Cheap netbooks threaten PC box assembler’s already slim margins

“You’d be hard-pressed to find a more perfect tech product for a global recession than the ‘netbook,’ a rapidly emerging category of low-cost notebooks. Often priced under $500, netbooks provide plenty of computing power to surf the Web, use e-mail and do other routine tasks. These machines are just the thing for someone looking for a cheap way to join the mobile-computing revolution,” Eric J. Savitz reports for Barron’s.

“Asian PC makers Asus and Acer have moved aggressively into the market, with a host of low-cost laptops, many powered by Intel’s low-cost Atom microprocessor. And Hewlett-Packard and Dell are rapidly catching up. Late last week, seven of the top 10 best-selling laptops on Amazon.com were priced under $600; the list included models from Acer, Asus, Toshiba and HP,” Savitz reports. “(The other three laptops on the top 10 list are from Apple, and are at the other end of the price curve.)”

“For the PC companies, the netbook revolution is fraught with danger. As they target volume, they risk damaging their margins. (Apple, as I noted here a few weeks ago, has declined to enter the netbook market.) The danger is that many people who’d otherwise buy more expensive laptops will find that netbooks are all they need,” Savitz reports.

Savitz reports, “In short, the netbook’s rise is likely to be accompanied by cannibalization of more expensive PCs, battering margins.”

Full article here.

This particular downturn is not creating a market of cheaper computers. That market has existed for some time and there are parts of that market that we choose not to play in.

I think when people want a product of the class that we make, over and over again people have done the price comparisons and we’re actually quite competitive. So we choose to be in certain segments of the market and we choose not to be in certain segments of the market. And the question is is the downturn going to drive some of our customers to those lower segments of the marketplace and get to buy lesser products? And I will be surprised if that happens in large numbers and I actually think that there are still a tremendous number of customers that we don’t have in the Windows world or in the other 99% of the phone market we don’t have who would like to and can afford to buy Apple products. So we’ll see what the ratio of those two things are but we’re not tremendously worried.

As we look at the NetBook category, that’s a nascent category. There’s as best as we can tell not a lot of them getting sold. You know, one of our entrants into that category, if you will, is the iPhone for browsing the Internet and doing e-mail and all the other things that a NetBook lets you do, and being connected via the cellular net wherever you are, an iPhone is a pretty good solution for that, and it fits in your pocket. But we’ll wait and see how that nascent category evolves and we’ve got some pretty interesting ideas if it does evolve.

What we want to do is deliver a lot, an increasing level of value to these customers. There are some customers which we choose not to serve. We don’t know how to make a $500 computer that’s not a piece of junk, and our DNA will not let us ship that. But we can continue to deliver greater and greater value to those customers that we choose to serve and there’s a lot of them. And we’ve seen great success by focusing on certain segments of the market and not trying to be everything to everybody. So I think you can expect us to stick with that winning strategy and continuing to try to add more and more value to those products in those customer bases we choose to serve. – 8Apple CEO Steve Jobs, October 21, 2008

26 Comments

  1. No. Apple is worried they’d sell a ton of them. The only reason to go after such a low margin market would be if they could do it without caniblizing their higher margin iPhone does this perfectly).

  2. Look, a Netbook powered by an Intel Atom is no match for a Macbook- it would be decidedly underpowered for serious work, but certainly good enough for surfing, email and the like.

    So a MacBook Touch will NOT take sales away from MacBooks (& Pros) for those people who need to do real work (Office apps, AutoCad, & the like). It will only save those who don’t need a computer for “serious” work a lot of money. I say Apple should make this- it won’t hurt them any more than the iPhone hurt iPod sales (i.e., it didn’t) and it WILL get them serious market share. I think it’s win-win… (but then what do I know? ” width=”19″ height=”19″ alt=”grin” style=”border:0;” />

  3. I think we will see something from Apple in this category eventually. It won’t be junk nor will it have a Firewire port. With so many people using computers for email & the web a computer focused on those tasks makes sense.

    I’m helping a formerly homeless guy get his life back together. The burden of a land line for dial up or high speed (DSL is not available) is just too costly. I’m suggesting he get a $300 netbook and learn where free wi-fi is available. A $599 Mac NetBoook would be a nice option for someone that needs a device to connect to the internet at hotspots. If Apple can sell the iPod Touch for $229 then they should be able to do a quality product nearly three times that price.

  4. Mercedes lost some shine when they started making low end sedans. Toyota had to make a whole new line (Lexus) and took year to prove their brand at the high end.

    The risk to Apple is to tarnish their good name. I don’t think they’ll do a NetBook since it will harm MB, MBA, MBP sales and image. Moving the iPod Touch and iPhone ‘up’ is more likely since these are devices already cheaper than NetBooks and some people even use them as NetBooks already. But don’t expect them to be cheap or inexpensive.

  5. I think apple is afraid that they would “loose sales”?
    Sales running unfettered through the parking lot? Scaring older ladies and young children? What a frightening thought! I can understand why Apple might be concerned about this.
    Perhaps you meant lose sales? Except … a low-cost Mac, if it met the requirements of the niche it was aimed at, would likely sell reasonably well. The problem is, Apple would likely lose a few sales of their traditional products in the process. What is the profit in doubling your portable sales if a) the new units offer perhaps 1% profit margin while b) you’ve lost 10% of your MacBook X sales with their 20%(+?) margins?

  6. Apple’s approach will be to redefine the concept of netbooks. It seems quite obvious that the future is not to make a tiny version of the laptop, but a larger version of the iPhone.

  7. MacMac, I have to totally disagree. How many people do you know that have a desktop, a MacBook and an iPhone. These are fairly non-overlapping markets (lots of notebooks are desktop replacements, but a lot aren’t — which is why the MacBook Air was a beautifully positioned product).

    An underpowered “netbook” is exactly a notebook replacement. That’s plus-one sale of a low margin netbook in one column, and minus-one sale in the MacBook column. To make it worse, most average people don’t really understand the tradeoffs that were made to produce a netbook. They have a real chance of being disappointed with the experience — not good for Apple’s reputation with consumers.

    Sub $500 PCs have to make a lot of compromises, they’re not good for a lot of heavy lifting, but people will blame the manufacturer when the experience is excruciatingly slow.

    Apple is very good at building in clues for their target (hey Mr. video editor that laptop doesn’t have firewire, keep moving up the product line, this little computer is actually a web-browsing phone with extras thrown in, don’t expect to run bit torrent on it in the background, etc.)

    I think if we see an Apple equivalent on a netbook, it will be very obvious how it fits into your life, and will probably be an up-sell to something smaller/cheaper, instead of a low-end replacement for something bigger/better.

  8. @disposableidentity

    “I think if we see an Apple equivalent on a netbook, it will be very obvious how it fits into your life, and will probably be an up-sell to something smaller/cheaper, instead of a low-end replacement for something bigger/better.”

    Well, that’s a good point- but it’s almost the same thing. A ‘big iPhone’ is a Netbook AND a dumbed-down MB. No CD, 1 USB, no Ethernet (just Wifi), a SIM slot so it’s also a phone. Does Web, e-mail, music and video conference via iChat/Skype, video out for presentations and not much more (maybe Office- that would be nice). This seems to me to be the ‘missing link’ in Apple’s line up. It won’t replace a MB, but it may be enough if you’re on the road and want to travel light and stay in touch.

    And with a big multi-touch screen and no hardware keyboard, it will be Time magazine’s Product of the Year in 2009 (and a true Kindle-killer)…

  9. I am saving my debt-plated nickles for a shiny new aluminum replacement computer. If Apple created a laptop a little beefier than my iPhone, yet priced much under the new MBA, I might consider it, instead of my best current option (for $1400 CA) I suspect this is the fear apple has?

  10. Apples trend is to slowly lower the price over time. We now have the white MacBook retailing for $999, whilst the newer model comes at a premium.

    Some (like myself) will buy the cheaper options because that is all that is needed. Others will want to get the latest and greatest.

    I would like to see Apple continue the low prices MB option. If it is really successful then Apple may maintain it. On the other hand it may be just clearing inventory and be gone in 3 months.

    One point to consider. Older components and chipsets are usually significantly cheaper. As a result, margins can still be good on a reduced price model. The iPod has demonstrated that Apple can compete on price and succeed provided the product is attractive.

  11. This is a non-topic for me. By definition, a netbook is not a personal computer in its current sense. It is a limited purpose device. It is like buying a little cheap, single-blade penknife when what is really wanted is a Swiss Army knife. Sooner or later, the netbook owner will suffer serious buyer’s remorse, word will get around and that will be that.
    To make things worse, next-gen netbooks are slated to cost between $99 and $199. So what kind of quality are you looking for at these prices and do even poor people have a lower threshold for the level of poor quality that they will tolerate.
    Those who sing the silly song about wanting Apple to do the stupid thing as a defensive measure have not seen what comes next, after the $99-$199 netbook.
    What do you want girls? Progress or regress? Buy an Acer or a Dell and get over it. We’ll see you when you are back in the market looking to buy a MacBook and trying to find a mug who will accept your netbook as a gift even. With a $20 bribe even.
    Shit is shit, however cheap you get it. And netbooks are set to get much much cheaper.
    This is such a silly suggestion. Honest.
    Savitz is a fool for writing this as if it was a savvy business recommendation to Apple.

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