Will ‘netbooks’ crush laptop sales?

Advanced Micro Devices has no immediate plans to release a processor designed for low-cost laptops, sometimes called netbooks, saying its not yet clear whether or not growing shipments of these devices will cannibalize sales of mainstream laptops.

Some low-end netbook models use an existing AMD Geode processor, but the company hasn’t announced a specific processor aimed at this product segment, apart from general plans to release chips based on a low-power architecture called Bobcat in 2010.

“We haven’t announced anything for this type of cheap mini-notebook and we’re still taking this wait-and-see attitude,” said Pat Moorhead, AMD’s vice president of advanced marketing.

“The fact that there are a number of models coming out might give the indication that [the market is] growing and everybody wants to do this, but what’s interesting is you pull back the covers and talk to people in the industry and they’re kind of scared,” he said.

That fear stems from a concern that netbook sales will undermine sales of more powerful machines.

“If you can’t grow the market with this form factor, then what you’re providing is a lower experience for less money, which isn’t good for the consumer and isn’t good for the [hardware maker], and really isn’t good for the channel as well,” Moorhead said.

Other companies and analysts are also worried, in part due to the popularity of the mini-laptops.

The recent proliferation of netbooks are largely due to the success of Asustek Computer’s Intel Celeron M-based Eee PC, which was introduced in 2007. The June unveiling of Intel’s Atom processor, designed expressly for small, inexpensive laptops, spurred the release of a host of copycat devices by hardware makers looking to replicate the Eee PC’s success.

Mobile phone chips are also making it possible for low-cost laptop makers to offer users quick wireless access on the cheap.

Acer, the world’s third-largest PC maker, believes that Linux softwareis a key to the low-cost laptop computer movement, but demand appears to be changing this outlook pretty fast.

As demand and the number of available systems increases, netbooks are drifting further from the original vision for these products as small and inexpensive portable computers. Screen sizes have increased, from the 7-inch screen of the original Eee PC to 10-inch displays on some models, and Windows XP is now an option, replacing Linux as the operating system of choice. Prices have followed.

The original price of the Eee PC was supposed to be US$199, but the devices actually cost $250 or more when they hit the market. Now, an Eee PC 1000H with a 10-inch screen, 1.6GHz Atom processor, Windows XP, and an 80G-byte hard disk goes for around $600 — more than the price of some mainstream laptops with more generous specifications, including Dell’s Vostro 1000 series.

Nevertheless, demand for netbooks appears robust. Asustek — a bellwether for the netbook market — last week pared its shipment forecast for mainstream laptops, but said demand for the Eee PC remained strong.

The Atom’s apparent success — based on the number of models announced by computer makers — is a double-edged sword for Intel. On the one hand, netbooks may open up a new market for Intel’s chips, but the company also runs the risk that Atom sales will eat into sales of its mainstream laptop chips as users opt for netbooks instead of more powerful systems.

In a research note, IDC analyst Richard Shim warned that the cannibalization of mainstream laptops sales by netbooks is a concern, but said the threat is diminishing as mainstream laptop prices fall.

“We believe the story line of ultra-low-cost notebooks will increasingly be sidelined as the notebook market continues to offer a better solution and experience at price points similar to what ultra-low-cost notebooks are hitting,” he wrote.

Naturally, Intel is upbeat about the market, and executives have consistently said netbooks will grow the overall market for laptops instead of eating into mainstream sales. But Atom-based laptops are just now hitting the market from a range of vendors and it’s unclear what impact these systems will have on the overall market.

Intel has worked to prevent the cannibalization of mainstream laptop sales by setting limits to the features, such as screen size, that can be used on an Atom-based computer. The company also tried to position the Atom processor as a low-end chip best suited to simple Web surfing and e-mail. Intel CEO Paul Otellini drove that point home during a recent conference call with financial analysts, saying, “you are dealing with something which … most of us wouldn’t use.”

To illustrate his point, Otellini said Atom-based computers weren’t suitable for watching YouTube videos for an extended period of time.

But a recent online debate suggests Atom-based netbooks may do more for users than Intel might wish, even when it comes to video playback.

The debate was sparked by the release of a video by Via Technologies, which compared the high-definition video playback of a netbook based on Via’s Nano processor and an Atom-based Eee PC, with both computers running Windows Media 11. The video showed the Nano-based computer playing a high-definition Windows Media file. The Eee PC struggled with the same file; the video playback was unwatchable.

Blogger JKK, of hardware site JKKMobile, called the Via video “BS,” and countered with a video of his own that showed an Eee PC 901 playing the same high-definition video file using Windows Media 10 without any apparent problems.

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Jim Love, Chief Content Officer, IT World Canada

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