Netbooks and their effect on Dell and Acer

(By Richard Holway 7.00am Friday 28th Aug 09) Last night Dell, the world’s second largest PC maker, announced a 22% reduction in revenues to $12.76b. Profits fell a pretty similar 23% . The results were ‘as expected’. Dell said it was seeing “seasonal demand improvements in its consumer and federal-government businesses, though it expects slower orders from business customers in the U.S. and Europe. Business spending likely won’t pick up until 2010, with IT buyers in the U.S. showing the first signs of recovery”.

More insight into Dell’s woes (indeed the woes of the whole PC sector) came from Acer’s results – also announced yesterday. Acer is now the world’s third largest PC maker and the #1 netbook maker. Acer suffered a 5% reduction in revenues in Q2 but a 20% reduction in profits. Unit shipments rose 24% but Acer said it needs to sell six netbooks to make the same amount of profit it would from a single regular notebook PC. Acer expects netbook unit sales to rise 40% in H2.

Even Acer still seems to argue that netbooks do not cannibalize regular notebook sales – but I find that difficult to believe. The argument goes that users buy both. That certainly has not applied in the Holway household.

Both Dell and Acer are banking on the launch of Windows 7 boosting PC sales. I agree. But it’s far more likely to boost netbook sales than regular PCs. Netbooks are getting both cheaper and better. On top of that both Dell and Acer face a whole new raft of competition from the likes of Nokia (see my 27th Aug post – Convergence as Nokia launches netbook) and from Apple’s iTablet.

The next period is going to be great for consumers but pretty tough for manufacturers’ profits.