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Are netbooks shrinking Apple's slice of the portable market?

With momentum in a dreary global economy now favoring mini-notebooks called netbooks, many top tier PC vendors are seeing various forms of success in the segment, which for the first time last quarter showed signs of straining Apple's share of the overall portable computing market.

A report released by DisplaySearch this week notes that netbooks have emerged as a bright spot in the otherwise dismal PC market, with sales rising some 160% during the third quarter of the year, with all of the major players except Apple now contributing their own offerings.

The latest wave of netbooks are different from those in years past, which were well equipped and typically fetched a premium over full-sized netbooks. Today, they're barebones systems that start at around $300. And they've been gaining popularity ever since PC vendor Asus opened the door to the market late last year with its Eee PC, an approach to portable computing that was quickly duplicated by many of its rival PC makers.

DisplaySearch expects the netbook market to surge from less than 1 million units in 2007 to over 14 million units by the end of this year. Going forward, the firm believes the segment is poised for even more dramatic growth, propelled by low prices and a user experience that much more closely mirrors a typical PC.

"With the lone exception of Apple, all of the top 10 PC brands have entered the mini-note PC market, initially as a response to the competitive threat posed by Asus, but also to satisfy demand from customers for low-priced, thin and very light (less than 3 pounds) products that provide at least a modicum of typical office software functionality and also enable greater mobility," said John F. Jacobs, Director of Notebook Market Research for DisplaySearch.

He added that "demand for greater mobility is especially evident in certain geographies as a number of mini-note PC brands are partnering with telecom providers to subsidize mini-note PCs, much like they do mobile phones."

More specifically, Jacobs is forecasting the netbook segment to settle at approximately 16% share of the notebook PC market by 2011, fueled by a combination of early adopters, consumer and enterprise customers seeking a smaller or secondary notebook PC, as well as new customers in emerging markets."

As part of his report, the researcher threw together a market share chart that combines netbook and traditional notebook sales by brand. It shows that, despite sales of Macs growing at more than 2.5 times the industry average, the lack of a netbook offering means the company's slice of the overall portable computing market has shrunk from 4.6% in the third quarter of 2007 to 4.1% in the third quarter of this year. In addition, each of the top PC vendors with the exception of Sony and Lenovo grew their combined portable shipments faster than Apple's 24%.


For his part, Apple chief executive Steve Jobs has made it clear that Apple isn't going after the budget PC market just yet. "We choose to be in some segments of the market and we choose not to be in certain segments of the market," he explained during a recent conference call.

"We're not tremendously worried," he said. "As we look at the netbook category, that's a nascent category. As best as we can tell, there's not a lot of them being sold."

Still, Jobs didn't shut the door on an Apple netbook completely, explaining that the company's plan is to observe the market for the time being and see how it evolves. "[A]nd we have got some pretty interesting ideas if it does evolve," he added.

In a lengthy report last week, Technology Business Research analyst Ezra Gottheil dismissed the notion of an artificial premium on Apple products, saying the Mac maker is bound to reach a breaking point where perceived quality can't override genuine financial woes from customers.

Gottheil predicts the company will release a computer in the netbook class within the first half of next year, but one that doesn't obey many of the rules dictated by the industry. He sees it fetching around $599.