IDC Predicts $3B Market for Low-Cost PCs

The market for low-cost PCs such as the Asus Eee PC and the OLPC’s XO could reach $3 billion in worldwide revenue by 2012, according to an IDC report released May 8.

However, most of these notebooks will find not find a home in developing countries but as secondary notebooks in mature markets such as the United States and Europe, according to the report.

The research company is defining these notebooks as costing less than $500, with displays measuring between 7 and 10 inches diagonally, and as having a full operating system, support for some third-party applications and wireless broadband connectivity.

The market for low-cost PCs, the report predicted, will grow from fewer than 500,000 shipments in 2007 to more than 9 million by 2012, with revenues of about $3 billion.

However, the report found that while companies like Asustek Computer and organizations such as One Laptop Per Child have said these laptops have a natural home in developing nations and emerging markets hungry for PCs and Internet connectivity, the numbers do not support that notion. Instead, these notebooks are seen more as secondary laptops in more mature markets, especially in education and for younger students, said Bob O’Donnell, an analyst with IDC.

One reason for this disconnect is the price compared with the value of the technology. Since most low-cost PCs cost about $500 and offer an operating system and some third-party applications, most buyers would rather spend a few hundred dollars more for a full-function laptop with a larger screen and more capabilities, O’Donnell said.

“It’s about the capabilities of the laptops and the value they get when they buy a PC,” O’Donnell said. “The issue for people, even those people in developing regions, is that they want a fully functional machine and not something that they view as cheap or not a real PC.”

One area where these types of notebooks can have an impact, according to IDC, is as way for school-age children to perform simple tasks and have access to the Internet. In April, Hewlett-Packard introduced its own product for this market called the Mini-Note PC, which starts at $499. Intel is also offering a notebook of this type called a Classmate PC.

Another reason that IDC does not see low-cost notebooks taking off in developing areas is that in many potential users in these countries don’t have ready Internet access or the networking capabilities to make these laptops viable. O’Donnell also noted that the organizations and companies making these laptops promised one price, but have been forced to increase that price.

While the number of shipments of low-cost PCs will increase in the next four years, the prices for these laptops will mean that vendors will not make much of a profit on their sales, O’Donnell said. However, that is not stopping vendors such as Dell from moving toward entering the market.

Intel has signaled that the low-cost PC would be a major focus for the company in the next few years with its Atom processors, especially the version of that processor called “Diamondville,” which should begin making its way into the market later in 2008.

In a talk before analysts in March, Intel CEO Paul Otellini said the low-cost PC market was one of four different markets that the company estimated could one day be worth $10 billion in worldwide revenues.