You may have seen an article in The New York Times this weekend (registration required) on the subject of a new trend in small, cheap laptops and desktops. The story deals with the pressure PC makers face to make low-end, low-margin computers after the success of the Asus Eee PC mini laptop (or "Netbook" as they're called).
We can certainly see why laptop divisions of those companies might feel nervous. Traditionally, owning a laptop meant sacrificing power for portability and we'd wager that many people still hold to that notion (advances in gaming laptops notwithstanding). If demand for ultracheap laptops rises, and the big vendors try to satisfy it in earnest, they'll most definitely feel it in their bottom line as a result of those puny low-end mark-ups.
The trend is different for desktops. First, cheap desktops are currently plentiful and have been for years, so it would be hard for the low margin systems to get worse. If you go to Best Buy's Web site, 22 of the 90 desktops on offer there fall in the $300 to $500 category, all of which come from Acer, Dell, or HP (HP by way of Compaq, and Acer via its own Aspire line as well as its eMachines subsidiary). None cost less than $300, but already, 25 percent of systems at the country's largest PC retailer aren't doing much for the big vendors.
Secondly, unlike laptops, whose screens contribute significantly to their price, these cheap desktops don't need to be small. Of the Best Buy 22, only the Acer Aspire X1200 falls into the small form factor category. And as eMachines shows us regularly, a cheap midtower desktop will outperform a small form factor PC for the same price every time.
That doesn't mean that desktop vendors haven't tried the cheap-and-compact route. Shuttle, who arguably started the small PC trend on the desktop side, came out with the $229, Linux-based
But for all of those efforts, we don't think Dell, HP, and others will need to go super small or worry more about thin low-end margins for desktops, at least any more than they already have. Just think of Apple's Mac Mini. While the iMac received a specs update this past April, the Mac Mini's hardware hasn't changed since last August, almost a full year. If demand was there, we suspect Apple would do a better job of keeping the Mac Mini current.
We also don't think demand will pick up because while the Mac Minis and Eee Boxes of the world have visual appeal by themselves, customers still have to figure out how to use them, and their aesthetic and space-saving benefits can vanish once you connect them to a display, and a mouse and keyboard.
It's true that living room PC fans tend to be the most enthusiastic about these kinds of systems, but that customer segment remains a small niche, unlike, say, the potential market for small-and-cheap laptops, whose appeal crosses over from business travelers, to students, to anyone looking for a self-contained, secondary system for basic productivity.