Netbooks have been one of the only areas of the PC industry to see increased sales over the last year or so. That has a lot to do with their low cost. You may not have noticed, but there’s a global recession going on, and if you’re worried about losing your job, watching your stock portfolio plummet, or tightening your belt for other reasons, a $300 computer might look mighty attractive when you compare it to a larger, fuller featured $1000 PC.

While some analysts have predicted that netbook sales will continue to increase over the next few years, Information Week is running an article that shows you can find analysts who will say anything. This time, they’re suggesting that sales of low cost mini-laptops will drop as the economy begins to recover, which could happen as soon as next year.

That position makes some sense. After all, if the poor economy is one of the reasons that netbooks are doing well, then a better economy could hit netbook sales hard.

But this idea ignores what I think is one of the larger reasons that netbooks have taken off recently. They hit the sweet spot of price, performance, and portability. A few years ago you could find 10 inch laptops that were light and small and which didn’t take up much size in your bag. But they cost $1500 or more, which made them a non-starter for many price conscious shoppers. You could also find stripped down handheld devices running Windows CE, EPOC (the precursor of Symbian) or similar operating systems. But these were also high priced gadgets, and they didn’t provide all the functionality users expected of a computer.

Some people will argue that netbooks don’t offer all the features of a computer either because they have slow processors and small screens and therefore can’t handle some heavy duty tasks like playing video games, editing videos, or performing major tasks in Photoshop or Excel. But what netbooks can do is run Office software, web browsers, media players, and perform 90% of the tasks that most people expect of a computer. And they do it for about $300 to $500.

Sure, some people are going to want larger machines with bigger screens and keyboards and faster processors. But you can already find those for under $500. The reason netbooks have taken off is because they offer many of the same features at an affordable price point. And that’s not going to change next year. What you will probably see though, is a wider range of devices selling for $500 or less, including laptops both large and small. And you’ll also probably see a wider range of high performance machines with 12 inch or smaller screens and higher price tags.

While some computer makers were reluctant to offer netbooks in 2008, fearing that low cost computers could eat into the sales of higher priced notebooks, Acer jumped in with both feet. And the strategy appears to have paid off. Not a lot of companies came out ahead in 2008 (There’s a global recession going on, in case you missed it), but Acer saw a 38 percent increase in operating income from 2007.

Acer even did better during Q4 of 2008 than during the same period a year earlier, when the recession was really starting to hammer other tech companies. A large part of Acer’s success is due to the company’s netbook division. The Acer Aspire One was one of the best selling mini-laptops of 2o08.

And that was when Acer only offered a few variations of an 8.9 inch model with Linux, Windows XP, and a choice of solid state disk or hard drive. This year the company’s launching low cost models with 10.1 inch and 11.6 inch displays. Acer expects to sell over 12 million netbooks this year. But the field is also more crowded in 2009, so it should be interesting to see whether Acer can hang onto its market share this year.

I get asked all the time why netbooks are suddenly so popular. My usual response is this: Once upon a time if you wanted a light weight, ultraportable laptop, you had to pay a premium price and you’d still wind up with a machine that wasn’t as powerful as a cheaper full sized laptop. Now, instead of paying $1500, you can pay $400 and get a machine that’s likely smaller and lighter than anything you would have found a few years ago. It might not be the most capable machine, but it’ll get the job done if you need to surf the web, edit some documents, or even perform some light weight multimedia duties.

Of course, there’s another factor: The economy. I think cheap and portable are always going to be great selling points, whether you’re talking about phones, computers, or handheld video game consoles. But when the economy is tanking, a lot of people that might otherwise be in the market for a $1000 computer might be looking for cheaper alternatives.

So the move toward netbooks is great for consumers. Nearly every major computer maker now offers some sort of low cost mini-laptop, which means there are plenty of choices out there. But while some netbook makers like Asus and Acer have been riding the wave of netbook popularity to increase their market share, other companies like HP and Lenovo would probably rather sell you a higher end machine with a better profit margin. It’s just that they can’t afford to stay out of the netbook market a a time when consumer demand for them is so high. The same goes for Microsoft. The company has started offering low cost Windows XP licenses to netbook makers as an incentive to get the computer manufacturers to include Windows instead of free software like Linux.

The upshot for software and hardware companies is that they have something to sell. The downside is that the profit margins are likely lower than they’re used to, which can affect their bottom lines… but it seems silly to complain that computer makers, chip makers, and software developers are taking a hit in the current economy, because you know what? Everybody is.

Anyway, long story short, if you’re tired of reading me opine about all of this, the folks at ChannelWeb have put together one of the best reports I’ve seen so far explaining the situtation. It’s choc full of facts, figures, and interviews with industry insiders. If you want to wrap your head around some of the reasons why the netbook market is growing at a time when computer sales are hurting, you should give the article a read.

Update: It’s been a good week for in-depth think pieces about netbooks and how they’re changing the industry. If you just can’t get enough of this topic, check out Clive Thompson’s excellent overview for Wired.

Flickr: iamcootis

Cheap laptops may (or may not) be helping spur computer sales during a recession. But that doesn’t mean the companies making low cost mini-laptops aren’t feeling the pinch. DigiTimes reports that Asus and MSI, the makers of the Eee PC and Wind netbook lines, are both planning to reduce their workforces by around 10%.

Asus will reportedly layoff about 460 people, while MSI will eliminate around 1,000 workers. It’s not clear what, if any, impact these developments will have on the companies’ netbook lines. Asus has already announced plans to consolidate its Eee PC lineup, and says the workforce reduction will help the company focus on handset, monitor, and optical disc drive work. MSI says the job cuts are part of the company’s “regular operational process.”

via Eee PC.net

There’s good news and bad news for computer chipmakers. Research firm IDC reports that overall microprocessor shipments were down 11.4% in the fourth quarter of 2008 when compared with the same period in 2007. In case you couldn’t guess, that’s the bad news. The good news is that Intel Atom processors are shipping like there’s no tomorrow. In fact, the decline would have been much steeper (21.6%) if the Atom hadn’t been around.

So where does that put us in the whole are netbooks helping or hurting the industry debate? On the one hand, low power, low cost CPUs like the Intel Atom carry lower profit margins than higher end chips. On the other hand, if Intel and computer makers weren’t selling cheap mini-laptops/parts, it’s not clear they’d be selling more expensive items to fill that void.

via New York Times Bits blog

timparkinson/Flickr

It appears the popularity of netbooks is having an effect on low end computer prices. DigiTimes reports that computer vendors in Taiwan are cutting prices of full sized laptops to make them more competitive with netbooks.

Now, we’re not talking about high end gaming rigs here. We’re talking about computers with Celeron or Pentium Dual-Core chips. But companies including HP, Acer and Dell are reducing prices of 12 to 16 inch laptops to help move those machines at a time when the economy is down and low cost netbooks are selling like hotcakes.

The state of the netbook is apparently pretty strong. Not only are the tiny laptops taking over the Amazon Sales charts, and hitting the top 10 list at Notebook Review, but they’re generally selling like hotcakes. According to DigiTimes, Asus shipped 1.7 million netbooks in the third quarter of 2008, with 700,000 shipped in September alone.

There are a few things to keep in mind here. First, Asus was the first compay to release a consumer-oriented netbook which has helped the Eee PC lineup to become highly visible. I’m not sure if other companies are shipping anywhere near this number yet.

Second, Asus has flooded the market with roughly a bazillian Eee PC models, so there’s no shortage of options for netbook shoppers looking to pick one up.

And third, the holiday shopping season is still ahead of us. Asus could easily top its September shipments in October, November, and December. While consumer spending in general could drop due to the credit crisis in the US, netbooks are typically much cheaper than larger laptops, which could make them even more attractive purchases this year.