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An Unlikely Argument for Tablet PCs

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I was wrong; netbooks are anything but doomed. They're as popular as ever. Netbooks accounted for 11.7% of portable-PC revenue and 22.2% of shipments in the second quarter, according to a new report from DisplaySearch.

So it's time to buy leading netbook stocks such as Dell (Nasdaq: DELL  ) , Intel (Nasdaq: INTC  ) , and Hewlett-Packard (NYSE: HPQ  ) , right? Not so fast. For as much growth as the sector has experienced -- total category revenue was up 264% year over year -- average netbook selling prices fell 29% in the second quarter, 10 percentage points more than the portable-PC industry average.

And that's a problem for vendors. Dell and HP make their margins on hardware, there's no value-added with a netbook sale, though a new partnership between AT&T (NYSE: T  ) and Nokia (NYSE: NOK  ) could change that. Either way, DisplaySearch's findings confirm two things:

  1. Consumers and businesses are taking to small form-factor computing devices.
  2. They aren't willing to pay much for the hardware.

Am I the only one who sees this as good news for tablet PC wannabes such as (Nasdaq: AMZN  ) and, if we're to believe the varying rumors, Apple (Nasdaq: AAPL  ) ?

Here's why: Most tablets are more likely to resemble a smartphone than a PC, but still possess the basic functions any computer user requires: email, word processing, browsing, etc. They're also more likely to be a home for the sort of value-added, downloadable software you'll find in the iTunes App Store and its peers.

This isn't to say that netbooks couldn't also benefit from their own app stores. But there's a cognitive disconnect at work here. PC and Mac -- and by extension, netbook -- upgrades come in big, $50-or-more packages, not in $9.99 downloads.

Creating app store demand among netbook users would require conditioning netbook users to think of their systems more as souped-up smartphones than lightweight PCs. Tablets won't face this problem.

Netbooks aren't doomed, but they aren't the future, either.

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Fool contributor Tim Beyers had stock and options positions in Apple and a stock position in Nokia at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is at your service.

Read/Post Comments (2) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 14, 2009, at 4:25 PM, networkgarden wrote:

    This is the fundamental analysis that most people don't get because their concept of the market is to apply the PC analog of what has historically been a horizontally oriented market place where hardware OEM is loosely coupled to Windows, which does the heavy hardware abstraction heavy lifting so developers can be even more loosely coupled from the end deliverable.

    What Apple has shown is that a more vertically oriented approach (with iPhone, iPod Touch and soon, Tablet) where hardware, software, service and marketplace are integrated enables a perpetual lifecycle spend, a better user experience, and more compelling lock in for developers (since they can piggyback off of the app store billing/marketplace, and cross sell their apps).

    By contrast, with netbooks its all about pushing the lowest common denominator, which explains why Michael Dell is selling and dissing them at the same time.

    For some fodder on where tablet is headed and why it is such a game changer, check out my post:

    Rebooting the Book (One Apple iPad Tablet at a Time)



  • Report this Comment On October 14, 2009, at 5:03 PM, BeezerC wrote:

    I'm looking forward to the Apple Tablet - I imagine it will do for books, and maybe video and games, what Apple has already done for music. Apple has figured out how to control/mitigate the copyright issues with a proprietary platform, and the platform itself is superior to any competition.

    I do see it needing a keyboard (folding or pull/slide-out?) and some way to lean the screen on a flat surface for reading and hands-free when typing. I'm expecting it to be priced at the top of the netbook range ~$600-$700.

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