Netbooks have quickly become quite popular but The Street reports these new portable computers are a dilemma for PC makers as they might hurt regular PC sales and the profit margin on netbooks is just much lower.
And with Wall Street already skittish about demand for PCs and price pressure amid a rough economic backdrop, it's not clear whether netbooks ultimately represent a benefit or a curse for the industry.
The danger was on display last week when Quanta, a notebook contract manufacturer, reported an 18.5% drop in August revenue - the company's worst performance in at least two-and-a-half years -- even as its overall shipments increased from 2.9 million units to 3.1 million units. The culprit, the company reportedly said, were low-priced netbooks.
The picture looks worse on the bottom line.
David Carey, CEO of Portelligent, a firm that dissects electronic devices and catalogs their internal components, examined one of the initial netbooks introduced by Taiwan's Asus last October.
According to Carey, the cost of the components of the Asus Eee PC he examined represented about two-thirds of the device's $300 retail price, compared to the 50% ratio he says is common in traditional notebook PCs.
That leaves little room to make a profit once other costs like marketing and retail distribution are factored in, Carey says.