Microsoft released its quarterly earnings report yesterday, and while the company reported more than $16 billion in revenue and $5 billion in income for a pretty healthy increase over last year, it wasn’t all good news. Basically the company is seeing growth in the business division, but Windows isn’t bringing in as much revenue as expected.

Part of the reason? Microsoft says there’s been an 8% decline in the consumer PC market and a whopping 40% decline in netbooks.

There’s been a lot of talk over the past few years about the rise and fall of netbooks, but most of the figures have been based on educated guesses by industry analysts. Microsoft’s in a much better position to track the netbook market, since the company’s Windows 7 Starter Edition ships on most of the low cost mini-laptops.

There are still a few things to consider. First, it’s not entirely clear from Microsoft Investor Relations manager Bill Koefoed’s comments whether the company is talking about an actual 40% decline in netbook sales, or a 40% decline in sales growth — two figures I often see confused. Some of the language in Koefoed’s comments lead me to believe it’s a decline in growth — which is to say that the netbook market might still be growing, just not as fast as it used to.

The second thing to consider is that nobody ever expected netbooks to replace traditional laptops or other mobile computers. Instead, the introduction of the netbook a few years ago showed that there was demand for low cost portable computers.

In the past, low cost computers were big and clunky, and portable computers were uber-expensive. Now there’s a wide range of devices available for anyone looking for a $500 or less device that weighs less than 4 pounds, including tablets, 10 inch netbooks, and 11 to 12 inch laptop computers with AMD or Intel chips. And I expect netbooks to continue to fill a substantial niche in the mobile computing space. Earlier devices in this space such as UMPCs and Handheld PCs never achieved the same kind of market penetration that netbooks have, and I’d be surprised if they disappear overnight.

What’s interesting to me is that Microsoft is actually pointing to a decline in netbooks (or netbook growth… or something) as a reason for dipping revenue. Microsoft initially offered Windows XP and Windows 7 Starter licenses at very low prices to PC makers hoping to keep the costs of these budget mini-laptops low.

Microsoft was pretty successful at convincing companies to ship netbooks with Windows instead of Linux. In 2008, a number of big name PC makers including Acer, Asus, and HP regularly shipped netbooks with Linux. Today you typically have to go to a Linux specialist or buy a customized business or education model to get a netbook without Windows. But I never got the sense that Microsoft was rolling in dough generated from netbook operating system sales. But declining netbook shipments are part of an overall decline in consumer PC shipments, which could certainly hurt Microsoft in the long run.

Of course, the company is also working hard to make sure that Windows 8 will be able to run on a wide variety of devices including tablet, laptop, and desktop computers with Intel, AMD, or ARM processors. So it’s not like Microsoft is sitting still waiting to see what happens to the netbook space.

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8 replies on “Microsoft: Netbooks are down 40%”

  1. I think it all came down to the fumbles of both Microsoft and the hardware makers. Hardware makers (Intel!) were reluctant to give us fast enough processors and graphics at a decent price, and Microsoft kept trying to only allow Windows XP and a basic version of Windows 7 on netbooks, hampering the devices. People grew tired of paying $400 for such slow, hampered devices when they can have much more capable laptops for a little more, or go and get an iPad which does most of what they want a netbook for and things a netbook could never do on top. Now, Intel has lost out to ARM and Qualcomm, and Microsoft is losing out to Apple and Google. Nice job, fellas! The netbook would still be viable if they could have delivered a better product for the price.

    1. Your critic is essentially correct but there are some caveats like the fact Netbook are also sold nearly at cost to build them, unlike both tablets and regular notebooks. So they may be under powered and haven’t been significantly updated in years but good luck finding anything equivalent for the same low price for the performance.

      Many ARM systems just seem fast because they aren’t running more powerful OS that would run very sluggishly on existing ARM hardware. Both iOS and Android were originally made for low powered Smart Phones!

      While ARM may be technically cheaper and have more efficient power usage but only the upcoming next gen offerings are finally reaching the point they can actually rival the netbook performance range. But Motorola Xoom and even the Asus Transformer shows they will still be priced much higher than netbooks and we’re still waiting for Windows 8 and other more powerful OS to be ported to work on ARM systems to give us more choices on what can be run on them.

      There are Linux distros you can get for ARM but they’re not yet 100% bug free and even they will run better only once the next gen ARM systems come out and they’re not here yet.

      The upcoming Cedar Trail update for Intel will further increase this price advantage with a cost per chip nearly half of the existing Pine Trail offerings and a lower TDP that will on the low end allow for fan less design. While also finally upping the video performance to support HD video, HDMI ports, and even Blu Ray playback.

      Meanwhile tablets are going to be facing a severe parts shortage after mid May…

      So that may drive prices even higher for tablets and give Intel at least some time to try to catch up before they lose their lead completely by the end of this year.

      Then there is also AMD, further expanding the low end x86 market with their offerings. So I wouldn’t count netbooks out anytime soon…

  2. It is very good to get the net book in the sufficient price rate. Now the demand of the net book is increased rapidly. Thanks for providing us this detail.

  3. I think tablets are replacing netbooks. At least from what I have seen from family and friends who had a netbook and then bought an iPad. They all say they use their iPad and their netbook is no longer needed.

    I also feel that if I had a choice between a netbook and tablet I would choose the tablet.

    No one I know has replaced their desktop or laptop with a netbook or tablet and it’s to be expected that growth has slowed for everything except tablets since desktops, laptops and netbooks have been out for a while.

  4. I’ve always hated the fact that “laptop” and “notebook” are more or less used interchangeably and that neither ever won out as the de facto term. The arrival of “netbook” may have been useful for differentiating the new crop of cheap, underpowered devices from their luxury priced “subnotebook” (another unwelcome modifier) cousins of the general same size, but it did give us a third label to carry around. The usefulness of the “netbook” label seems to be going out of favor as netbooks get bigger and the internal guts start showing up in full-sized, budget priced machines. I even noticed a few weeks ago that one prominent on-line retailer has stopped presenting netbooks as their own category in the main site navigation, opting instead to heap them in with the laptops/notebooks.

    Maybe staring at the number that fall under the “netbook” label is becoming less useful, not because of “tablets, but because of the segment’s own context. At this point, I’d be far more curious to see what the recent historical figures are for all clamshell devices (laptop/notebook/netbook), all desktops (whatever that means now in the era of “nettopts”), and all phones. I bet that there’s more of everything being sold because there’s more of everything being bought (but then again, I’ve actually seen the numbers). If there’s one thing that my investing can depend on, it’s that consumers are eager to buy things that they don’t need, and when they’re not eager then my companies are pretty clever at forcing the issue.

  5. Perhaps what makes Microsoft worried is the shipment of netbooks with Windows operating systems are going down, the netbooks market itself is still growing. We will see a lot of netbooks shipped with Chrome OS and MeeGo coming to the marketplace. Eventually, what differentiate a netbook from a tablet is one with physical keyboard and one without. I found myself very difficult to type on a virtual keyboard. I will stick to a compact computing device with a physical keyboard, just like I prefer a blackberry to a touchscreen smartphone.

  6. Quite frankly I’m not worried in the least about netbooks losing ground. I think Brad as you mentioned, this may be a decrease in growth and not sales. A lot of netbooks have dipped below $300 yet are faster and have HD capable GPU’s. It’s possible the anticipation of tablets has people holding off, but I say this. Netbook grew organically from a need and a void. Things that grow organically don’t disappear. They are resilient. They emerged because people needed them in their lives. I would suggest this tablet segment is being force fed based on one companies successful product. Apples and oranges imo.

  7. It’s still pretty trivial to put Linux on netbooks. Ubuntu Netbook Release (UNR) is pretty trivial to install on most netbooks, pretty much a case of booting off of a USB drive and answering a few questions.

    As fo a decline in netbook growth, I’d say tablets have cut into netbooks, for people who only need tablets. personally I carry a rooted color nook and a EEE 1005 HAB at all times. I do most of my reading and viewing on the tablet, but if I have to generate any content or do heavy surfing involving appreciable typing, the netbook comes out.

    What is very interesting is the ASUS Transformer and it’s ilk. A dual boot Android/UNR unit would pretty much cover all my mobile needs. I would probably carry a small hard drive for extra capacity.

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