Will the Notebook Market Hit a Tipping Point in 07?

A Merrill Lynch research paper suggests that revenue for notebooks will outstrip desktop revenue for the first time in 2007, and other technology analysts agree that the time seems right for a change.

For the past five years, industry observers and IT professionals watched as notebooks have taken bigger chunks of the PC market, with corporate users and consumers looking for increased mobility and flexibility in their PCs and turning away from the traditional desktops that once permeated the desk and cubicles of enterprises for years.

Still, the desktop remained as a mainstay of enterprises and small businesses as the expense and limited performance of notebooks remained in question.

However, it seems that 2007 could be the year that notebooks, more than desktops, become the bigger revenue generator for major PC makers like Hewlett-Packard, Dell and Lenovo.

The first hints of this sea change in the PC market can be found buried deep in a Merrill Lynch financial report written Dec. 5 by Richard Farmer, a senior analyst for the New York City-based financial firm. Although the report focuses on CIOs and the launch of Microsofts Windows Vista operating system, Farmer delves into the numbers and indicates that, starting in 2007, the percentage of revenue from notebooks will outstrip that of desktops in the PC market place.

By the end of 2006, the estimated percentage of revenue for companies from desktops will be 47 percent, compared to 41.6 percent for notebooks. For 2007, the numbers will nearly flip, with 45.6 percent of revenue coming from notebooks and 43.1 percent from desktops, according to Farmers estimates.

Later, in 2008, notebooks will represent nearly 50 percent of revenue, while desktops will produce only about 40 percent of revenue. By comparison, in 2000, Merrill Lynch reported that notebooks only produced about 25 percent of the revenue in the PC market, with desktops accounting for a solid majority of 64 percent.

/zimages/1/28571.gifClick here to read more about how a massive recall of tainted battery packs has not slowed down the notebook market.

In his report to investors, Farmer does not explain why this is happening, but Richard Shim, an analyst with IDC of Framingham, Mass., agrees that the marketplace has been favoring notebooks—as well as mobility overall—over desktops for some time.

"This is the direction we are headed in," Shim said. "Eventually, shipments of notebooks will be headed that way, too. Its just a matter of time. One thing that will be interesting to see is how far this will go."

Part of the reason for the increase in revenue is due to the margins OEMs can collect on notebooks. According to the Merrill Lynch analysis, the average notebook in 2007 is estimated to cost $1,083, while desktops will cost $767 on average.

Notebooks have also begun to make up a large percentage of the PCs that are shipped and sold. In 2000, notebooks held 18.7 percent of the PC market, according to Merrill Lynch. Now, notebook shipments make up 36 percent of the market and could capture 44 percent by 2008.

For his part, Shim said he does not expect notebooks to take over desktops in terms of shipments until later in 2008 or possibly 2009. Mostly likely, he added, this trend will first start in mature markets such as North America and Western Europe.

The trends that Farmer points to in his report reflect similar studies at research firm Gartner, of Stamford, Conn. Gartners research points to a similar trend of more revenue being generated from notebooks than from desktops, said analyst Leslie Fiering.

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