PC showdown: Netbook threat heats up

September 15, 2009: 6:30 AM ET
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Computer makers hope that stylish new laptops like Hewlett-Packard's Pavilion dm3 will lure shoppers away from low-cost netbooks. Photo: HP.

There's going to be a PC retail showdown this holiday season. Let's call it the netbook vs. the nymph.

In the netbook corner: the cheap, small, underpowered laptops that are all the rage lately. Asian manufacturers like Asus first introduced them, and consumers love them because they handle documents, e-mail, and web surfing for as little as $300. The big PC makers offer their own models, but also secretly hate that netbook fever is sucking the profits out of the industry.

In the nymph corner: a newer class of svelte yet powerful laptops that could steal some attention from netbooks. (The industry calls them "thin and light," but hey -- nymph is more fun.) Like their competition, nymphs are slim -- some of them less than an inch thick -- and they often eschew extras like DVD drives for the sake of portability. Perhaps best of all, they do a solid job running Microsoft's eagerly anticipated Windows 7 operating system, which arrives next month.

Today PC heavyweight Hewlett-Packard (HPQ) is the latest to unveil several eye-catching additions to the nymph category, including the Pavilion dm3 at $550 and the Envy 13 at $1700. Both use the latest mobile processors from Intel (INTC) or Advanced Micro Devices (AMD) and deftly handle tasks like 3D gaming and video editing.

What's at stake here? Just the near-term health of the PC business.

Like most other categories, PCs have had a rough year. Penny-pinching businesses have been slow to spend on technology in a tough economy. Consumers have been shopping mainly for bargains. Meanwhile many global PC makers have cut prices to drum up sales. "The battle for market share is being fought on the price front, which will ultimately hurt the whole industry," as First Global Research put it in a recent note.

If shoppers continue to bargain shop for netbooks this holiday season -- and analysts expect they will -- end-of-year growth at companies like HP, Dell (DELL), Intel, and AMD won't look so hot. For the holiday season, says NPD Group analyst Steve Baker, "unit sales are going to be up big double digit percentages -- above teens, I would think. Dollars will be pretty much flat."

That is, unless the industry can convince consumers to spring for more powerful machines.

Leslie Sobon is trying to do exactly that. Sobon, marketing chief at AMD, has redrawn the sales pitch for computers like HP's dm3 and Acer's Aspire 5538, which contain her chips. Rather than emphasize stats like gigahertz, bus speed, dual-core, and the like, the new VISION strategy focuses on telling customers what the PCs can do -- an approach that AMD's research showed is sorely lacking at retail. "We're focused on entertainment -- things like photos, like Blu-ray, Hulu," she says. "See, share, create."

Customers are more likely to buy a better-equipped laptop, Sobon's market research suggests, if they have a clear sense of what they're getting for the money.

Folks like J.P. Morgan analysts Mark Moskowitz and Anthony Luscri don't sound too optimistic about how the upsell will go over this year. "With consumers seeming to flock to low-cost netbooks, we do not expect a shift back to standard notebooks to run Windows 7 en masse," they wrote recently.

Indeed, netbooks are getting more attractive -- and more powerful -- all the time. Along with the rest of its PC lineup, HP introduced two $400 netbook standouts of its own: the Mini 110 by Studio Tord Boontje, which features a lace-like, three-dimensional look; and the Mini 311, which can handle 1080p high-definition video NVIDIA's (NVDA) Ion graphics processor.

With products like that hitting the market, there won't be a huge shift away from netbooks anytime soon -- but PC makers will take any upsell they can get.

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