Knocking Down HP (HPQ) And Dell (DELL): The Netbook Goes Wild (AAPL)(RIMM)

The "netbook: seemed like a remarkably stupid idea. It sits somewhere between small laptops and smartphones. It is not much good for anything beyond e-mail and web access. It looks like a cheap toy.

The devices should have done poorly. Laptops are getting smaller and more powerful. They are also getting less expensive. The have better battery life. WiFi and 3G access makes them more useful as portable devices.

On the other hand, smartphones like the Apple (AAPL) iPhone, RIM (RIMM) Blackberry, and Samsung Instinct are reasonably priced because they come with two-year calling plans. Cell providers underwrite the cost for the consumer and make the money back over time. These devices have everything from GPS to video games. They are a mainframe in a tea cup.

Those factors should not have left much of a market for netbooks, but analysts who believed that were wrong. According to the FT, “We expect there will be shortages before Christmas,” said Richard Doherty, an analyst at Envisioneering, a consumer technology research firm.

What the market missed is that a netbook sells for as little as $349, and they do not require the kind of onerous $100-a-month, 24 month calling plan that the phone companies insist on.

From the standpoint of PC companies, the netbook is not as profitable as a nice big $1,000 laptop. That means margins at places like HP (HPQ) and Dell (DELL) will be under pressure. Who knows, maybe the netbooks will even take sales away from Apple Macs and iPhones.

Douglas A. McIntyre