1
Light and Cheap, Netbooks Are Poised to
Reshape PC Industry
Tami Chappell for The New York Times
Dell sells a 2.28-pound netbook, the Inspiron Mini 9, left, which is smaller and less expensive than a
traditional laptop.
By ASHLEE VANCE and MATT RICHTEL
Published: April 1, 2009
SAN FRANCISCO — Get ready for the next stage in the personal computer
revolution: ultrathin and dirt cheap.
Enlarge This Image
Tami Chappell for The New York Times
Steve Giddens, right, showing netbooks in Atlanta, where the company is offering netbooks for $50 with
an Internet plan.
2
AT&T announced on Tuesday that customers in Atlanta could get a type of
compact PC called a netbook for just $50 if they signed up for an Internet
service plan — an offer the phone company may introduce elsewhere after a
test period. This year, at least one wireless phone company in the United
States will probably offer netbooks free with paid data plans, copying
similar programs in Japan, according to industry experts.
But this revolution is not just about falling prices. Personal computers —
and the companies that make their crucial components — are about to go
through their biggest upheaval since the rise of the laptop. By the end of the
year, consumers are likely to see laptops the size of thin paperback books
that can run all day on a single charge and are equipped with touch screens
or slide-out keyboards.
The industry is buzzing this week about these devices at a
telecommunications conference in Las Vegas, and consumers will see the
first machines on shelves as early as June, probably from the netbook
pioneers Acer and Asustek.
“The era of a perfect Internet computer for $99 is coming this year,” said
Jen-Hsun Huang, the chief executive of Nvidia, a maker of PC graphics
chips that is trying to adapt to the new technological order. “The primary
computer that we know of today is the basic PC, and it’s dying to be
reinvented.”
An unexpected group of companies has emerged to help drive this
transformation — firms like Qualcomm, Freescale Semiconductor and
Samsung Electronics, which make cheap, power-saving chips used in
cellphones and are now applying that expertise to PCs.
As in any revolution, the current rulers of the kingdom — Intel and
Microsoft, which make the chips and software that run most PCs — face an
unprecedented challenge to their dominance. Microsoft is particularly
vulnerable, since many of the new netbooks use Linux software instead of
Windows.
3
“A broad shift in the consumer market toward low-cost PCs would clearly
put pressure on the revenues of nearly every player in the value chain, from
component suppliers to retailers,” wrote A. M. Sacconaghi, a securities
analyst with Sanford C. Bernstein & Company, in a report last month.
“However, we believe the impact would be especially negative for Intel and
Microsoft, who today enjoy near monopoly positions in their respective
markets.”
So far, netbooks have appealed to a relatively small audience. Some of the
devices feel more like toys or overgrown phones than full-featured
computers. Still, they are the big success story in the PC industry, with sales
predicted to double this year, even as overall PC sales fall 12 percent,
according to the research firm Gartner. By the end of 2009, netbooks could
account for close to 10 percent of the PC market, an astonishing rise in a
short span.
Netbooks have trouble running demanding software like games and photoediting programs. They cater instead to people who spend most of their
time dealing with online services and want a cheap, light device they can
use on the go. Most of the netbooks sold today run on an Intel chip called
Atom, which is a lower-cost, lower-power version of the company’s
standard laptop chips. And about 80 percent of netbooks run Windows XP,
the older version of Microsoft’s flagship software.
The new breed of netbooks, built on cellphone innards, threatens to disrupt
that oligopoly.
Based on an architecture called ARM, from ARM Holdings in Britain,
cellphone chips consume far less power than Atom chips, and they combine
many functions onto a single piece of silicon. At around $20, they cost
computer makers less than an Atom chip with its associated components.
But the ARM chips come with a severe trade-off — they cannot run the
major versions of Windows or its popular complementary software.
Netbook makers have turned to Linux, an open-source operating system
that costs $3 instead of the $25 that Microsoft typically charges for
4
Windows XP. They are also exploring the possibility of using the Android
operating system from Google, originally designed for cellphones.
(Companies like Acer, Dell and Hewlett-Packard already sell some Atombased netbooks with Linux.)
The cellphone-chip makers argue that the ARM-Linux combination is just
fine for a computer meant to handle e-mail, Facebook, streaming video
from sites like YouTube and Hulu, and Web-based documents.
Freescale, for example, gave free netbooks to a group of 14- to 20-year-olds
and watched what happened. “They would use it for Internet access when
eating breakfast or on the couch, or bring it to class for taking notes,” said
Glen Burchers, the director of consumer products marketing at Freescale.
Mr. Burchers said a number of companies already making netbooks would
show a new round of machines using cellphone chips at the Computex trade
show in Taipei, Taiwan, this June.
Qualcomm, the San Diego company that built an empire on chips for
cellphones, recently introduced Snapdragon, a chip created for
smartphones and ultralight computers. Already, the company has
announced deals to sell the chip to 15 major device manufacturers,
including LG, Acer, Samsung and Asustek. Qualcomm said some
Snapdragon devices appearing this year would have screens of 10 to 12
inches.
Intel and Microsoft warn that consumers should remain skeptical about the
performance of a computer that costs less than $300.
“When these things are sold, they need clear warnings labels about what
they won’t be able to do,” said Sean M. Maloney, the chief sales and
marketing officer at Intel. “It would be good to wait and play with one of
these products before the industry gets carried away.”
Still, the rise of netbooks could hurt both companies. In its last quarter,
Microsoft posted the first sales decline in its history for the PC version of
Windows. It blamed netbooks for the drop. On average, Microsoft charges
5
computer makers $73 for Windows Vista, the version of Windows used in
desktop and high-powered laptop PCs. That is triple what it receives for a
sale of Windows XP for a netbook.
For Intel, the Atom chips represent lower-profit products, which could turn
into a major sore spot if consumers become comfortable with netbooks and
start to view them as replacements for standard computers.
In his recent report, Mr. Sacconaghi speculated that 50 percent of
consumers could get by with an Atom-based computer for their everyday
tasks. PC makers like H.P., Acer and Dell, which face razor-thin profit
margins selling laptops, could use the rising competition to place more
price pressure on both Microsoft and Intel, Mr. Sacconaghi said.
The big winners in the rise of netbooks that use cellphone chips could be
the cellphone carriers, which would have access to a whole new market: PC
users.
Intel, meanwhile, expects cheap netbooks to expand the PC market to
include hundreds of millions of children who have cellphones but no
computers. The company has dozens of deals in the works with service
providers to seize on this potential, Mr. Maloney said. As for the emerging
competition, he said Intel would show off some surprising computer
designs at Computex as well.
Mr. Huang of Nvidia said the PC industry sat at an inflection point.
“Disruption will come in from the bottom and forever change the market.”