Digitimes has a very interesting commentary on the impact of low cost PCs (netbooks) on notebook sales and also on the LCD panel market. The netbook market is expected to grow rapidly over the next couple of years and this growth will especially impact both the screen manufacturers and possibly the sales of the high-end notebooks.
The expected staggering growth is tempting for panel suppliers. Panel makers will typically roll out netbook panels from 5G lines, with a single substrate producing 45-54 8.9-inch or 10-inch panels. That means a panel maker would only need to devote 10,000-20,000 5G substrates per month to achieve a monthly output of one million units for the segment.
Producing the panels may be easy, but selling them not so much. The market may not be as big as expected. And judging from the panel makers' shipment goals for the segment, the total apparently exceeds the expected size of the market this year, which could mean a price slump because of over-supply.
Netbooks are chiefly targeting users shopping for a second notebook. But under the present economic downturn, the low-cost models are also cheaper alternatives to regular notebooks for first-time buyers.
The regular notebook market, excluding the 5-10-inch segment, has a size of more than 100 million units a year. If netbook shipments in 2008 really jump to 15 million units, it will not be difficult to imagine the impact they may have on the regular notebook market.
Asustek Computer, the world's top PC motherboard maker, said on Wednesday its second- quarter net profit fell 18 percent but expected a stronger third quarter for its laptop PCs.
Asustek's net profit was T$5.644 billion ($183 million), lower than T$6.846 billion a year ago and also down from T$7.23 billion in the first quarter.
The result was slightly above a consensus forecast of T$5.23 billion, according to eight analysts polled by Reuters Estimates.
Asustek also expected its third-quarter notebook shipments to rise 25-50 percent from the second quarter to 1.5-1.8 million units.
An increase in notebook shipments in the current environment may not translate to an increase in the net profit. Reuters (and I haven't found any other sources either) do not show if the 25% - 50% expected increase in shipments is accross the board (for both low cost and traditional PCs). If the low cost PCs are cannibalizing demand for the traditional higher-end models (as argued in the Digitimes commentary), profits may take a hit.
The low cost PCs were meant to target existing PC users and were meant to be used as second PCs. Of course this does open a brand new market and certainly makes it easier for new first-time buyers to purchase a PC without spending a whack of money, but what if PC users like myself replace their older, outdated machines with a netbook? People might argue the storage space is limited, the screen is too small and the keyboard uncomfortable! But there are ways around these problems! What does this mean for the company profit margins?
The problem is an interesting one. Many companies face the same difficulties in making choices for radically different product offerings. Windows XP is the direct competitor to Windows Vista with many users not prepared to switch to Vista. Intel was rumored to delay their quad-core rollout because there was no external competition and they did not want their quad-cores to compete with their other processors.
ASUSTek may have unwittingly launched a substitute for the high-end notebook computers. For them and other manufacturers this may provide challenges. For the screen manufacturers, well they will probably continue to roll along making their screens for whatever model is needed. Of course their profit margins may be impacted too as the higher-end, higher-margin products may see a decrease in demand.
Time will tell, time will tell.
Digitimes: Commentary: The impact of netbooks on the LCD panel industry
Reuters: Taiwan's Asustek Q2 net profit falls 18 pct
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