Stop the Noiz

Today's Netbook Market Is Too Small to Interest Apple

Frank Fox - 2009.02.09 - Tip Jar

This is the third in a series of articles about netbooks. First, we learned what kind of buyers like netbooks vs. smartphones, and then we saw how little impact netbooks seem to have on web browsing habits. Today we are going to look at the numbers and see why Apple can sit and wait.

The geniuses (who go by the name analysts) pieced together two pieces of information to make a story. The first was netbooks, which are cheap and small - are selling. The second piece was the recession - people are buying less. By putting these two together, we have the headline that people hit by the recession are going the have to buy netbooks because they are cheaper than regular notebooks. Therefore everyone has to be selling netbooks, or they will be destroyed by the recession.

The research firm DisplayBank came out with a nice chart (below) to show the "expected" rapid growth of netbooks. They made their chart to show how the percentage of netbook sales goes above the bar graphs showing the total number or notebook sales.

Notebook PC Shipments and Netbook Market Share Forecast (2007 to 2012)
Notebook PC Shipments and Netbook Market Share Forecast (2007 to 2012)

This is very misleading. The bars show total unit sales, while the netbook line shows percentage. If DisplayBank showed netbook sales in units instead of percentages, the bars would be much smaller than the ones for total notebook sales. (At least they use some common sense to say that eventually the growth of netbooks will slow.)

Let's convert DisplayBank's projected percentages into potential sales figures and see how they look:

Year  Total        Netbook       Non-netbook
Year  Notebooks    Sales         Sales
2007  103 million  *4.3 million   99 million
2008  133 million  14.6 million  118 million
2009  153 million  26.3 million  127 million
2010  177 million  32.8 million  144 million
2011  207 million  38.9 million  168 million
2012  241 million  45.7 million  195 million

*DisplayBank percentage of 0.6% for 2007 is too low. Around 4.3 million Eee PC were sold - or about 4% of the total notebook market.

That is wonderful growth in this segment, but the notebook market is still shown as growing 2009 - even when you subtract netbook sales. This implies that growth of notebooks is not limited to new sales of netbooks.

Why? Because notebook sales are eating into the sale of desktop computers. This is true for both PCs and Macs. Notebook sales are going to grow at a faster rate as desktop sales decline and people switch.

What the chart shows is that netbooks are taking sales that otherwise would have gone to higher priced notebooks. The total demand for notebooks isn't shrinking; only part of the growth is converting to the cheapest models.

Apple Doesn't Need to Do Cheap

Apple doesn't want to convert people to cheaper netbooks to sell more units when they are already ignoring the budget range. Comparing Macs to PCs, there is already a price difference. Apple has ignored the current notebook market below the $999 price point. If the average price of a PC notebook was $877 in 2008, then Apple has been ignoring more than half of the notebook market. (The actual amount is probably greater than 50% of the market, depending on how sales are distributed.)

It hasn't hurt Apple's bottom line so far.

The other factor is that while netbooks sales will increase, the volume will get distributed over the whole PC market, e.g., some to ASUS, some to Acer, some to HP, some to Dell, some to Toshiba, etc. The total amounts are going to be split up among dozens of vendors. Even if Apple jumps into the game, it will only get a slice of the pie - not the whole pie.

For Apple, sales of 4-5 million low margin notebooks (about 15% of the market) is it not a prize worth fighting over.

If Apple can ignore 70-100 million notebooks selling in the $500 price range, there is no obvious reason that it can't continue to ignore 14-32 million netbooks in the under $350 price range.

Why is Apple even bothering to watch what it going on?

Because the analysts could be right for the wrong reason. As functionality of netbooks increases, there may come a time when regular notebooks sales get cannibalized, much as the desktop market is today. When/if this happens, don't be surprised to see Apple ready with a brilliant new model that takes the market by storm.

But anything less than a huge slice of the pie is just not worth chasing.

Based on these trends, I would give Apple 1-2 years of planning and design time to work on a netbook worthy of the Apple name. There is no reason for Apple to rush into this relatively small market. LEM

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