Dell Doesn't Want to Sell You a Netbook

What's this? Michael Dell, CEO of one of the market-leading sellers of netbooks ... isn't recommending netbooks?

"We see a fair amount of customers not really being that satisfied with the smaller screen and the lower performance, unless it's like a secondary machine or it's a very first machine and the expectations are low," Dell's (Nasdaq: DELL  ) chief executive said in a speech at California's Churchill Club on Tuesday night, reports trade journal The Register.

Interestingly, this isn't just observation. Dell has specific criteria for how he wants his company to be marketing netbooks:

As a replacement machine for an experienced user, it's not what we'd recommend. It's not a good experience, and we don't see users very happy with those. [Emphasis added.]

Journalists and analysts reporting on Dell's comments expressed surprise at his take, especially in light of new research suggesting that netbooks are catching on with consumers. Color me among the indifferent.

Of course Dell doesn't want to sell netbooks if he doesn't have to. Look at the numbers: Average selling prices fell 29% in the second quarter, 10 percentage points more than the portable-PC industry average. Not a good sign, especially when Dell's net margin already hovers below 4%.

Sony (NYSE: SNE  ) and Nokia (NYSE: NOK  ) may very well want to sell $500-plus netbooks. But they're fighting the tide, and they're likely to lose out -- not only to Dell, but also to Taiwanese cheapskates such as Asus. Subsidies from the likes of Sprint Nextel (NYSE: S  ) and AT&T (NYSE: T  ) could help boost netbook profits, but only if there's a value-added model in place to generate ongoing revenue from netbook owners. That's anything but assured.

So Dell has good reason to criticize the form factor, even as it generates sales for his company. Sales aren't what matters most; profits and cash flow are the twin engines that deliver sustained growth. Netbooks, for now, don't offer much fuel.

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Fool contributor Tim Beyers owned shares of 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 owns shares of Best Buy and is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is small, but packs a wallop.


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  • Report this Comment On October 15, 2009, at 12:56 PM, afool123 wrote:

    Agree with Dell on not selling their NetBooks, but here's what I hope he understands is the real problem. NetBooks with Vista and the current network drivers are the issue.

    So, the real problem is expecting an OS that runs well on a laptop to run equally well without doing the needed architectural changes to make it successful. Hopefully, they release a newer lighter version that works with the concepts that take advantage of Cloud laptop concept.

  • Report this Comment On October 15, 2009, at 1:00 PM, jasonsamuelsmpls wrote:

    These comments aren't a surprise to me, it's very good advice.

    I own a netbook - an Asus eee PC 1000HE - and love it! But I tell everyone that you have to accept the shortcomings (small screen, slow performance) along with the benefits (portability, battery life, affordability).

    My netbook is my second computer. Combined with a cheap external monitor and wireless keyboard it provides a second workstation in my house, streaming TV back from my main PC to the bedroom and allowing me to remote control that computer over the network if I want to work with a full-power desktop in bed. And when I'm on the go, I can unhook the peripherals and easily take the 3 lb. netbook with me. This setup, including all accessories, travel case, RAM upgrade, cost under $700 total to put together.

    So I'm in total geek heaven utilizing my netbook for its advantages. But I understand how the way they're being sold - especially when bundled with mobile broadband tied to a built-in card - can lead less tech-savvy people to believe they are buying their everyday PC. That kind of thinking is a mistake, and that's why I see Mr. Dell's comments not as strategic business talk - but really more as consumer friendly advice. In a long-term sense though, giving honest product advice really is a good business strategy for building a loyal customer base.

  • Report this Comment On October 15, 2009, at 1:01 PM, stan8331 wrote:

    I think he's right, in that very few people are likely to use a netbook as a PC replacement. But netbooks offer great conveniece in relation to travel and variouos other mobile situations. A LOT of netbooks are going to be sold. It's understandable that many companies won't want to focus on low price, low margin sales, but netbooks are a growth sector of the market and represent a good opportunity for whoever can figure out how to make a good profit on them without jacking the price up into the laptop range. I've yet to see a netbook that's actually worth $500.

  • Report this Comment On October 15, 2009, at 1:48 PM, jamf92 wrote:

    Just purchased a Dell Mini10 and LOVE IT! However, I would not like it as a repalcemnt or primary machine. I have my Inspiron Desktop upstairs and I use the Mini to check email, visit fool.com and other "web" only type activities. Yes the screen is small and it took me a few days to get used to it but now that I know all the ins and outs I love it. IMHO, Dell would be wise to offer a bundle of a Netbook Mini with a primary system (Desktop, Laptop) so you could have a setup much like what I have and really enjoy. But I agree that as a primary or replacement machine one would not be happy working from it every day.

  • Report this Comment On October 15, 2009, at 1:50 PM, jamf92 wrote:

    Oh yeah, one other thing that really helped me appreciate my Mini10 Netbook is that I bought it off the Dell Outlet site. Got a HD screen mini for $250 which is about what I think they are worth esp. in this economy. I think Netbook sweet spots would be in the $250 (low) to $450 (high) range. Anything above that and you will just want to get a traditional laptop.

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