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Netbooks have been gaining a larger share within the laptop market, but is this necessarily a good thing for the industry as a whole?

Not necessarily. These units tend to be much cheaper than notebooks and are bringing down overall revenues for the laptop market. According to market research firm DisplaySearch, in the second quarter of 2009, the portable PC market was worth $26.4 billion. Even though there has been growth in netbook revenue (264% more than a year ago if you were curious), some may argue that netbook cannibalization has lead to an overall decline in revenues.

The relatively low price of netbooks has also contributed to the falling price of laptops. The average selling price for a notebook in the second quarter of 2009 was $688, which is 19% lower than a year ago.

Netbooks currently have 11.7% of the portable PC market. In 2010, DisplaySearch expects netbooks to account for 21.5% of the portable PC market and netbook sales to account for 10.9% of revenues within the industry.

Via InformationWeek.

While it’s true that the introduction of netbooks  may have somewhat affected the market for notebooks, netbook cannibalization isn’t quite the monster some claim it to be. The claim is that because people are buying netbooks instead of notebooks, sales of the latter have greatly suffered.

Yes, some people buy netbooks instead of notebooks but for the most part, individuals buy netbooks as secondary computing devices. Empirical data gathered by market research firm DisplaySearch qualifies this statement.

According to John Jacobs, Director of Notebook Market Research for DisplaySearch, people buy netbooks for their basic computing needs, but are still interested in buying notebooks as well.

According to DisplaySearch’s figures, the netbooks’ share of the total portables market rose from 5.6% in the second quarter of 2008 to 22.2% in the respective quarter of 2009. DisplaySearch’s data also shows that the netbook segment is growing twice as fast as the notebook segment.

But now that the fine line between a netbook and a notebook is further blurring, with some netbooks being able to accommodate up to 4 GB of RAM and some notebooks being only slightly heavier than netbooks, perhaps growth patterns will also start to change. We’ll keep you posted on the progress.

Via TheInquirer.

Image via BlogCDN.

While netbook sales have been rising, this is not necessarily good news for other segments of the notebook market.

In fact, for some companies, such as Acer, the rise in netbook sales has resulted in overall losses, which shows that low-cost netbooks are cannibalizing the company’s more expensive products and that a consumer-driven focus is indeed risky.

Netbooks play a major factor in the overall falling prices of computing devices and are not as profitable as other computing technology, such as laptops and desktops. For Acer specifically, the profit from selling a notebook is six times that from selling a netbook.

Currently, Acer is a leader in netbook manufacturing and sales, and market research firm IDC expects the company’s shipments to rise roughly 127% this year. Acer itself predicts that shipments in the second half of 2009 will jump 40% from the previous half.

Via Reuters.

The politics of the tech industry are rarely discussed, save for in the most conspiratorial of circles, but they are often of great importance for understanding the market. One question that we have often asked is – why do so many netbooks only offer the same boring formula as others?

While it’s been proven that Intel Atom/160 GB/1 GB RAM/XP netbooks work, manufacturers aren’t just taking the easy road with a tried and true setup that others did the work to figure out. After all, laptop manufacturers follow diverse paths in making their machines. So why all the repetition?

It turns out that Microsoft enacted some restrictions when it decided to sell XP for netbooks. Early in the days of netbooking testers found that Vista was too beefy for the diminutive machines, and Microsoft wasn’t about to let Linux take the whole market. So although XP won’t rake in the profits of newer operating systems, Microsoft was forced to bite the bullet and let manufacturers sell netbooks with XP… with a few conditions.

Reports have surfaced that netbook manufacturers would only put Windows XP on machines too weak to run Vista. This created a problem for netbook makers – should they undercut the RAM of their systems to satisfy Microsoft, or sell netbooks with a clumsier OS just for the freedom to crank the power a little?

As netbooks are a budget product (with a few exceptions), most decided to obey and keep RAM to 1 GB. But Microsoft wasn’t yet satisfied, calling for OEMs to restrict screen size to 10.1 inches and HDD space to 80 GB. As the netbook market proved to be a profitable one Microsoft’s cannibalization fears were assuaged and the restrictions were stretched to accomodate devices up to 14.1 inches and 160 GB, though only if low-powered chips were used.

At least we don’t have to blame a lack of innovation for netbooks’ repetitive formula – manufacturers are just following restrictions set up by Microsoft.

What does this mean for the future? While Microsoft claims Windows 7 will be slim enough to run on netbooks, not everyone’s convinced. Will consumers drop more cash for a snappier version of Windows, or remain content with XP? Nobody can say for sure, but answers will only be a matter of time.

Via NYTimes.

Through the short time netbooks have been around, they have been attacked by many claiming they’ll cannibalize an already suffering market; with buyers opting out of higher-end notebook sales in favor of the diminuitive machines.

Mark Hurd of HP was recently interviewed on the subject. He says HP can’t say for sure yet if its sales are being cannibalized, due to the short time they’ve spent in the market, but he has his doubts:

“It’s not the move to netbooks that’s cannibalizing. What you have is someone buying a more thickly configured notebook, who’s now buying a more thinly configured notebook, and that’s what’s adjusting the ASP [average selling price].”

This explains the primary evidence most use for cannibalization: shipments are up, but revenue is down. It has also been suggested that the drop in sales would have been even more drastic but for the existence of the netbook sector, which offered cost-wary consumers an outlet to compute.

However, other analysts bring in the idea that Acer, whose massive successes in 2008 were in large part due to netbook sales, is using the netbook to take a chunk of the market previously owned by Dell and HP. The Acer Aspire One has been extremely popular, and has brought Acer to the top from its previous obscurity.

IDC analyst Richard Shim captured the rapid evolution of the netbook market quite succinctly:

“In just over a year, they’ve (netbooks) evolved from these Linux-based, solid-state devices into fully [Microsoft] Windows OS-based, 120GB hard drive systems, which are very similar to traditional notebooks. So we’ve had a dual effect here, with many netbooks becoming more robust and expensive, while notebooks have come into the same price range.”

Intel’s wariness in boosting the power of the Atom N270 led to the intentional capping of that chip’s power for the N280 update. This was done, of course in an effort to reduce the ‘damage’ the successful netbook chip was having on Intel revenues. Intel profits were crushed in 2008, so it’s possible that their anxiety was well placed. In the instance of the Atom N280, fears of cannibalization have directly affected the products offered on the market.

For now, the issue of whether netbooks are cannibalizing the industry is still unresolved. It’s important, however, to take a hard look at the numbers when making one’s analyses. There are plenty of alternative explanations for the seemingly paradoxical situation of an industry with greater sales and less profit, and they need to be investigated as well.

Via DailyTech.