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Laptops gain in PC market

For years, PC makers have predicted that notebooks would replace desktops in the computing world. Now it's beginning to happen, according to researcher IDC.

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For years, PC makers have predicted that notebooks would replace desktops in the computing world. Now it's beginning to happen, according to researcher IDC.

Notebooks had long accounted for less than 20 percent of the worldwide PC sales mix. But notebooks broke the 20 percent mark last year and over the last several quarters have crept up to nearly 24 percent, according to IDC.

This is the beginning of a trend that will push notebooks to 25 percent or more of the market in the next several years, the firm says.

"Notebooks accounted for nearly 24 percent of the (second-quarter PC) mix, which is up from both the quarter before and the same period last year," said IDC analyst Alan Promisel. "It's a pretty significant uptick."

An upswing in notebooks benefits PC makers. Battered by low demand, declining profits and cutthroat desktop pricing, many manufacturers are putting more emphasis on notebooks, which can deliver higher profits.

Design also plays a larger part in the notebook market. Some customers want basic laptops, while others opt for fancier thin-and-light models. This spectrum of style gives manufactures an opportunity to differentiate.

"Generally, I think the trend will continue," Promisel said. "Our forecast is that by 2005, notebooks are going to be about 25 percent of the desktop/notebook split."

In 1999, the mix was 18 percent notebooks, 82 percent desktops. In 2000, notebooks grew to 20 percent worldwide. By the second quarter of this year, notebooks were up to 23.2 percent of the market.

IDC believes the upward trend is unstoppable. The research company is likely to increase its 2005 estimate--that notebooks will account for 25 percent of the PC market then--when it prepares its next report, Promisel said.

Price and productivity gains are the two main factors pushing notebooks forward. As a result, long-held theories that notebooks would proliferate with falling prices seem to be coming true.

"I think there's been a lot of traction on lower price points...and also wireless demand and realizations of productivity of mobility," Promisel said. "People are finally realizing...the benefits of mobile computing.

"I think pushing down below the $1,000 price barrier for the consumer segment...has helped sales," he added.

Most entry-level notebooks in the second quarter combined a $999 price tag with relatively beefy features such as 64MB of memory and a 6GB-10GB hard drive. Previously, notebooks priced below $1,000 had half the memory and hard drive storage and less-advanced displays.

"You're getting a feature set that's pretty much equivalent to an entry-level desktop," Promisel said.

While several factors have contributed to the notebook upswing, price has been the largest element. Thanks to the overall lower cost of components in the quarter, namely the lower cost of flat-panel displays and memory, manufacturers have been able to lower overall prices on entry-level notebooks while packing more features into higher-end models. New uses for notebooks, including wireless LANs (local area networks), have also boosted usability for the machines.

Dell Computer, for example, saw an increase in notebook shipments during the second quarter, according to its earnings release issued Thursday. Notebook shipments were up 22 percent for the quarter, the company said.

That trend should continue, especially in home and education markets, Dell executives said.

"On the home market and education especially, we're seeing a pretty strong uptick in the mix" to more than 23 percent, said Tim Peters, vice president of Dell's Transactional Computing and Products Group.

Meanwhile, on the corporate side, Dell sees the desktop/notebook mix as basically flat at the moment, due to a slow economy. However, Peters said he expects corporate notebook sales will pick up starting next year, assuming the economic situation improves.

Dell now has the No. 1 spot in notebook market share, according to IDC.

Hewlett-Packard made similar statements about notebook sales in its second-quarter earnings report, saying revenue for portables was up 5 percent for the quarter, while overall computing systems revenue dropped by 22 percent.

The introduction of wireless networking to notebook PCs is helping to boost sales, according to IDC.

Adding 802.11b wireless LAN to a notebook, for example, allows notebook users to move around a home or an office and maintain a connection to the Internet without being tethered to a cable.

Many notebook makers, such as IBM and Dell, are pre-installing antennas that allow people to take advantage of 802.11b by purchasing an add-in radio card for their notebook. Apple Computer was one of the first to integrate 802.11 support into its portables, beginning in 1999.

As notebooks gain in popularity, chipmakers are competing more aggressively to deliver processors fine-tuned for mobile use.

Intel, which has been selling lower-power versions of its desktop chips to notebook makers for years, recently added features such as its SpeedStep, aimed specifically at increasing performance and lowering power consumption for notebook chips.

The PC chip leader is also developing a new chip, code-named Banias, with a number of new tricks that aim to decrease power consumption while keeping performance up.

Though prices have fallen, notebooks will continue to command a price premium over desktops, due to several factors.

They include screens and other unique components as well as research and development costs. Though flat panels have fallen dramatically in price, they continue to be the most expensive component in a notebook.

Meanwhile, chipmakers charge a premium on mobile processors and graphics chips, which are designed to be smaller and more power-efficient. Notebook research and development also costs more than that for desktops, due to the larger amount of proprietary hardware that goes into notebooks and the tighter confines inside the machines' chassis.

"Desktops are always going to be priced lower," Promisel said. "But that's the price you pay for going mobile."

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