Ultrathin price drops may squeeze netbooks

Dell's $399 Inspiron 11z is the first ultrathin laptop to crack into the lower price range of netbooks

The dominance of low-cost netbooks could be threatened by an emerging category of ultrathin laptops, which could compete on features and price, analysts said.

Ultrathin laptops are a new category of lightweight laptops that are as portable as netbooks and provide adequate performance to run most applications such as high-definition multimedia or casual gaming. The category emerged earlier this year when Hewlett-Packard in January introduced DV2 laptop, which was priced at around US$700.

Compared to ultrathin laptops, netbooks are designed for Web surfing and to run basic applications like word processing software. Netbooks have slower performance and are characterized by small keyboards with screen sizes between 8 inches and 12 inches.

Dell introduced its first ultrathin Inspiron 11z laptop at $399 this week, breaking into the price range of many netbooks. With an 11.6-inch screen, the laptop provides "netbook-like portability with laptop-like capability," wrote Dell's Anne Camden in a blog entry.

The laptop is powered by a Celeron 723 processor running at 1.2GHz, which is more powerful than the Intel Atom processors found in netbooks. The laptop weighs about 3 pounds (1.36 kilograms), only slightly more than some of Dell's netbooks. The features also include the ability to play back high-definition video, something not possible on most netbooks today.

If Dell's product is an indicator, prices of ultrathin laptops, which are currently in the range of $500 and above, are set to drop, said Roger Kay, president of Endpoint Technologies Associates. Ultrathin laptops could possibly bite into netbook sales, which have had a price advantage, costing between $200 and $500.

Intel has been "anxious" to promote ultrathin laptops, but until now they have cost too much, Kay said. Intel and Advanced Micro Devices are providing chips to PC makers for ultrathin laptops.

Ultrathins provide superior performance, while the size and weight are comparable to netbooks, Kay said. Dell's Inspiron 11z pricing is a smart move and could make the laptop an alternative to netbooks for price-conscious buyers, Kay said.

"It's extremely aggressively priced, but it doesn't have the performance limitations of a netbook," Kay said. For example, ultrathins can run Windows 7 Home Premium, which an average netbook cannot run.

The emergence of ultrathin laptops also works in favor of Microsoft, which is looking to eke out more profitability from the low-end laptop space. High netbook sales have affected Microsoft's earnings, and the software giant would welcome the emergence of ultrathin laptops, Kay said. Microsoft's revenue took a hit because of high netbook shipments and a worldwide decline in PC sales during the fiscal fourth quarter of 2009.

"You've got a situation here where Microsoft is trying to land a version of Windows 7 that will be profitable for itself and the low-end market," Kay said.

Microsoft plans to offer a version of Windows 7 called Starter that could go into netbooks, but may want to push higher-end versions like Windows 7 Home Premium that could run on ultrathin laptops, said David Daoud, research manager at IDC. That could help the company generate more licensing revenue.

"The ultrathin laptops are an attempt to go back to a normal mode with your high price points so there are margins for everyone, but the economy is a wild card," Daoud said.

The economy right now is weak and a $50 price difference means a lot to buyers, Daoud said. Some buyers don't care about performance or size and they may continue to buy netbooks, he said.

"It just highlights the confusion in the market. Some consumers really don't care. For them, ultrathin, Atom, they perhaps don't care too much," Daoud said.

Netbooks have small screens and can easily be moved around home, a convenience that ultrathins may not offer, analysts said. Ultrathins have slightly larger screens and could function as the primary PC in many homes.

Mainstream laptops are also feeling the pricing pressure as customers lean toward netbooks and ultrathins in search of mobility, Kay said.

Size and convenience are Dell's way of differentiating between ultrathins and its existing line of netbooks, Dell's Camden wrote.

"Dell has always positioned netbooks, a.k.a. Minis, as companion devices -- miniature laptops that are easy to slip into a bag or briefcase and use while on the go," Camden wrote.

But the categories are bound to clash, and netbooks have a long way to go, especially in performance, Kay said. Ultrathins are far ahead in the performance curve, and netbooks may need either a redesign or quick advancements in the silicon they use, like processors.

"Netbooks don't have that much time" to catch up, Kay said.

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Copyright © 2009 IDG Communications, Inc.