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TheStreet Open House

PC Makers Fight the Netbook Dilemma

Dell did not return calls for comment.

One advantage that PC giants like H-P and Dell can harness in the netbook game is their considerable size, which allows them to drive down component and distribution costs, and could improve the profitability equation somewhat. And the significant brand awareness and marketing muscle that the top PC makers bring to the table means there's a potential to move particularly large volumes of netbooks, offsetting the lower profit margin.

Indeed, among the main targets for netbooks are consumers in developing nations who would never be able to afford a traditional PC. With so much of the world's population falling into that category, the potential market for netbooks is immense.

Most industry estimates for netbook shipments in 2008 range between 5 million and 8 million units, in an overall market for PCs and servers that research firm IDC reckons will total 311 million units this year.

Cannibals

In the meantime, there's a danger that netbooks could catch on as PC substitutes in markets like the U.S., offering consumers a bargain option when it comes time to replace an existing PC and, more importantly, robbing PC makers of more lucrative notebook sales.

"For all intents and purposes they are a line extension of the notebook PC market at a very low price point. So there is going to be some cannibalization of notebook PC sales ", says Gartner analyst Van Baker.

That trend will eventually wear off as consumers learn the difference between the various products, Baker believes. But he notes that in the near term, PC makers may have to deal with increased product returns from disappointed consumers who didn't understand how limited netbook capabilities are compared to laptop PCs.

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