Is 'Netbook' Market Cannibalization a Real Threat to the Likes of HP, Dell?

Hewlett-Packard, Acer, Dell and other companies are making so-called netbooks, or mininotebooks and low-cost laptops, for consumers and enterprise buyers looking for less expensive computing solutions. However, some within the IT community are questioning whether the netbook trend has been cannibalizing market share from higher-end, pricier laptops. HP CEO Mark Hurd addressed the issue during HP's conference call with financial analysts.

Even as Hewlett-Packard, Dell, Acer and other companies have gravitated toward "netbook" production in the last 12 months, fear has arisen among certain segments that these low-cost laptops are cannibalizing market share from higher-end, pricier laptops.

Netbooks have existed for a relatively short time within the portable-computing spectrum, but already their impact is being felt. In the current economic doldrums, consumers and some enterprise buyers have turned to netbooks as a way to pinch pennies while fulfilling their connectivity needs. 

On Feb. 19, Dell announced its newest low-cost laptop in the Mini line, the Inspiron Mini 10, a follow-up to its Mini 9 and Mini 12. Retailing at $399, the notebook PC allows Dell to continue to compete in this particular market space.

The Inspiron Mini 10, like many netbooks, utilizes Intel's Atom processor. The Atom processor, paired with netbooks' popularity, is one of the reasons why Intel has managed to gain market share in the face of stiff competition from Advanced Micro Devices and Via. 

In turn, this has led to media headlines such as "Netbooks: Cheap Young Cannibals of Laptop PCs." But how real is the threat of netbooks to higher-end laptops' market share?

The issue is one that HP CEO Mark Hurd felt he needed to address during a recent conference call with financial analysts to discuss the company's latest quarterly results. HP, which remains the world's leading manufacturer of PCs, has recently launched a number of netbooks and mininotebooks, including the HP Mini 2140 and the 2133 Mini-Note PC.

For Hurd, the issue requires further study. 

"I've seen in print, from people who claim expertise, that 80 percent of netbooks is new [sales] and 20 percent is cannibalization of the bottom part of the notebook market," Hurd said during the Feb. 18 conference call.

At the same time, Hurd claimed that this relatively recent launching of HP's own netbook line meant "we have some time before I can give you a good metric and good consumer data back" as to whether netbooks are truly eating into the market share of other laptops. But he said he thought the available signs pointed to other factors. 

"It's not the move to netbooks that's cannibalizing," Hurd added. "What you have is someone buying a more thickly configured notebook, who's now buying a more thinly configured notebook, and that's what's adjusting the ASP [average selling price]."