Netbooks set for a Windows-Intel turbocharge

Already flying off the shelves in huge numbers in India, Netbook sales are set for a twin booster later this year.

Microsoft CEO Steve Ballmer announced on his India visit a leaner version of the forthcoming Windows7 for Netbooks.

At the same time, the world’s biggest chip-maker Intel, whose Atom chips power most Netbooks, is also working on releasing a dual core version for Netbooks. Both will be in the market around the festival time this year.

The good news is the twin developments could bring Netbooks into the mainstream and boost their sales further. But the bad news is that for Intel it could also mean erosion of market for its existing entry and mid-level Pentium and other notebook chips.

Seen as little more than toys when they were launched in the country last June, Netbooks have become a rage, doubling sales to 36,000 units in the January-March quarter, compared with just 16,000 units in the Oct0ber-December, 2008.

In 2009, Netbooks are projected to hit 3 lakh units in sales. The total laptop market in India is put at 2.5 million units per annum, of which 10% is entry level notebooks.
The runaway success of Atom came as surprise even to Intel. “It did better than we expected and we ended last year with revenues of $500 million for Atom chip sales,” said Prakash Bagri, director marketing Intel South Asia.

“Demand ramped up so fast in the second half of the year that we had supply issues,” he added.

This kind of success also comes with a concomitant downside which Intel seems to be realising, which perhaps explains its attempt to talk down the Atom at an investor meet after its first quarter 2009 results.

“The new dual core Atom could be a double-edged sword for Intel,” observed Diptarup Chakraborti, principal research analyst at IT research firm Gartner Inc. “There is a thin line which is getting thinner between Netbooks and notebooks,” he added.

While the consumer segment has taken to the Netbook in a big way demand is also coming from the enterprise and education sectors which could mean erosion in sales of notebooks using higher margin chips from Intel.

“There could be some amount of cannibalisation,” agreed Intel’s Bagri, but added that the sheer increase in the overall size of the market more than negates the loss on account of it. The broad ecosystem for laptops is developing and the size of the cake is growing.

A leading Netbook vendor however pointed out that this may not be the case. Entry level Celeron notebooks have already faded away and these have been replaced by the Netbooks. And with the new Atom chip expected sometime in August, the mid-level laptops too are under threat, he added.

Vendors pushing Netbooks as another form of notebooks could also have a lot to do with the cannibalisation, say analysts. For instance Dell, Lenovo, and HP, all market their Netbooks with brand names similar or close to their notebook line.

But industry veterans differ. “Netbooks are no longer niche. Within six months of the launch of the new form factor they have zoomed from zero to 15% of the market share,” said S Rajendran, chief marketing officer, Acer India, which is the dominant player in the space in India with 50% market share.

Netbooks are getting closer to the mainstream notebook with larger screens and full keyboards at very aggressive price points and features that would give any mid-level laptop a run for its money.

For instance Acer has recently launched an 11.6-inch screen Netbook with a full keyboard, the same as any mainstream notebook, at a price point of just Rs 24,999.
Likewise, category pioneer Asustek already has several Netbooks, which overlap in configuration and features with notebooks.

Soon it will also launch a high-end touch screen Netbook the T91, added Stanley Wu, country head, for Notebook and Eee PC business, ASUS, India.

 And Pentium notebook converted to an Atom Netbook could mean a margin loss of up to $20 for Intel not just in India but across the world, observed an analyst who did not want to be named.