The rise of the Netbook

By Erica Ogg
Staff Writer, CNET News

Published: December 18, 2008, 11:00 AM PST

The PC industry ended the year on a decidedly gloomy note, with very few bright spots.

While Hewlett-Packard has navigated the economic downturn well thus far, the entire industry is facing a variety of inclement conditions, including Western markets oversaturated with laptops, constrained IT budgets, and declining consumer confidence.

The one product buoying PC makers right now, however, is the Netbook.

The PC industry overall is expected to see shipments increase by a measly 3.8 percent next year, according to IDC. That will wreak havoc on revenue growth for the big-name brands.

We've seen this coming, and now that the U.S. economy is officially in recession and consumers are clamping down on spending, it appears a somewhat prescient move that manufacturers began touting the smaller, cheaper Netbooks in the beginning of this year.

Credit: CNET

Dell's Inspiron Mini 9 is one
of a myriad of competing Netbooks.

Asus led the way in late 2007, introducing the tiny Atom-powered Eee PC. The top names in computing soon followed. HP unveiled its education market-oriented HP Mini-Note, then Acer unleashed its Aspire One. Smaller brands like MSI and Sylvania and electronics companies that don't traditionally make laptops, like Samsung, soon followed suit.

And though it was rumored and leaked online months before it was finally revealed, Dell eventually hopped on the bandwagon with the Dell Inspiron Mini 9, and soon after, the Mini 12.

It's telling who didn't jump on the trend: brands that like to associate themselves with upmarket style and quality. Apple CEO Steve Jobs essentially dismissed the idea of an Apple Netbook in September, and Sony denied it has plans to market an inexpensive Netbook. A Sony executive even went so far as to declare Netbooks, a "race to the bottom," in terms of price and quality, driving down the price of all laptops.

Jumping on the Netbook trend has been a boon to Acer and Asus in particular. While Asus continues to lead the pack, Acer has made some serious headway in establishing its brand via the tiny notebooks. The Taiwanese PC maker has done extremely well pushing Netbooks in Europe by being aggressive on price and offering its Acer Aspire One bundled with mobile broadband service.

In addition, Acer finally completed its acquisition of Packard Bell--a brand popular in Europe--right as it officially integrated the Gateway brand. The result has been Acer's catapulting over Chinese rival Lenovo, who has settled in as the fourth-largest producer of PCs.

Lenovo attempted to increase its presence, introducing a new line of consumer notebooks and desktops--the IdeaPad and IdeaCentre computers--at January's Consumer Electronics Show, to complement its commercial computing line.

But the timing was off. Despite the launch of the pricey but well-designed new line of laptops, it came in the midst of what we now know was the beginning of a recession in the U.S. By the end of the year, Lenovo's fiscal performance showed it, with third-quarter revenue plunging 78 percent year over year.

Notebooks weren't the only thing getting downsized this year, as PC makers big and small began to push desktop PCs with the smallest of footprints. Boutique manufacturing firm Shuttle made noise at CES with its $199 Linux-based desktop, and soon several similar devices began cropping up.

In April, Dell introduced a tiny, energy-efficient desktop called the Studio Hybrid.

The Studio Desktop was one of the few trends that Dell got right and on time this year. In an interview at the D6 conference this year, company founder Michael Dell admitted that the computer maker "missed some pretty big things," which threw it into a bit of a tailspin starting in late 2006.

Though still in turnaround mode, Dell hasn't been lacking for products, throwing out rugged notebooks, tablet PCs, all-in-one PCs, and redesigning the look of its standard consumer laptops. But the company is still looking for ways to maintain its place in the PC world, while working to shore up its bottom line.

In an attempt to cut costs, Dell closed its Austin factory, and continued shedding headcount as planned. Though the company seemed to make headway early in the year, the economy helped stall Dell's recovery. By year's end, Michael Dell was offering employees unpaid vacation days in order to cut costs, canceling contract work, and putting a freeze on hiring.

HP, by contrast, seems to keep churning along, despite the tech downturn. It started shipping its consumer-oriented Netbooks, the Mini 1000 series right before the crucial holiday period, and put up the most encouraging earnings numbers in the PC industry. For the third quarter, HP actually increased its sales 19 percent year over year, though its profit fell slightly.

As the PC industry enters 2009, sagging profits are expected across the board. Market researcher IDC predicts that IT budgets will shrink throughout the U.S. and Europe, and lower-priced PCs are expected to grow in popularity as consumers muddle through the recession.