Are More Netbooks Bad For Computer Makers?

Intel will soon be introducing a new Atom processor chip, especially designed for netbooks. It's smaller, lighter and will provide better performance than previous versions of its Atom chips. Sounds great, right? I sure think so, but PC World reports otherwise. It indicates that the new chip may be bad news for computer makers because it may lessen the demand for pricier laptops. But I'm not sure how this harms, well, anyone.

Here's PC World explaining the situation:

The desirability of netbooks over pricier notebooks is a problem Intel has been wrestling with as the market for these mini-notebooks continues to blossom. The chip giant likes to put down its hot little product, encouraging small screens and meager specs in hope that more expensive processors won't be cannibalized.

It goes on to say that if the new chips urge more users to abandon pricier notebooks for netbooks, then Intel will have something "to fret about."

From an economic standpoint, I can't see why. I don't begin to doubt that the gross margin is higher on more expensive laptops. For example, does HP make more profit on a laptop or netbook? I would think it's a laptop. Even if they're making precisely the same profit margin, laptops have a higher price tag, which means more nominal profit.

Yet, at a lower price tag, there will be more consumer demand for netbooks. A lot more people can afford $300 for a netbook than $900 for a laptop. So that higher sales volume should make up for some of the lost gross profit, selling more netbooks instead of fewer laptops.

Moreover, I also think people will find it easier to stomach replacing netbooks more quickly than they did laptops. For example, I paid an awful lot for my laptop several years ago from Dell, which was top-of-the-line then. As a result, I've reformatted the hard drive twice, replaced my battery once and upgraded my memory since then instead of just buying a new machine -- I intend to get my money's worth. But if I paid a mere few hundred dollars for a netbook, I might more easily part with it after two or three years. They're practically disposable at that price.

So I just don't see why computer makers would fear cheaper, more functional computers, which is essentially what netbooks are becoming. When consumers get better products, they generally reward producers who make those items by buying more. This looks like a positive development to me. But if you see the logic leading somewhere different, please do share.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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