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PC Makers Fight the Netbook Dilemma

In the time since Carey's firm examined the EeePC, Asus has come out with newer models that feature Intel's (INTC - Get Report) Atom microprocessor, which is specially designed and priced to be viable for netbook PCs.

Even with the benefit of the Atom chip, though, netbook economics are not ideal.

Humble Roots

Netbooks weren't conceived as money-making machines. The initial idea, as envisioned by the One Laptop Per Child program, was to create a $100 notebook for schoolchildren in developing countries -- an initiative motivated more by altruism than profit.

Taiwan's Asus, best known for making the printed circuit boards used in computers, commercialized the concept by creating a netbook that cost more than $100 yet was substantially less expensive than traditional laptops. As the first company to market with a netbook, Asus effectively defined the category.

"The whole margin structure for netbooks is based on a Taiwan margin structure," says Gregor Berkowitz, President of Moto Development Group, a firm that designs consumer electronic devices, including netbooks.

PC vendors in Taiwan, he says, are accustomed to living with much lower profit margins than some of their Western counterparts.

"The margin structure in netbooks is going to challenge everyone, especially traditional PC brands," says Berkowitz. But he says "everybody needs to get into the business to ensure that they don't cede the market."

An H-P spokeswoman would not comment on the profit margins of its Mini-Note netbook, but cited past comments by Todd Bradley, executive vice president of the company's personal systems group, that H-P is only interested in profitable growth. She also noted that H-P's Mini-Note netbook, at $499, is not as inexpensive as rival netbooks, and features a slightly different feature set than some of its competitors.
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