Having your cake and eating it too

Notebook sales have propped up a flat PC market in the last few months, as consumers look to replace aging desktops with notebooks that offer comparable performance to current desktops with just enough mobility to use around the home. Notebooks with desktop processors are attractive to this group because of the performance and the lower cost of desktop components compared to mobile processors.

According to Gartner research, the overall Australian PC market grew 16.5 per cent from Q1 2002 to Q1 2003, while the notebook market grew 37.8 per cent in that time. From Q4 2002 to Q1 2003 the PC market grew 6.1 per cent while the notebook market grew almost 10 per cent. Analyst Andy Woo said he expected to see strong double digit growth in the notebook market for Q2 2003.

“I estimate the overall desktop replacement market currently makes up around 18-20 per cent of the total mobile PC market,” Woo said. “The desktop replacement market is definitely a key growth area in the overall mobile platform. One year ago there were not many vendors in that space, only Toshiba, HP and, to a lesser extent, Acer. Now more and more vendors, such as Dell and IBM, have moved into that market. A lot of vendors took a ‘look and see’ approach and watched how consumers responded to desktops with smaller form factors.”

Desktop replacements do not represent one strict category of PC, therefore industry definitions of a desktop replacement or ‘desknote’ vary.

These systems rely on either desktop processors or mobile processors designed specifically for larger notebooks, such as Intel’s Mobile Pentium 4 or AMD’s mobile Athlon XP-M 2800+ processor.

The majority of industry pundits ARN spoke to agreed that desktop replacement systems ran on desktop processors and have smaller form factors than standard desktops but are heavier than standard laptops.

Most desktop replacement laptops range in weight from 3kg up to 5.5kg. Peripherals, software, extra batteries and books can make these systems far too heavy for business travellers who generally prefer either the thin and light or ultra-portable systems. They are targeted at home users that want a certain degree of portability, but for whom performance is the most important parameter.

Generally, desktop replacement systems use 14 to 17-inch LCD panels. They tend to have a higher native resolution than standard laptops, with screens that feature either XGA (1024x768) or SXGA (1280x1024) resolutions, or even higher.

IBM ThinkPad brand manager for Australia/NZ, Greg Hunt, defined desktop replacement systems as using desktop processors, having at least a 14-inch screen and having three spindles — hard drive, combo drive and floppy disk drive.

“The market is splitting into desktop replacement notebooks, which are heavy but more powerful, and mobile notebooks, which are thinner, lighter but more expensive or lacking in power,” Hunt said.

IBM has divided its notebook product line-up into four categories that cater for four different types of consumers.

“The first type of customer is looking for an ultra-portable notebook and is prepared to forego some performance features for greater mobility,” Hunt said. “The second type is looking for a thin and light notebook, but needs an optical drive. The third customer type wants the ability to move, but doesn’t need a machine as fast or powerful as a desktop replacement. Finally the fourth variety of customer fits into the desktop replacement category. This customer doesn’t move a lot but wants to be able to move occasionally, and demands a very powerful machine at a low cost.”

“I classify desktop replacement notebooks as having desktop processors,” Gartner analyst, Andy Woo, said. “But with CPU vendors Intel and AMD producing mobile processors specifically for desktop replacement notebooks, the lines are blurred.

“Initially, Intel was skeptical about the desktop replacement market. A lot of the notebook vendors had a lot of technical issues such as overheating and battery life to deal with when running a desktop CPU in a notebook form factor. Like many other vendors, Intel was taking a ‘look and see’ approach to the market. But now that the market has taken off, they’ve had no choice but to enter it.”

The new mobile processors developed specifically for desktop replacement notebooks differ significantly from both standard desktop processors and mobile processors from in smaller notebooks.

Mobile processors designed specifically for desktop replacement notebooks, such as Intel’s Mobile Pentium 4 CPU or AMD’s mobile Athlon XP-M 2800+ processor, use a lower voltage than desktops and therefore sap less power. They do not offer the same performance as desktops when plugged in, however they will last longer than desktop CPU systems when running on batteries by self-regulating their own power consumption depending on the application running.

Desktop replacements using desktop processors offer the same performance and have the same voltage as desktops, giving them limited battery life.

To combat this, most vendors have designed the systems to scale the processor back to about half the clock speed when on batteries, thus restricting power consumption and computing power.

Yet perhaps the most significant difference between desktop CPU and mobile CPU desktop replacement systems is the price. Those desktop CPU systems are vastly cheaper than those sporting the latest mobile processors, primarily because they are using existing technology as opposed to new release technology.

“Unless the pricepoint of the new Intel mobile Pentium 4 processor developed specifically for desktop replacement notebooks is much lower, then it makes more sense for vendors to use these processors instead of standard desktop processors,” Woo said. “It all boils down to pricepoint. Otherwise notebook vendors will continue to develop two different types of mobile platforms for two different types of consumers.“

The major notebook vendors are hedging their bets, producing some desktop replacement systems that run on desktop processors and others than run on the new mobile processors.

IBM made its foray into the desktop replacement notebook market in April, with the launch of its G40 series.

IBM’s Hunt said that although demand for thin and light notebooks had been strong, it was a small niche market compared to the new desktop replacement notebook market.

“We’re seeing strong demand from SME and SOHO customers for our G40 range,” he said. “Top replacements also suit schools with lab environments. Most schools do not want removable PCs are removable components for security reasons but require a certain degree of portability.”

While desktop replacement systems using mobile processors having been selling well in the SME market, the real market hotspot is the consumer market in which desktop replacements using desktop CPUs are the obvious favourite.

“The key driver of the notebook market is the average selling price which has declined significantly over the last five or six quarters,” Woo said. “You can get a notebook now for below the $2000 mark. The pricepoint now is very sweet for consumers.

“Also, take up in the consumer space has been another key driver. More consumers are now embracing mobile technology and more home users are demanding portability for their home computers.

“New mobile technology is catching up with the desktop technology, both from a price and performance perspective. So more portable technologies are more compelling to end users, many of which are currently replacing their old pre-Y2K systems.”

Adelaide-based distributor Hitech Distribution, which supplies Acer’s desktop replacement systems, has been struggling to keep up with demand for Acer’s Aspire DeskNote series.

“The Acer Aspire DeskNote 1700 series became available last month and it’s been a huge hit,” sales and product manager at HiTech Distribution, Marco D’Agostino, said. “The problem has been getting enough stock to keep up with demand. We’ve got hundreds of these things on back-order now and Acer Australia-wide just can’t keep up. It’s a real killer.”

D’Agostino said he expected new shipments of the Acer Aspire DeskNote 1700 to arrive in the next couple of days but would only receive a limited allocation.

Acer’s growth in the desktop replacement market was initially inhibited by its lack of retail channel presence. However, the vendor has been making significant inroads since it signed up Harvey Norman in Q1 this year and since its two-hour warranty campaign.

“A lot of people have been burnt by buying cheap OEM-type notebooks,” D’Agostino said. “A lot of second-time buyers are turning to tier-one vendors’ products which have strong warranties so they don’t have to wait three months for their PC to get repaired. This is where Acer has done really well.

They are the only company in Australia that offers a two-hour commitment warranty on their notebooks. It’s a killer and makes it really easy for the sales guys too.”

While vendors and channel players alike are rejoicing over the PC market’s renewed vigour, analysts are predicting the fun to continue throughout 2003.

“We expect notebooks to continue to grow at double digit rates throughout 2003, IDC analyst, Joel Martin, said. “At the end of Q1, our forecast for the full year of 2003/2002 was 13 per cent. We’ll probably be adjusting this upwards to about 16 per cent once we have received our Q2 results.”