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3 Jan 2009
Low cost and incorporating only the most basic functions, these models are capturing more and more market share.
BY SEAN SCANLAN, Special to AmCham TOPICS
The rapid growth in worldwide demand for notebook computers has been good
news for Taiwanese manufacturers, who account for some 90% of global
production. Chris Wei, senior industry analyst at the Institute for
Information Industry's Market Intelligence Center (MIC), says that
Taiwanese firms have proved adept at the large-scale production and
cost-down measures required in an industry where profit margins are
typically a slim 5-6%.
Taiwan's success in notebook manufacturing is well documented, as
well-known PC brands such as HP, Dell, and Apple divide their orders among
two or three Taiwanese OEM manufacturers each. Wei says this practice
helps ensure a stable supply, protecting the brand from disruptions that
might occur with reliance on a single OEM maker. Delays in new product
roll-out or distribution to channel partners could be disastrous, if they
cause firms to miss major marketing periods such as the back-to-school or
Christmas seasons.
The dependability of Taiwanese makers has been their hallmark. For
example, Acer, a one-time OEM producer for firms such as IBM, has recently
emerged as the world's third-largest notebook maker after its acquisition
of Gateway.
But at the height of their popularity when they are poised to finally
overtake the desktop computer in units sold per year, notebooks may find
themselves in a new ballgame. Ultra-low-cost models offering basic
computing functions and internet access for less than half the price of a
typical laptop have suddenly emerged on the market. Consumer demand for
this lower end of the product range has been startling, and an industry
that had overlooked or even derided these low-powered models is trying to
decipher whether this trend poses a threat or an opportunity.
Nearly one year after the initial roll-out of these products, IDC, the
global IT market-research organization, predicts that laptops' average
selling price this year will drop 20%, a major blow for an industry
already beset with low margins. The ability of the notebook industry to
cope with the challenge will certainly shape its long-term future.
"Netbooks" - a term coined by Intel - are lightweight, stripped-down
notebook computers. They have no DVD drive, are poorly suited to gaming,
and have little computing capacity, limitations that led many in the PC
industry to dismiss them as toys or niche products. They hit the market in
the final quarter of 2007, with the Asus Eee PC selling just 300,000 units
that quarter.
A year after this modest launch, the netbook is experiencing "scary
growth," according to Chris Wei. He expects output to surge to 10 million
units in 2008 and 20 million in 2009. Although Gartner, another leading
international IT research and advisory firm, predicts lower figures - 5
million units this year and 8 million in 2009 - Wei stands by his
estimate, saying the growth in this segment has continually exceeded most
analysts' expectations. He adds that netbooks now account for between 10%
and 20% of the overall laptop market, with sales growth of 100% per year
sustainable as leading PC makers such as Acer, Dell, and HP prepare to
roll out new models in the last quarter of 2008.
Not everyone is convinced that netbooks will come to dominate the notebook
market, however. For one thing, manufacturers may be reluctant to produce
or promote these low-margin models, typically priced at around US$400-500.
Another factor is the global economic downturn, which may be a bad omen
for products that are typically regarded by consumers as a "secondary
notebook."
"Our focus this year continues to be low-cost notebooks rather than
netbooks," says Claire Chang, HP Taiwan's product marketing manager. HP
continues to be the world's leading PC maker, controlling approximately
20% of the market for PCs and notebooks. Chang says HP subscribes to the
hypothesis that difficult economic conditions will put a crimp in the
market for netbooks, which users are likely to consider as an extra device
rather than their primary computer.
The birth of netbooks
The beginnings of the netbook - also called a sub-notebook or
mini-notebook - can be directly traced back to an initiative dubbed the
"One Laptop per Child" project led by Nicholas Negroponte, founder of
MIT's Media Lab. The goal of this ambitious project was to produce
notebook computers priced at US$100 that could be sold to governments of
developing countries, who would then make them available to poor children.
The founders of this project hoped that distributing these computers would
help close the technological gap between developed and developing
countries.
The project had the backing of influential partners such as the United
Nations Development Program, as well as IT industry heavyweights such as
Red Hat Linux, Google, and Nortel Networks. These partners would later
contribute vital components as well as useful advice on such matters as
network connectivity and internet surfing. The contract to produce the
first batch, known as the XO-1 model, would be given to Taiwanese
computer-maker Quanta.
Not wanting to be left out, Intel launched a rival "World Ahead Project"
project in May 2006, leading to the introduction the following year of the
"Classmate PC." In addition, Microsoft, initially skeptical of the program
but also not wanting to be isolated, came up with a special operating
system for students, "Student Innovation Suite," priced at just US$3.
In October 2007, as part of the Intel Developer Forum in Taipei, Taiwanese
manufacturer Asus unveiled two inexpensive models - one produced in
cooperation with Intel's "World Ahead Project," and another, the Eee PC,
based on its own plans for entering the general consumer market. The Eee
PC was launched with an initial price of US$245.
Notably, the model used a solid state drive (SSD) instead of a traditional
hard drive. That switch to flash memory saved space but provided memory of
just 2GB or 4GB. In the beginning, this limitation ruled out use of a
Windows operating system, leaving Linux as the choice. Now, however,
netbooks are typically built with traditional hard drives having ample
memory of at least 80G.
Netbooks will get a boost from the release this year of Intel's Atom
processor. This new CPU enables netbooks to have increased processing
speed and battery life, and is a marked improvement over the Celeron M CPU
previously used in many models. Intel rival AMD, for its part, has shown
no interest in developing a product compatible with netbooks, and in fact
has been highly critical of this market segment.
The improvements to the product did not come without a cost, as the
average price of a netbook has mushroomed to US$500. This is double the
cost of the first models introduced at the end of 2007 and well beyond the
initial goal of just US$100. But consumers have seemed willing to accept
the higher prices, which are still 50% cheaper than other laptops. It can
also be expected that makers will be emulating some of the highly popular
and ground-breaking features of the netbooks when designing other laptops,
including their 10-inch screens, mini keyboards, and other elements making
them ultra-portable.
A history of input from the best and brightest minds in the IT sector as
well as world governments came together to make this successful product.
And in case you are wondering how the initial XO-1 computer is doing - the
one meant to help poor children - nearly 1 million orders were received by
Quanta in 2007, and the computer has been distributed to children in seven
developing countries. The company hopes to ramp up production to 400,000
per month in the near term for total annual production of 3 million to 5
million units.
Still strong in the high end
At the upper end of the notebook spectrum, demand will continue in
categories such as commercial laptops, those used for gaming, and laptops
pitched towards the fashion-conscious crowd. Each of these segments is
expected to remain strong, helping to spur growth over the next few years.
A common thread uniting these disparate categories is improved audio and
visual functionality, including new 16"x9" widescreen panels along with
Blu-ray DVD capabilities. These new models are a response not only to
changing optical standards but also to heightened consumer attention to
audio-visual applications.
will include a "fingerprint scan" function.
On commercial laptop models, a second layer of protection will prevent
third parties from accessing hard drives removed from your laptop. The
hard drives are only operable when in the original casing installed in the
factory. A further layer of security, called the Trusted Platform Module
(TPM), is a unique chip implanted onto the motherboard and bound to a
specific system.
Another improvement in new laptops is increased battery life. HP's Chang
says new models now have battery life of nearly 24 hours (though this
calculation may be based on the computer performing only a limited number
of basic operations). Still, the advancement is noticeable and not just
confined to HP. Dell, for example, offers a computer operating for 19
hours on one charge. Improved battery life may be the "killer app" in the
laptop market this year. Additional progress may be impossible, as pushing
Li-On batteries any further may lead to safety concerns, says MIC's Wei.
Earlier this year, Sony and others had to recall laptops because of
batteries that caught fire.
Environmental issues also remain a key concern. "Because we are a leader
in the market, we design products based upon green consciousness" says
HP's Chang. Wherever possible, she notes, HP seeks to adhere to the
strictest environmental standards in terms of energy efficiency and
design, and this corporate commitment is being translated into a new
generation of notebook computers.
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