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Dell, Hewlett-Packard Adapt to Netbook Nemesis

NEW YORK ( TheStreet) -- Netbooks could be cooling off, but the netbook effect continues to chill the PC industry.

The arrival two years ago of the lightweight, stripped-down, $300 mini-laptops made by Asian shops like Asus and Acer exposed a vulnerable underside to the PC industry.

Now, in response, giants like Dell (DELL - Get Report) and Hewlett-Packard (HPQ - Get Report) are courting the close-to-cheap market with new models that run on faster chips with bigger memories and have smaller price tags in the $600 range.

"We're already seeing the big PC makers responding in two ways: by getting into the netbook game themselves, and by pricing their notebooks more competitively," says Peter Rojas, co-founder of consumer-tech Web site gdgt.

The race to the bottom has placed average PC selling prices on an even steeper slope than usual.

And while today's cheaper devices certainly fit a leaner, more recessionary time, the netbook's influence on the industry will drag on for years.

"The sub-$500 average selling prices stand to be a deflationary force for all notebook PCs over time," wrote JPMorgan analyst Mark Moskowitz in a research note last month.

The Netbook Discount
Average PC prices worldwide
chart
Source: JPMorgan, Gartner

Feature inflation meets price deflation

For years, in an effort to keep prices up, the PC industry kept piling on more hardware capacity, software muscle and processor speeds. But the sudden success of the netbook revealed how far PC technology had overshot the user, says long-time industry analyst Ashok Kumar.

Netbooks gave people cute, portable devices on which to do most of their daily tasks such as checking email and viewing the Internet. And the prices, at about a third of those of laptops, were killer.

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