Computer firms' profits hit by popularity of cheap netbooks

INBOX:Rising sales of netbooks show affordability and ease of use will affect the market this year, writes Mike Butcher

ONE MIGHT think that, in an era when it’s almost feasible to operate a business from a laptop and a 3G wireless dongle, the technology industry would be benefiting from the economic downturn rather than being hit by it.

However, it is proving to be at least as susceptible to the credit crunch as the rest of the business world.

According to research house IDC, the market for PCs in western Europe grew 11.9 per cent last year thanks to demand for portables and netbooks which pushed consumer growth to 56 per cent. The gradual power of laptops means desktop PCs are going down. Desktop sales fell because they are losing market share to portable machines.

But, PC sales in Europe, the Middle East and Africa grew just 1.8 per cent in the last quarter of 2008 as the economic crisis began to hit.

The worldwide financial and credit crisis has hit the largest markets in central and eastern Europe. This caused the PC market to contract, by 23.8 per cent, for the first time ever. The only growth was with the increasing importance of netbooks – those slimmed-down laptops with just enough processing power to get you on the web, watching online video, writing a letter and checking e-mail, but not too much else.

In the PC market, HP remains the biggest seller. Its sales grew by 13 per cent, which gave it 21.6 per cent of the market. Acer was up 21.9 per cent to 16.6 per cent of the total market. Dell grew only 0.4 per cent to 9.4 per cent, while Asus leapt 68.7 per cent. Toshiba was up 26.7 per cent.

What do Asus sell most of these days? You guessed it – netbooks. And that’s really bad news for Intel, the world’s biggest chip maker.

Analysts say that Intel would have to sell three times as many processors for the netbook market to make the same profit it does on the sale of a single laptop processor.

And what’s the overriding feature of netbooks? They are cheaper, simple to operate (usually Linux or Windows XP operating systems) and don’t have lots of features.

This desire for affordability and ease of use is going to affect the technology market in a big way this year.

In the business market, where most PC sales come from, companies are also holding back from purchases as they wait to see what happens next. In the meantime, cheap solutions like netbooks – which have razor-thin margins – will do them just fine, and that is crucifying the PC industry.

Even Apple, which has long built its brand up as a maker of premium devices, could be hit. Some think the economic crisis will force Apple to come out with its own netbook version just to get anything into the market that sells to price-sensitive consumers.

The only light on the horizon is that Windows 7 will get people to upgrade their hardware – but it may not be enough to help the ailing PC industry. But at least it’s good news for consumers – cheaper hardware and falling broadband prices mean greater access for all to the new digital revolution.