Opinion: notebook boom isn't all good news

Opinion: notebook boom isn't all good news

When Intel announced last week that it expected to earn slightly more revenue in the current quarter than it had previously estimated, it didn’t exactly look like an interesting story. Yet, buried amongst the upbeat though otherwise mundane financial details was something extremely important.

For the record, the giant chipmaker informed investors that it now expects sales of US$9.3 billion. In April the company estimated this quarter’s sales would amount to somewhere between US$8.6 and $9.2 billion.

Sure, Intel is an industry bellwether: good times for Intel generally mean good times elsewhere in the IT business. That’s encouraging.

But what makes it much more exciting is the reason why Intel is selling more chips than expected: the company says it’s making more money because of booming demand for notebook computer chips.

According to IDC figures, global sales of notebooks are growing at three times the pace of desktop sales and will continue to do so over the next two, three or more years. This year, shipments are expected to climb 19.6%, while desktops will only grow at 6%.

Desktops still account for the overwhelming majority of units. This year IDC expects the industry will sell around 130 million desktop computers and 52 million portables. However, the total value of the more expensive portable computers has now surpassed the total value of desktops. Nobody expects that situation to reverse.

Notebooks are important because, while they might not offer significantly higher reseller margins than desktops, their higher price means better financial returns. And it’s harder to upgrade notebooks, so users tend to churn portable hardware faster than stay-put computers. That can be particularly lucrative when selling to small and medium-sized businesses.

However, it’s not all positive. Historically notebook resellers and vendors have enjoyed much higher margins than desktop vendors. That’s no longer the case.

Until a few years ago, Toshiba – which only plays in the notebook market in this part of the world – was working off 30 points at a time when desktop margins were closer to 8 points. This allowed the company to operate a completely different business model to its rivals. Today the margin gap has closed considerably, there’s a lot less room for manoeuvrer.

It’s now a much more competitive market and getting more so by the week.

Six days ago Fujitsu PC, which like Toshiba only sells computers in this part of the world, officially launched its upmarket Lifebook range in New Zealand. The company doesn’t expect to get a huge market share, but it will certainly put pressure on existing players, particularly Toshiba, at the high end.

Benq isn’t quite ready to launch its consumer-oriented range, but they probably will appear this side of Christmas, pressuring existing players at the Soho end of the market. Other brands which have yet to appear, but could still do so, are LG and Samsung.

The most worrying pressure on vendors and resellers alike comes from ultra-aggressive rivals like Dell.

Last week the first sub-$1000 notebooks went on sale in Australia. These models only sell through direct sales operations and mass retailers. The margins will almost certainly be abysmal. Even so, they will make life harder for resellers who have to buy similarly configured hardware wholesale at significantly higher prices.

With our dollar trading at around 93 Australian cents, it can only be a matter of time before New Zealand sees its first $999 notebook.

Vendors might argue that low price points seed the market, bring in fresh customers and provide opportunities to up-sell and value-add. But there’s scant evidence of that happening in any meaningful way. They may also say the deals are consumer-only and prices will be protected for business customers. Maybe.

The sad truth is, that there’s probably as much money to be made from persuading a customer to buy a protective rucksack or a padded leather bag for a low-end notebook as there is from selling cheap hardware in the first place. If you’re really interested in making money from the notebook boom, your best bet is to find a business niche or hunt out a first-rate partner in the luggage industry.

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