Netbooks killing off sickly Windows PC sales
PC sales are in free fall as the weak demand for Windows desktops and full-size notebooks in a poorly performing global economy is being compounded by an influx of low cost netbooks, which are gobbling up the remains of profitability in the PC industry.
According to an IDC report issued last week, worldwide PC processor unit shipments in the fourth quarter of 2008 declined ?17.0% quarter over quarter and ?11.4% year over year. Those tragic numbers were buoyed somewhat by sales of mini-laptop netbooks running low powered processors. Take out Intel's Atom chips that power netbooks, and processor unit shipments declined by ?21.7% over the previous September quarter and ?21.6% over last year's holiday quarter.
Shane Rau, IDC's director of Semiconductors in Personal Computing research, said the "decline in PC processor unit shipments in the fourth quarter was the worst sequential decline since IDC started tracking processor shipments in 1996. After hinting at a decline last September, the market fell of a cliff in October and November.''
IDC's report stated that "the decline of the PC processor market in 4Q08 was due to a precipitous drop in end system demand that quickly moved up the PC supply chain through OEMs and contract manufacturers to the processor vendors." In addition to tightening consumer spending, sickly PC sales have also been blamed upon weak interest in Windows Vista, which only runs well on desktops and full powered laptops. Most netbooks run the simpler Windows XP, and about a quarter run Linux.
Netbook erosion
That has hit Microsoft particularly hard, resulting in an 11% drop in profits over its year ago quarter and plans to cut 5,000 jobs over the next year and a half. On the other hand, Apple posted its best quarterly results ever, with 9% growth in its Mac sales over the previous year. How is Apple bucking the collapse of PC sales?
In large measure, Apple is sidestepping the fate of other PC makers because it sells machines differentiated by Mac OS X Leopard. While other PC makers are all diving to the bottom of the barrel to offer the cheapest Windows PCs at unsustainable prices, Apple is selling a product with unique value that isn't available elsewhere. The company is also leveraging its strong retail presence of 251 stores worldwide, which offer training and support that can't be found at big box retailers, preventing many Mac buyers from leaving its ecosystem to find a bargain among cheap PCs.
However, another component to Apple's healthy sales figures is its refusal to sell netbooks. While pundits have insisted that Apple jump on the netbook bandwagon, the company has consistently insisted that it can't offer any value in the sub-$500 PC market. That strategy has prevented corrosion of the Mac OS X market for desktops and full sized notebooks at the hands of low powered, ultra cheap Mac netbooks.
Apple's Netbook alternative
Instead, Apple has focused its interests in selling the iPhone and iPod touch to fill the demand for low-end, highly mobile devices in Mac market. The company doesn't break out iPod touch sales from other iPods, but iPhone sales growth in the fourth quarter exploded by 88% over the year ago quarter. Apple sold 13.6 million iPhones in the last year, well above the 11.3 million netbooks sold in 2008 by all vendors combined.
Pundits say there's no stopping netbook sales, with 21.5 million expected to be sold in 2009. However, analysts are also predicting incredible growth for the iPhone, with Gene Munster of Piper Jaffray estimating an installed base of roughly 60 million iPhones by the end of 2009. That would require sales of 44 million iPhones this year, well more than twice the number of netbooks expected to be sold worldwide. Additionally, that doesn't even include Munster's estimate of 23.4 million iPod touch users by the end of the year.
Rather than losing money to chase a fraction of the netbook market share, Apple is creating its own market for handheld WiFi mobile devices that is not only outpacing the entire netbook market in units sold but also in profitability. Because the iPhone and iPod touch are designed to sync with a computer rather than replace one like a netbook, Apple's desktop and notebook sales are not being cannibalized by its mobile sales.
Of course, the fear is that PC netbooks running Windows XP or Linux will soon impact Mac notebooks, too, unless Apple scrambles to release its own netbook competitor. While the company said it was keeping a close watch on the market for netbooks, any threat to the Mac might be well off in the future. Around 70% of all netbooks were sold in Europe, many subsidized by a mobile network plan. That makes netbooks more akin to glorified smartphone, and a more direct competitor to Apple's iPhone and iPod touch.
Macs moving upscale
Apple has migrated away from selling low end, simple Internet browsing computers over the last decade, repositioning the iMac from an appliance PC (it was originally intended to serve as a Network Computer) into a luxury desktop with a big screen aimed directly at higher powered tasks such as editing movies, working with high resolution RAW photography, and making music.
The company has also pushed its notebooks upscale, converting its entry level iBook line into MacBooks closer to the low end of its MacBook Pro models. That has resulted in Apple offering no new notebook models for much less that $1,000, but also taking the lion's share (66%) of the $1,000 and up notebook market, where most of the profits in notebooks are to be found.
Apple hasn't just been pushing its products up scale rather than into junk territory by raising its hardware prices; it has also developed software to make use of faster systems, assembling both the iLife suite for consumers and a series of Pro Apps. Netbooks are designed primarily to do text entry and browse the web, making them natural replacements for low end PCs the cost roughly the same and don't offer to do much more besides take up more space.
That's killing Microsoft's model for advancing Windows Vista on the sheer volume of new PC sales, because netbooks are making a large chunk of the low end market for new PCs obsolete, and replacing them with a low powered device that not only can't run Vista, but can run Linux. If netbooks continue to grow as predicted, they will cause a major erosion of the low end of PC market, forcing Microsoft to either scale down Vista to something closer to Windows XP, or to continue to develop the older XP code base.
Either way, that change will have minimal impact on Apple's business, the majority of which is well above the floodplain threatened by the promised wave of $400 netbooks. Apple's Mac business will be no more at risk than Microsoft's higher-end gamer PC users. However, if netbooks can manage to replace over 20 million low end PCs this year it will have a significant impact on the standing of Windows Vista and its successor due later this year as an increasingly large chunk of the 300 million PCs sold annually won't need a full desktop operating system.
Meanwhile, Apple is targeting the release of Snow Leopard as being fully 64-bit. In the last nine quarters since Apple transitioned its lowest end MacBooks and iMacs to 64-bit Core 2 Duo CPUs, the company has sold 19 million Macs. Apple's installed base of Macs running Mac OS X is approaching 30 million. That means that at around two thirds, or 66%, of the entire Mac installed base is 64-bit.
In contrast, the latest Steam survey of around a hundred thousand serious PC gamers' hardware, representative of the high end of Windows users, revealed that less than ten percent are running a 64-bit version of Windows 2003, XP, or Vista, even though gamers with fancy video cards and an appetite for RAM would benefit most from moving to 64-bit Windows. The majority, 65%, are still using 32-bit Windows XP, with nearly 24.5% using 32-bit Windows Vista, even though nearly all PCs sold in the last two years have shipped with Vista.
According to an IDC report issued last week, worldwide PC processor unit shipments in the fourth quarter of 2008 declined ?17.0% quarter over quarter and ?11.4% year over year. Those tragic numbers were buoyed somewhat by sales of mini-laptop netbooks running low powered processors. Take out Intel's Atom chips that power netbooks, and processor unit shipments declined by ?21.7% over the previous September quarter and ?21.6% over last year's holiday quarter.
Shane Rau, IDC's director of Semiconductors in Personal Computing research, said the "decline in PC processor unit shipments in the fourth quarter was the worst sequential decline since IDC started tracking processor shipments in 1996. After hinting at a decline last September, the market fell of a cliff in October and November.''
IDC's report stated that "the decline of the PC processor market in 4Q08 was due to a precipitous drop in end system demand that quickly moved up the PC supply chain through OEMs and contract manufacturers to the processor vendors." In addition to tightening consumer spending, sickly PC sales have also been blamed upon weak interest in Windows Vista, which only runs well on desktops and full powered laptops. Most netbooks run the simpler Windows XP, and about a quarter run Linux.
Netbook erosion
That has hit Microsoft particularly hard, resulting in an 11% drop in profits over its year ago quarter and plans to cut 5,000 jobs over the next year and a half. On the other hand, Apple posted its best quarterly results ever, with 9% growth in its Mac sales over the previous year. How is Apple bucking the collapse of PC sales?
In large measure, Apple is sidestepping the fate of other PC makers because it sells machines differentiated by Mac OS X Leopard. While other PC makers are all diving to the bottom of the barrel to offer the cheapest Windows PCs at unsustainable prices, Apple is selling a product with unique value that isn't available elsewhere. The company is also leveraging its strong retail presence of 251 stores worldwide, which offer training and support that can't be found at big box retailers, preventing many Mac buyers from leaving its ecosystem to find a bargain among cheap PCs.
However, another component to Apple's healthy sales figures is its refusal to sell netbooks. While pundits have insisted that Apple jump on the netbook bandwagon, the company has consistently insisted that it can't offer any value in the sub-$500 PC market. That strategy has prevented corrosion of the Mac OS X market for desktops and full sized notebooks at the hands of low powered, ultra cheap Mac netbooks.
Apple's Netbook alternative
Instead, Apple has focused its interests in selling the iPhone and iPod touch to fill the demand for low-end, highly mobile devices in Mac market. The company doesn't break out iPod touch sales from other iPods, but iPhone sales growth in the fourth quarter exploded by 88% over the year ago quarter. Apple sold 13.6 million iPhones in the last year, well above the 11.3 million netbooks sold in 2008 by all vendors combined.
Pundits say there's no stopping netbook sales, with 21.5 million expected to be sold in 2009. However, analysts are also predicting incredible growth for the iPhone, with Gene Munster of Piper Jaffray estimating an installed base of roughly 60 million iPhones by the end of 2009. That would require sales of 44 million iPhones this year, well more than twice the number of netbooks expected to be sold worldwide. Additionally, that doesn't even include Munster's estimate of 23.4 million iPod touch users by the end of the year.
Rather than losing money to chase a fraction of the netbook market share, Apple is creating its own market for handheld WiFi mobile devices that is not only outpacing the entire netbook market in units sold but also in profitability. Because the iPhone and iPod touch are designed to sync with a computer rather than replace one like a netbook, Apple's desktop and notebook sales are not being cannibalized by its mobile sales.
Of course, the fear is that PC netbooks running Windows XP or Linux will soon impact Mac notebooks, too, unless Apple scrambles to release its own netbook competitor. While the company said it was keeping a close watch on the market for netbooks, any threat to the Mac might be well off in the future. Around 70% of all netbooks were sold in Europe, many subsidized by a mobile network plan. That makes netbooks more akin to glorified smartphone, and a more direct competitor to Apple's iPhone and iPod touch.
Macs moving upscale
Apple has migrated away from selling low end, simple Internet browsing computers over the last decade, repositioning the iMac from an appliance PC (it was originally intended to serve as a Network Computer) into a luxury desktop with a big screen aimed directly at higher powered tasks such as editing movies, working with high resolution RAW photography, and making music.
The company has also pushed its notebooks upscale, converting its entry level iBook line into MacBooks closer to the low end of its MacBook Pro models. That has resulted in Apple offering no new notebook models for much less that $1,000, but also taking the lion's share (66%) of the $1,000 and up notebook market, where most of the profits in notebooks are to be found.
Apple hasn't just been pushing its products up scale rather than into junk territory by raising its hardware prices; it has also developed software to make use of faster systems, assembling both the iLife suite for consumers and a series of Pro Apps. Netbooks are designed primarily to do text entry and browse the web, making them natural replacements for low end PCs the cost roughly the same and don't offer to do much more besides take up more space.
That's killing Microsoft's model for advancing Windows Vista on the sheer volume of new PC sales, because netbooks are making a large chunk of the low end market for new PCs obsolete, and replacing them with a low powered device that not only can't run Vista, but can run Linux. If netbooks continue to grow as predicted, they will cause a major erosion of the low end of PC market, forcing Microsoft to either scale down Vista to something closer to Windows XP, or to continue to develop the older XP code base.
Either way, that change will have minimal impact on Apple's business, the majority of which is well above the floodplain threatened by the promised wave of $400 netbooks. Apple's Mac business will be no more at risk than Microsoft's higher-end gamer PC users. However, if netbooks can manage to replace over 20 million low end PCs this year it will have a significant impact on the standing of Windows Vista and its successor due later this year as an increasingly large chunk of the 300 million PCs sold annually won't need a full desktop operating system.
Meanwhile, Apple is targeting the release of Snow Leopard as being fully 64-bit. In the last nine quarters since Apple transitioned its lowest end MacBooks and iMacs to 64-bit Core 2 Duo CPUs, the company has sold 19 million Macs. Apple's installed base of Macs running Mac OS X is approaching 30 million. That means that at around two thirds, or 66%, of the entire Mac installed base is 64-bit.
In contrast, the latest Steam survey of around a hundred thousand serious PC gamers' hardware, representative of the high end of Windows users, revealed that less than ten percent are running a 64-bit version of Windows 2003, XP, or Vista, even though gamers with fancy video cards and an appetite for RAM would benefit most from moving to 64-bit Windows. The majority, 65%, are still using 32-bit Windows XP, with nearly 24.5% using 32-bit Windows Vista, even though nearly all PCs sold in the last two years have shipped with Vista.
Comments
so here is to keeping XP---netbooks are a huge threat to MS since the upgrade cycle is lost, and gives linux a big base.
so how much of the netbook market is a "no- confidence" vote for MS and vista/ W7. and if they break, why even fix them for $300 or less donate and buy another
Why would gamers benefit the most from a 64-bit OS? Not a single mainstream PC game ships with 64-bit binaries on the disc. It's a chicken and egg situation.
Because you can use more RAM with a 64-bit system.
Most netbooks run the simpler Windows XP, and about a quarter run Linux.
Could anyone supply a bit more info on that? What Linux system (or systems) are being used? It strikes me that Linux is MS's biggest lurking nightmare, because for every new Mac sold a good proportion will also buy a retail version of Windows to run under BootCamp or alternatives, but if a third, Linux based consumer-friendly OS got out there and started competing with MS for the OEM market they would be in serious trouble.
Because you can use more RAM with a 64-bit system.
But how does that benefit the average user who browses the web and checks their email? It doesn't. And that's what netbooks are used for.
For basic uses Linux on a netbook is great, and Microsoft have to worry about that. Their idea of a "3 applications max" version of Windows 7 for netbooks is very flawed, especially if it costs $200 like one rumour suggested (I think $30 OEM is more likely, otherwise netbooks will have a severe markup).
I have a netbook. It does everything I want from a casual evening home computer. It runs Linux. I can browse the web, chat on MSN, AIM, Google, do spreadsheets or word process, play music, even have the 3D desktop effects/expose-spaces-like functionality. It sucks for video, that's a chipset and driver failing, and I know that an Apple netbook would not fail in this area even if it used an ARM + PowerVR solution.
Prince is spinning this as if Apple will be unaffected. But I have my doubts.
I think that some people will be putting of PC purchases while they wait for Windows 7 to be released. This means that Microsoft will surely put a "free upgrade" package for Vista on the market to keep sales up this year.
For basic uses Linux on a netbook is great, and Microsoft have to worry about that. Their idea of a "3 applications max" version of Windows 7 for netbooks is very flawed, especially if it costs $200 like one rumour suggested (I think $30 OEM is more likely, otherwise netbooks will have a severe markup).
They've already announced the free upgrade plan- buy a Vista PC after July 1, and you'll get Windows 7 for free.
As for pricing, Microsoft's retail prices have always been absurd, but their OEM prices can be very low- I think they charge $5 for the version of XP Home that goes on netbooks now. Nobody buys Windows at retail, anyway.
Linux on netbooks does everything basic a user would need and runs very well, but its problem is that most people refuse to learn anything new when it comes to computers.
Because you can use more RAM with a 64-bit system.
I can't think of any game that uses more than 3.5GB of RAM. Even the latest Battlefield game tops out at about 2.5GB (inc. OS under WinXP).
As a video editor and part time gamer, I feel like I'm one of the last people who actually cares about eeking out a little more performance out of my systems. But even then, any extra performance that I can get by upgrading my hardware or software is miniscule compared to what my systems already do! They run everything well enough.
It's no wonder Apple is shifting focus to the iPods/iPhones. At least there you have a significant growth market with a large potential for "virgin" users. In comparison, going after "computer platfom converts" might net a little profit, but the point of diminishing returns starts to rear it's head pretty fast. People just don't need to upgrade their computers, they work well enough, and there's nothing compelling to spend money on, that can't be done by current computers. Well unless you really, really, really need 64-bit facebook, email, web browsers, & ms-office.
I think the computer world is all just way past the point of diminishing returns. The majority of computer users just don't need to upgrade to anything. And none of the offerings by any of the manufacturers prove otherwise.
As a video editor and part time gamer, I feel like I'm one of the last people who actually cares about eeking out a little more performance out of my systems. But even then, any extra performance that I can get by upgrading my hardware or software is miniscule compared to what my systems already do! They run everything well enough.
It's no wonder Apple is shifting focus to the iPods/iPhones. At least there you have a significant growth market with a large potential for "virgin" users. In comparison, going after "computer platfom converts" might net a little profit, but the point of diminishing returns starts to rear it's head pretty fast. People just don't need to upgrade their computers, they work well enough, and there's nothing compelling to spend money on, that can't be done by current computers. Well unless you really, really, really need 64-bit facebook, email, web browsers, & ms-office.
Heh. Well now I have to repost a comment I made on a different forum a month ago (I feel a little bad for copying-and-pasting myself, but only a little):
I think it is a mistake on Apple's part, but it's their business.
Netbooks are not a fad and cheap computers are going to get cheaper. I hate to sound all "640k is enough for anybody," but we've reached a point where increasing computer power benefits a decreasing number of users.
A few years ago when the OLPC project started, Negroponte talked about leveraging Moore's Law in the opposite direction. Paying less for the same, rather than paying the same for more. OLPC was too ambitious, but the principle is sound. If a computer from five years ago had enough power for mom and dad and your girlfriend, then couldn't a new computer with equivalent power be built much more cheaply? Well, yes, of course it can.
Intel and Microsoft missed the trend and created problems for themselves. First, Intel decided to bury the OLPC because it didn't use their processors, so Intel created Atom and allowed the netbook to be born. Now they're in trouble, because a lot more people are buying netbooks than they expected, and their profits come from more expensive processors.
Second, Microsoft launched an operating system that wouldn't run well on netbooks right at the start of the trend. Extending XP sales later and later was an embarrassing and desperate move to keep Windows in this new market. Notice how every time Microsoft talks about Windows 7, they talk about it running on netbooks. That is the real reason Vista is being replaced so quickly.
Apple is now the third company missing the trend big-time. Apple's focus is on making money through margins rather than volume, and that works when people can afford luxury computers. They're betting on this recession or depression or whatever it is ending soon. If that doesn't happen, Apple's computer business will be in deep trouble. Maybe then we'll see how cheap they're willing to sell a Mac.
Nothing I've seen since I wrote that has changed my opinions.
Why would gamers benefit the most from a 64-bit OS? Not a single mainstream PC game ships with 64-bit binaries on the disc. It's a chicken and egg situation.
Some major game titles ship 64-bit binaries (just Google it)... Does not necessarily give a performance boost, maybe a slight boost.
Running 64-bit Windows is useful as a previous poster mentioned because you can access more than 3GB of RAM. If I have 4GB of RAM (which is very cheap nowadays) any 32bit OS is wasting my RAM.
If netbooks continue to grow as predicted, they will cause a major erosion of the low end of PC market, forcing Microsoft to either scale down Vista to something closer to Windows XP, or to continue to develop the older XP code base...
Article is very interesting. On this point though, Windows 7 will probably run on the low end PC and netbook stuff. It *won't* run on smartphone-class devices though... Unless you're talking a mobile phone based on an Intel Atom
Running 64-bit Windows is useful as a previous poster mentioned because you can access more than 3GB of RAM. If I have 4GB of RAM (which is very cheap nowadays) any 32bit OS is wasting my RAM.
I imagine it would be getting more important for PC games to run 64-bit as GPUs are getting more and more RAM, cutting into that 4GB addressing limit.
I think most people would be happy to just use XP for the next 20 years, this whole netbook thing could very well put the computer industry at a virtual standstill for years to come
Maybe the "netbook thing" will be the computer industry for years to come...
Apple is now the third company missing the trend big-time. Apple's focus is on making money through margins rather than volume, and that works when people can afford luxury computers. They're betting on this recession or depression or whatever it is ending soon. If that doesn't happen, Apple's computer business will be in deep trouble. Maybe then we'll see how cheap they're willing to sell a Mac.
I disagree. The people buying these netbooks aren't the same people who would consider spending a $1000+ for a computer, which is the market segment Apple sells in. Yes, there may be some people who want to jump in on what's hot at the moment and they'll argue that Apple needs to release their own netbook or release OS X for other Intel based computers, but the sky is hardly falling. There isn't any proof of a mass exodus of consumers running from $1000+ high quality computers. Apple has proven just the opposite, that they are still selling a lot of computers.
I also seriously doubt Apple assumes that the recession will end anytime soon, however even during a recession there are still those that can afford nicer things. If Apple does anything, they'll drop the prices a tiny bit, maybe $100 or so, but I wouldn't expect anything more.
Maybe the "netbook thing" will be the computer industry for years to come...
It could never "be" the computer industry, but the low cost could easily make it a large chunk of the industry, especially in worldwide stats as developing countries and primary schools find this to be a viable alternative to more expensive options or sharing of systems.
I look forward to Windows 7 and Nividia's Ion making these machines more useful. I can't imagine too many adults that would be okay with the small size for any real work, but for a basic multimedia and social device they work out quite well.
PS: My iPhone would be just fine as a replacement for my Netbook if I could watch streaming TV from the networks on it. This means an App Store approved portal or Flash on iPhone OS X.