Notebooks take the lead in market share

Earlier this month, I discussed the impact of cheaper PC's on Microsoft (read it here). In that post, we learned that notebooks are expected to represent about 12% of worldwide demand next year.

According to yesterday's WSJ (online), iSuppli is reporting that third quarter "shipments of notebook computers rose nearly 40% from last year to 38.6 million units as desktop shipments fell 1.3% to 38.5 million units ... Overall, world-wide PC shipments rose 15% to 79 million units." So what we are seeing is that just about all of the growth in computer sales (as measured by units delivered) is coming from the very low end of the segment.

In my view, here are some of the implications we should be thinking about:

• Linux will gain acceptance by consumers. Notebook PC's - which often have relatively limited computing power - are well suited for light-weight operating systems such as Linux. This means that opportunity exists for consumer-oriented applications that run on Linux.
• Microsoft will struggle to grow revenue in the consumer market. These PC's usually run a low-end version of Windows, which is of course less expensive than the full-featured version. Consequently, they will continue to see an increase in licensing volume, but revenue will not track with that growth.
• The market will become increasingly segmented. Low-end PC's will eventually (in 3-5 years) make up nearly two-thirds of the delivered units. Very high end business machines will make up the rest. The mid-level PC ... which is Dell's bread and butter, by the way ... will lose its relevance when, for just a few hundred dollars more, you can get a much, much better device.

So keep a close eye on notebook manufacturers like Lenovo and Acer. Their machines are best viewed as disposable, and I wouldn't be too surprised to see them leverage that into a long-term, very sustainable revenue stream.

Links in this post:
iSuppli Report: Notebook PC Shipments Exceed Desktops for First Time in Q3
Wall Street Journal article: Notebook Computers Outpace Desktop PCs
Microsoft: MSFT (NYSE)
Lenovo: LNVGY (OTC)
Acer Incorporated: 2353 (TPE)
Dell: DELL (NASDAQ)