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Default Tiny Laptops, Now Nearly Free, Put PC Makers In A Bind - 04-22-2009, 05:26 PM

http://online.wsj.com/article/BT-CO-...22-707095.html

SAN FRANCISCO (Dow Jones)--U.S. telecommunications carriers are expected to push prices of tiny netbook laptops close to zero to promote wireless service, a development that could eventually hurt computer makers by depressing prices and compressing margins.

In a practice pioneered in Japan, AT&T Inc. (T) subsidizes the price of netbook computers - stripped-down machines that many consumers use mainly for surfing the Internet - it sells with service contracts. Though the netbooks are heavily discounted, the contracts lock customers into two-year service contracts that provide more than enough revenue to recoup the cost of the machines. It now offers some netbooks at discounts of almost 85% of their standalone retail price.

Verizon Wireless, a joint venture of Verizon Communications Inc. (VZ)

The rising popularity and falling prices of netbooks creates a subtle - and potentially damaging - dynamic for computer makers, like Hewlett-Packard Co. (HPQ), Dell Inc. (DELL) and Taiwan's Acer Inc. (2353-TAI). As prices fall, consumers get used to paying less and less for their machines and few are willing to pay for high-end machines. That, in turn, can weigh on margins at the computer makers.

"(Netbooks) put pressure on the revenues of nearly every player," A. M. Sacconaghi, a Sanford C. Bernstein & Company analyst, wrote in a recent research note.

Already, the change in attitude, coupled with a recession that's reined in discretionary spending, has helped push down average selling prices. Last quarter, H-P's gross margin fell 23.4% from 24.7% a year earlier, while Dell's gross margin dipped to 17.2% from 18.8% in its last reported quarter.

Slipping margins haven't been overlooked by investors. Over the last year, H-P shares have dropped about 27% and Dell's have fallen 46%. On Tuesday, H-P rose 2.1% to $35.43, while Dell added 2.3% to $10.55.

H-P and Dell representatives declined comment on the impact of subsidized netbooks, but both companies are discussing deals with carriers around the world.

"We're very pleased with the trial results," AT&T spokesman Mark Siegel said.

Despite the potential impact on computer company bottom lines, prices of netbooks continue to slide. AT&T sell an Acer Aspire One netbook for just $49.99 in limited areas. That's putting pressure on other carriers to cut prices to stay competitive.

Verizon Wireless reportedly plans to an H-P Mini 1000 netbook for $99 along with a contract.


-By Ben Charny; Dow Jones Newswires; 415-765-8230; ben.charny@dowjones.com


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Carnifex Carnifex is offline
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Default Re: Tiny Laptops, Now Nearly Free, Put PC Makers In A Bind - 04-23-2009, 11:16 AM

This goes hand in hand with another article I read recently about "Good Enough" computers. The basic idea is, we are now passed the point where we need to upgrade our computers every two years keep up with the software and we now tend to replace computers because the hardware is failing, not because it will not run the latest version of Excel. At some point in the mid 1.x Ghz area, computers got good enough for basic functions such as web surfing, email and basic home/office chores and further increases in speed were nearly noticeable and unneeded. The netbook is proof of this concept.

http://www.pcworld.com/article/163607/t ... nough.html
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