It just doesn't add up

"I knew it would come to this!", and that's probably what is on our mind & every computer manufacturers' head when the article from NY Times broke out to the net.

Every major tech bloggers I know, too are talking about the article which is indeed a very intriguing to read. The article's title has said it right: Smaller PCs cause worry for industry.

Although long before the article came out, I've been wondering myself on how come the netbooks (or UMPCs, or any naming they called it these days) can be sold at such low price. Sure, the size is small. Sure, the weight is light. And sure, the specs are low end. But why does PC that is larger than the netbook can't be competing in price? It just doesn't add up...

The price of PC spare parts are degrading along with the newer ones that come out with better technologies, and laptop spare parts are now easier to find and replaced because there have been standardization thus faster to produce. With all of those factors, the spare parts stocks are piling up higher than demands for them. Can't these contribute to lower price for big PCs? All I can see now is that the price stops at some point, it's like no way to go down lower no more.

If the definitions of netbook is your argument on why its price is so amusing, then let's take a quick stroll back to that. Netbook, as the name itself refer to the net/internet, is intentionally made for surfing the web. Just like Matt Richtel has said in his article: It wants to take advantage of the trend toward “cloud computing,” in which data is managed and stored in distant servers, not on the actual machine. So netbook will use less power consuming parts to accomodate its purpose such as low voltage processor, smaller SSD instead of HDD, energy efficient power supply, etc.

That does sound logical isn't it? That's what I was thinking before I read another news that reveals the popular Intel Atom microprocessors made for netbooks, or mini-laptops, costs 52% more per chip than the desktop version of the same processor. The Atom N270, the mini-laptop version of the microprocessor, costs US$44, compared to $29 for the Atom 230, the desktop, or net-desktop version of the chip, according to Intel's latest price list. How so?

It's because the difference between the laptop Atom processor and the desktop version, Atom 230, is heat. There is commonly more space inside a desktop PC to allow heat to dissipate, or for more cooling systems such as fans and heat sinks, so the 230 can be made using less expensive material. For example, the 230 requires less expensive packaging than the N270. So isn't that strange that the netbooks are still priced lower than the desktop version? It just doesn't add up...

A shed of light has been revealed by the NY Time's article up there, it seems that computer manufacturers are cutting more on the already thin profit margins so they can squeeze out the netbooks to production. Like what Asus and Everex have done, which by the way IMO it's very funny when they are seen as "upstart companies" by the bigger competitors (according to NY Time's article). ;-p

Those big companies like Microsoft, Intel, HP, Dell, etc; are seeing danger in what the "upstarts" are trying to do, because the giants have built their companies on the notion that consumers want more power and functions built into their next computer. At first the big guys thought that netbook segment will only appeal to education market, and fade away by low demand. Apparently, what happened next is the opposite way around.

Tim Bajarin, an industry analyst with Creative Strategies, a technology consulting firm, said that while the big computer companies have been caught off guard by the market’s potential, they are finding little choice but to dive in. That's very true, soon enough HP join in by releasing its Mini-Notebook and followed by others.

But not every PC vendors are jumping into the pool that's growing more and more crowded every day, some are still reluctant to because doing so might strikes back to the company's financial than making acceptable profit. Like what Paul Moore, senior director of mobile product management for Fujitsu has said in the interview: “We’re sitting on the sidelines not because we’re lazy. We’re sitting on the sidelines because even if this category takes off, and we get our piece of the pie, it doesn’t add up. It’s a product that essentially has no margin.”

But for the biggest two giant that reside in different market: Intel in hardware & Microsoft in software, they have no other choice than follow suit the wave of trend before competitors take over. Where Intel sees increasing demand on its Atom chips, and made them to revise the production plan every 40 days. Projecting that by 2011, the market of netbooks will be 40 million units a year; Intel is definetely won't be willing to lose the juicy piece of pie just like that.

And so does Microsoft, where Linux is already being adopted by some netbook manufacturers to use it as alternate OS or BIOS image; just like Acer has done with its Aspire One. In the end, Microsoft is forced to swallow back its own words on Windows XP lifetime. Perhaps even by now, Steve Ballmer is still murmuring to himself grisly: "It just doesn't add up..." ;-D

But for us, end user and customers, I don't think we're going to say that when we finally enjoy the low price tag on netbooks. All thanks to the competition between computer manufacturers, and to their willingness to make them cheaper, while ignoring the fact that these netbooks didn't make the cut for high profit margins.

[blogged with my Treo 750v]