and other gas guzzlers went through, not by any stretch. But they do expect a slowing in the netbooks’ rocket-like trajectory.

iSuppli projects global shipments for netbooks will grow 68.5 percent in 2009, 39.6 percent in 2010, and will continue to slow to 13.1 percent growth in 2013. The slowdown will come as people finally feel comfortable buying the more powerful and pricier notebooks and desktops.

“People are not buying netbooks because they are truly desirable platforms, but rather because as low-cost PCs, they offer a good mix of features at an acceptable price point,” said Matthew Wilkins, principal analyst for compute platforms at iSuppli in a statement.

“With financial motivation a key factor in many netbook sales, growth of the netbook platform is likely to slow down when the economy comes back and consumers have more money in their pockets,” he added.

Wilkins was unavailable for comment at press time, but Jon Peddie, president of Jon Peddie Research, thinks his conclusions are “dead on,” as he put it.

“When consumer confidence gets up and people start feeling good about buying things and buying on credit even, there will be a pent up demand effect that will click in and have the tendency to make people buy up,” he said.

“The other is that netbooks have more of an application as an adjunct or second box for the consumer than it does the primary one. They are limited in screen size or performance. You get what you pay for, and people who have to do a fair amount of computing will be disappointed if they try to make that their only machine,” he added.

Netbooks can be used as general utility device, but they’re not ideal for running power hungry applications like video or ones that require more screen real estate like a big spreadsheet.

Because the cheaper, lower margin netbooks are selling so well, some hardware vendors are bringing their performance features to the low end. Intel is adding high definition video playback to its Atom platform and nVidia is making its laptop GPU, the GeForce 9400M, available for netbooks.

Netbook makers should be wary of this trend, Wilkins warned. Netbooks achieve low pricing by sacrificing performance and bells and whistles. Feature creep would blur the line between what are now two fairly delineated products, netbooks and notebooks.


Turnaround starting?

So when will notebooks make their comeback? Perhaps soon. During Intel’s first quarter earnings call, Intel chief Paul Otellini declared the company had bottomed out in sales some time in Q1 and things had at least stopped dropping, and perhaps even picking up.

A recent check by FBR Capital Markets found demand continues to improve. The investment firm checked in with the top five notebook ODMs (original design manufacturers) and top four desktop motherboard makers and found the numbers were better than just a month ago.

For Q2, FBR’s contacts now expect notebook units to grow 14 percent quarter-over-quarter, better than its 10 percent growth forecast from just last month. Desktop builds should decline two percent, the same as forecast last month.

Overall, it forecasts Q2 PC builds to grow seven percent quarter-over-quarter, better than its month-prior forecast of four percent growth. However, guess what’s driving demand? You guessed it, Atom-based devices are helping drive demand. The company is also concerned that Atom sales may cannibalize notebook sales, as well.

For that reason, FBR isn’t changing its guidance on Intel’s earnings per share for the current quarter. At a minimum, FBR believes Intel should grow revenues by three to four percent sequentially in the second quarter.

Jamie Spencer
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