Microsoft missing netbook growth as Linux wins sales
Small laptops are becoming a big problem for Microsoft Corp.'s Windows business.
A new breed of lightweight computers called netbooks are beginning to crack the company's dominance of operating systems. Acre Inc. and Asustek Computer Inc., which together account for 90 percent of the netbook market, are using the rival Linux software on about 30 percent of their low-cost notebooks.
The devices, which usually cost less than $500, are the fastest-growing segment of the personal-computer industry - a trend that's eating into Microsoft's revenue. Windows sales fell short of forecasts last quarter and the company cut growth projections for the year, citing the lower revenue it gets from netbooks. When makers of the computers do use Windows, they typically opt for older and cheaper versions of the software.
"It's a real threat to Microsoft," said Dickey Chang, an analyst at research firm IDC in Taipei. "It gives users a chance to see and try something new, showing them there is an alternative."
Netbooks will account for about a third of PC growth this year, according to Citigroup Inc. Shipments will climb at an annual average growth rate of 60 percent and reach 29 million units in 2010, compared with 18 percent growth for standard notebooks, according to a September BNP Paribas SA report.
"We didn't have a clear policy to support netbooks a year ago," said Cathy Yeh, a Taipei-based spokeswoman at Microsoft.
Redmond, Washington-based Microsoft announced in April that it would extend XP's availability beyond its planned cutoff of June. That move helped Microsoft gain share in the netbook market, where almost all models initially ran on Linux.
PC Dominance
Microsoft estimates that Windows runs 70 percent of netbooks, Yeh said. Still, that compares with a 90 percent share for PCs overall, according to October data from Net Applications. Linux has less than 1 percent, according to the research firm.
Asustek, based in Taipei, introduced the Eee PC in October 2007, igniting the netbook market. The company, which at first just offered Linux, later added an XP version.
The Eee PC prompted companies such as Acer, the world's third-largest computer vendor, to develop similar products. Taipei-based Acer's AspireOne, available with Linux or XP, became the best-selling netbook model during the third quarter, President Gianfranco Lanci said last month at an investors' conference in Taipei.
Hewlett-Packard Co., the world's largest PC maker, initially offered Linux and Windows Vista on its Mini series of netbooks before adding XP to its lineup. Dell Inc. introduced its netbooks in September and China's Lenovo Group Ltd. began offering them last month.
Linux, equipped in 30 percent to 40 percent of Eee PCs sold, will probably sustain a market share of about 30 percent, said Samson Hu, a general manager at Asustek. The company estimates it will ship at least 5 million Eee PCs in 2008 after selling about 4 million since the product's debut.
Acer, which is aiming to sell 5 million to 6 million AspireOne laptops this year, estimates that Linux-equipped models account for about 20 percent of its shipments, spokesman Henry Wang said.
Vista's computing needs makes it hard to run on netbooks, making older versions of Windows more suitable for the devices, according to Michael Cherry, an analyst at Kirkland, Washington- based research firm Directions on Microsoft.
Microsoft is taking the netbook threat seriously as it develops Windows 7, the successor to Vista. Windows 7 will work better on netbooks, said Senior Vice President Jon DeVaan.
At Microsoft's first public demonstration of Windows 7 last week, Senior Vice President Steven Sinofsky held up his own $399 netbook running Windows 7.
Still, Windows may remain a tough sell for PC makers trying to produce the cheapest machines possible.
Equipping Linux on a computer costs about $5, compared with $40 to $50 for XP and about $100 for Vista, according to estimates by Jenny Lai, a Taipei-based analyst at CLSA Ltd.
To cut costs, computer makers such as Acer and Asustek opted for slower processors and less memory. On these systems, Linux can boot up twice as fast as XP, according to Acer's Web site.
"The engineers designing computers understand that if they want to cut costs, the only way to do so is to get rid of Microsoft," IDC's Chang said.