Are Desktop PCs a Spent Force?

Reuters has a very interesting article on the decline of the desktop PC market and the rise of notebooks (laptops). According to Reuters:

The age of the desktop PC appears to be over as its more portable cousin, the laptop, surges ahead with consumers clamoring for light-weight computers in funky designs for use at home, in cafes and on the train to work.

Not a single desktop model figured on online shopping portal Amazon.com's top 10 selling PC and hardware list the weekend before Christmas, while seven laptop models made the list.

It was yet another sign that the former dominance of desktop PCs is fading as wireless advances and lower prices make laptops the preferred option for millions of PC users around the world.

"On both price and performance, laptops are so competitive now it's surprising they weren't able to catch up with desktops even earlier," said iSuppli analyst Peter Lin.

Of course, if this is true, its good for Taiwan. Reuters continues:

Many companies eagerly awaiting the era of the laptop are in Taiwan, maker of about 80 percent of the world's laptop PCs. They include the world's top two contract manufacturers, Quanta and Compal Electronics, and two of the most aggressive laptop brands, Acer and Asustek.

While those firms have seen their market share rise, the world's top two PC makers overall, Hewlett-Packard and Dell, have seen their share shrink.

Other companies that produce parts such as motherboards for bulky desktop PCs are already switching production to parts for other electronic gadgets such as iPhones.

While laptops used to cost more than double that of a desktop with equivalent processing power, advances in technology and economies of scale have dragged prices down so much that little price differentiation exists today for most consumers looking for a daily use PC, analysts say.

"It's just evolutionary I suppose," said Gartner analyst Tracy Tsai. "Things have reached a point where the price difference is no longer as pronounced as before for many consumers, and the average person is more likely to choose the option that offers him portability over the one that doesn't."

The growth in the notebook PC market is good for Taiwanese companies since they do dominate the market globally. Of course there are a few other companies that manufacture notebooks including Inventec. HP and Dell will have to become far more competitive in the notebook market to be able to compete effectively with Asus and Acer, who seem to respond to market demand very quickly.

Reuters: As laptops dominate, desktop PCs face obsolescence

Taiwanese Memory Maker's May Receive Help

The Financial Times (FT) reports Taiwanese DRAM manufacturers:

Taiwan's government is moving closer to devising a bail-out package for the country's struggling memory chipmakers, many of which face impending loan repayments amid mounting losses.

Shih Yeh-Shiang, viceminister of economic affairs, said yesterday Taipei had earmarked T$200bn (US$6bn) in financial aid for ailing large companies, which includes producers of dynamic random access memory (D-Ram) who are the hardest hit globally among semiconductor makers.

Half of the T$200bn earmarked by the government had been approved by the legislature, Mr Shih told reporters yesterday, while the other half was under review. He said that: "All options are on the table" as to how the government will use that money and what it would demand from chip companies in exchange.

Although the government previously nixed a wide-scale DRAM bailout, it seems the situation has become increasingly dire and that these companies are starting to receive some support. The FT article outlines some of the strategies employed by these companies including extending their loan terms with the banks. Unfortunately for these companies, they will have to wait until the end of the Chinese New Year for more solid government resolutions to be made.

Some bittersweet news for Taiwanese DRAM makers is that Samsung Electronics intends to cut their CAPEX significantly. According to Digitimes:

A recently-reported slash in capex for 2009 by Samsung Electronics has raised concerns among market watchers that a deceleration in the growth of the global memory market may become even more severe than expected this year. However, the memory chip maker's capex cuts will reduce the pressure on its competitors, which are struggling from overcapacity and falling chip prices.

With an easing in competitive pressure the market may recover but will the demand be there? The DRAM industry has been struggling for a long time now. Something has to change.

Financial Times: Taiwan closer to bailing out its chipmakers
Digitimes: Samsung reported 50% capex cut dampens memory outlook, but lifts pressure on competition

Science Park Management Fees in Taiwan Lowered

Digitimes reports the Taiwanese government is lowering the management fees of the science parks by 50%. According to Digitimes:

In order to help the local high-tech sector deal with an ongoing economic crisis, the Taiwan government has decided to lower management fees at the three science parks by up to 50%, according to market sources.

The sources indicated that science park management fee will be reduced for a year starting January 2009, with official details being announced soon by the National Science Council (NSC).

In the Southern Taiwan Science Park (STSP), each company used to pay NT$1.9 per every NT$1,000 in sales the company has each month. The new rates will be NT$0.95 per NT$1,000, the sources noted.

However, companies at the science parks had been requesting a reduction in both management fees and rent. The NSC, worried about the science parks' financial health, decided to first introduce a reduction in management fee, the sources added.

Taiwan's science parks have for a long time been the crucible of innovation in Taiwan. Many companies have opened up shop in these science parks and the government in this way has created areas with clusters of technology company. The government in Taiwan has also been at the forefront of driving the technology industry in one way or another so its good to see them getting involved and helping the companies out in this way.

Digitimes: Taiwan government to reduce science park management fees by up to 50%

Netbooks Rising

The Wall Street Journal (WSJ) has an excellent article on the rise of netbooks:

A new breed of low-priced laptops called netbooks have been thriving during the downturn -- so well, in fact, that many high-tech companies are scrambling to adapt.

The responses by these high-tech companies will be a hot topic at this week's Consumer Electronics Show. They include not only new netbooks -- which typically cost $300 to $500, and often use Intel Corp.'s Atom chip -- but products that address shortcomings of the new category and other portable PCs.

Netbooks, for example, tend not to be very good at displaying graphics and playing videos. So Hewlett-Packard Co., for example, on Tuesday introduced a $699 laptop that beefs up those capabilities with chips from Advanced Micro Devices Inc. H-P's new dv2 model is less than one inch thick and offers many features found in higher-end products such as Apple Inc.'s MacBook Air, which starts at $1,800.


Hewlett-Packard
Hewlett-Packard's thin new dv2 has features of high-end laptops but a price closer to low-end netbooks
Another problem with netbooks, and other laptops, is that they tend to start up too slowly and run out of power too quickly. Phoenix Technologies Ltd. is trying to address those issues with a downloadable layer of software, called HyperSpace, that lets users do simple chores such as calling up Web sites without waiting for an operating system to boot up.

The activity is the latest sign that technology segments are converging at an accelerating rate, driven by competitive pressures that the recession is amplifying. Companies including Phoenix are trying to help netbooks and other portables work as simply as cellphones, just as makers of those pocket-size devices are improving their ability to tap into the Web.

In another tactic, Qualcomm Inc. and Freescale Semiconductor Inc., which make chips for cellphones, are discussing plans at CES to offer their technology for netbooks, too. Henri Richard, Freescale's senior vice president and chief marketing officer, predicts that new entrants such as cellphone makers will join the race to make portable computers. "Netbooks change the paradigm for how you enter the computing space," Mr. Richard says.

The new products, sometimes called mini-notebooks, were exemplified by the success of the Eee PC that Taiwan's Asustek Computer Inc. introduced in 2007. Its initial models started at $299, had a seven-inch screen, used Linux rather than Windows and had no disk drive. The portables stored a small amount of data on flash memory chips.

Since then, companies such as H-P, Dell Inc. and Acer Inc. have introduced machines with a range of features, including larger screens, disk drives and Microsoft Corp.'s Windows XP software.

One of the biggest cheerleaders has been Intel, which helped popularize the term netbooks and this past spring introduced the low-priced Atom chip as a calculating engine for the new devices. "Suffice it to say, demand turned out to be much larger than we anticipated," says Bill Calder, an Intel spokesman.

Gartner analyst Mika Kitagawa estimates that more than 10 million netbooks were sold in 2008, surpassing the research firm's earlier estimate of eight million -- and leaping from the hundreds of thousand believed to have been sold in 2007.

Some companies initially predicted that netbooks would find their biggest audience as a first computer purchase for customers in emerging economies. Now, though, many industry executives agree that netbooks are mainly being purchased as a second or third computer in more affluent households -- good for quickly checking Web sites, but not powerful enough for chores such as burning DVDs.

Another issue has been whether netbooks are expanding the PC market, or taking sales from more expensive laptops. "This is a class of PC devices that is much more incremental than it is cannibalizing," argues Brad Brooks, corporate vice president of Windows consumer product marketing.

Mr. Brooks estimates that more than 80% of netbooks now ship with Windows, compared with less than 10% when the devices first went on sale. But most run XP, and analysts believe that Microsoft receives less revenue and profit from that product than the newer Windows Vista software that comes with other laptops. Intel has said its prices and profit margins on Atom also are lower than on some other chips.

Any line between netbooks and higher-end laptops stands to get even blurrier, as competition causes companies to add more features to their products. Dell, for instance, now sells a $499 netbook with a screen measuring 12 inches, essentially a scaled-up version of an earlier product with an 8.9-inch screen. H-P, in addition to its higher-priced dv2, at CES is introducing a $499 extra-durable netbook with a 10-inch screen that is aimed at business customers.

Jonathan Kaye, the marketing director for H-P's consumer notebooks division, said that until recently, PC companies have been building machines that conform to "a fairly strict definition of what a netbook is," set largely by Intel's specifications. But, he adds, "that could change over time" as manufacturers add more sophisticated features.

Roger Kay, an analyst at Endpoint Technologies Associates, says H-P's new laptop is evidence that netbooks and the competition they have spurred are dragging down PC prices and taking sales from more-expensive models. PC makers are "eating their children," he says.

Chip makers certainly don't intend to let Intel run away with the market. Via Technologies Inc. is expected to discuss its competing microprocessors for netbooks at CES.

AMD, though not selling a chip for netbooks, says that most consumers will prefer machines like the dv2 that use its microprocessors and more powerful graphics circuitry, in a combination code-named Yukon that it is announcing Tuesday. Nvidia Corp., another maker of graphics chips, wants to convince netbook makers to use one of its graphics chips alongside Intel's Atom -- providing what it estimates to be 10 times the performance of the accessory chips Intel offers with its microprocessor.

Then there is the issue of the time it takes to start Windows. Phoenix, which sells PC makers built-in programs that control the boot-up process of their systems, estimates that its HyperSpace software can let users start surfing the Web in a few seconds, save energy and avoid security problems associated with Windows. The software comes in two versions, priced at $39.95 and $59.95 for a year of use.

We have pondered previously whether or not netbooks would indeed cannabilize the PC market (Will Netbooks Cannibalize Notebooks? and Impact of Low Cost PCs ) and we also noted some executives did not see netbooks as a threat (Wistron Chairman says Netbooks not a Threat). It was therefore interesting to read the the Microsoft corporate vice president as saying netbooks are "incremental" machines. Netbooks were launched over a year ago and the playing field is admittedly becoming more clear.

I also thought it was interesting to note how the technologies are converging. The world is definitely becoming an interconnected mobile world with communications available to anyone, anywhere 24/7.

My final thought on this article, and probably the greatest lesson we can learn, is that the next big product hit might be just round the corner. Who would have thought that a little over a year after launching the netbook, the market sector would be so significant for the players therein. Asus should really be congratulated on their innovation and their willingness to try selling these low power, cheap computers. For two long the standard perception in the computer industry was faster, more powerful machines are better. No one really thought portability could be a significant purchasing choice for some people. Asus really did a wonderful job of changing the face of an industry that was becoming increasingly stagnant and commoditized.

WSJ: High-Tech Companies Take Up Netbooks

Hon Hai Wins Apple Franchise in China

The China Economic News (CENS) reports:

Hon Hai Precision Industry Co., Ltd. has won the Apple franchise in China and will begin to expand distribution network this year.

The company, currently Taiwan`s No.1 manufacturing conglomerate by market revenue, will initially gain market share in China for Apple products via its established outlet Cybermart Digital Square and its consumer electronics business unit, which is led by H.L. Chiang, a former Apple executive.

Industry watchers point out that Hon Hai aims to become China`s No.1 distributor of information-technology products after becoming the world`s No.1 electronics manufacturing service provider, which it hopes to achieve by combining manufacturing with retail.

The dealership project is part of the company`s 2009 agenda. In the New Year, the company will raise rather than cut pay for crucial-technology specialists, boost profit by realizing projects, and expand its China deployment deep into the hinterland from coastal provinces.

So far, three Hon Hai executives, excluding Terry Gwo himself, have announced they will take the symbolic NT$1 as pay.

Gwo pointed out that China`s population of 1.3 billion is the major force behind its domestic demand, justifying the company to tap such market amid the global financial crisis. He believes the worst of the crisis would be over by the first quarter 2009 and, thus, his company still has chance to grow.

Couple of things to note here. First, Hon Hai is once again showing their incredibly flexibility by moving into a completely different business, that of selling electronics commercially. Interesting move. Also, did you see who heads up the division? A former executive at Apple! Maybe there was a little bit of guanxi there! Actually, Hon Hai probably are the best fit for Apple since Hon Hai and Foxconn are the contract manufacturers for Apple the relationship between the businesses is probably already very deep.

Second, did you note that some of the executives are taking NT$1 per year as a token salary! Its good the executives are doing this. They probably have enough money as it is and at least they are trying to create the impression that they are not in it for the money. I wonder if the salary is NT$1 excluding bonuses? Besides, they are probably already flush with money from their shares in the company. Still, I think its a good thing and appearance (face) in Chinese culture is very important.

Third, did you note that Terry Guo(Gwo)believes things will pick up again in Q2 2009? Maybe it will, maybe it won't only time will tell. There are a lot of challenges facing the world economy right now and one would expect the head of a large company to be optimistic about the future, at least publicly. But I do think Hon Hai will get through this crisis OK. Its the smaller EMS manufacturers that need to worry.

Fourth, did you note how Hon Hai intends to penetrate the Chinese market? They want to move inland! This sounds almost colonial in a sense. When the colonials were in China they were restricted to the treaty ports such as Ningpo and Shanghai. Hudson Taylor was the first missionary to go into the Chinese hinterland. Then as now the transportation systems were not as good and so inland China faces many more challenges in their development. The Chinese government is keen to develop the cities in the interior but it is good to see a company such as Hon Hai viewing these areas as a business opportunity.

CENS: Hon Hai Precision Wins Apple Franchise in Mainland China

Censorship in China

As much as the economy has changed in China, the political envionment has hardly changed at all. The government is as authoratarian as ever and continue to police internet sites, especially since a new set of political rabble rousers have started using the internet to spread their ideas. From the Financial Times:

China’s government has accused the country’s leading internet search engines and web portals, including Google, of threatening public morals by carrying pornographic and vulgar content.

While Beijing regularly launches web censorship campaigns, the new crackdown is the first in which the government has targeted heavyweight companies such as Google and Baidu, the local rival that leads the Chinese search market. During the last campaign about a year ago, the authorities listed only small and little-known websites as responsible for spreading unhealthy content.

The 19 internet sites cited by the government on Monday included Sina, Sohu, Tencent and NetEase, among the country’s biggest web portals and each run by overseas listed companies, and blog hosting websites and discussion forums such as Tianya.

The move comes as the political leadership faces a raft of challenges, many of them organised through the internet.

Government censors are currently busy blocking reporting and debate about Charter 08, an appeal for democratic reform which has attracted signatures from hundreds of prominent intellectuals. Other forms of dissent, such as the voicing of demands for compensation in China’s poisoned milk scandal, have also been organised through the internet.

Although the government has said this is an act against online pornography, I really believe they are flexing their muscles and showing how capable they can be when it comes to blocking content and holding people accountable for that content, especially with regard to Charter 08.

Financial Times: China cracks down on internet content