Low-cost notebooks: No cure for PC brands

TAIPEI: PC brands are hoping to copy their success with low-cost consumer notebooks to corporate buyers, but acceptance among that fussier segment could be harder even as the cheaper models dent the broader industry's profits.

Netbooks --stripped-down PCs customized for Internet use-- took off in a big way last year after their launch in 2007, with shipments expected to double to 21 million units this year in an overall shrinking or flat PC market.

Intel's newly launched consumer ultra-low voltage (CULV) chip aims to bridge the gap between cheap netbook chips and more powerful and expensive chips used in traditional notebook PCs.

However, CULV laptops could actually hit revenue for the broader consumer PC market as some consumers abandon costlier traditional laptops and go for the cheaper new models, encouraged by a promise of relatively decent performance.

The inability of such portable, mini-laptops to run sophisticated software has kept corporate customers away, as lax security could make them easier prey for viruses.

The end game for PC brands is low-cost noteboks that would be lapped up by corporate customers, who account for about half of all PC purchases.

"If you can have thin and light, more power and a regular price, which customer won't want that?" J.T. Wang, chairman of Acer, the world's No. 3 PC brand, said at last month's launch of the world's first notebook with a CULV chip.

He expects CULV laptops to make up 15 percent of Acer's revenue by the end of the year.

Smaller cross-town rival and netbook PC pioneer Asustek is likely to join the bandwagon and unveil its own CULV-based notebook PC later this month.

Wang and other CULV backers say their computers will fill an important niche for PC buyers who want high performance but are also more price sensitive.

MORE PAIN FOR INVESTORS?

Smaller price tags on netbooks and the upcoming CULV notebooks could be bad news for investors, as companies would have to sell many more of these lower-cost products to make the same amount of profit from one traditional laptop.

Profits at many PC companies are already falling due to lower prices even as they ship more computers.

"It seems to be a volume and market share game more than anything else right now for some players," said Paranab Sarmah, an analyst at Daiwa Institute of Research.

"Dollar margins on these CULV laptops are a lot lower, and the question right now is will they be able to offset the fall in price through much bigger volumes, which could be an issue especially in the downturn as companies spend less."

Acer, which leads the low-cost netbook PC sector, saw its first-quarter net profit plunge 31 percent, hit by a double whammy of dampened consumer demand and rapid price falls brought about partly by netbooks.

Both Acer and Asustek have underperformed a 46 percent jump in Taiwan's benchmark market index this year. Acer has climbed 36 percent while Asustek is up 23 percent.

Other leading industry players including No. 1 Hewlett-Packard and No. 2 Dell have also been hit hard in an overall market slowdown that has also affected other brands such as Lenovo.

The average price of a portable PC fell 9 percent in 2007 from the previous year and by a further 14 percent in 2008, when netbook PCs started to grab a significant share in the market, according to data from industry tracking firm Gartner.

While the prospect of low prices and strong performance sounds attractive, some say it would be hard for new PCs to gain acceptance from companies that decide their buying decisions on a range of factors, only one of those being price.

"Enterprise customers want a product that is sustainable in the long term," said Gartner analyst Lillian Tay.

"They want to make sure that components, parts will still be available for upgrade a few years down the road," she said.

Low levels of after-sales support that often accompany cheap computers may be acceptable to average consumers but are less so for corporate buyers.