Nokia enters the PC industry (2) by cgg10267


									                                                                                128       29 Jul 09
                                                                                          12 || May| |08

                                                                                          Carlos Ruiz
Nokia enters the PC industry (2)                                                          Analista asociado

Towards the ‘converged device’
And then there is the surprising success of netbooks, cheap laptops that are small enough
to take everywhere.

So far, netbooks have appealed to a relatively small audience. Some of the devices feel
more like toys or overgrown phones than full-featured computers. ‘You might think of these
computers as a cross between a Blackberry and a full-blown laptop. Netbooks are great for
e-mail, Web surfing and accessing Web-based applications, but they’re not what you want
to work on all day creating presentations or editing a stack of digital photos’, wrote Fortune
Magazine. ‘Our target market was kids and moms, … People who didn’t want or need a full-
blown laptop’ said the North America President of Asus, the Taiwan-based computer maker
who launched the netbook revolution with the Eee PC. These are also people, as it turns out,
who are increasingly doing computing tasks using Web-based services like online games,
Facebook or Google Calendar that don’t require hefty computing on a local machine. Fre-
escale Semiconductor, for example, a chip maker, gave free netbooks to a group of 14- to
20-year-olds and watched what happened. ‘They would use it for Internet access when eat-
ing breakfast or on the couch, or bring it to class for taking notes,’ said Glen Burchers, the
director of consumer products marketing at Freescale.

Still, they are the big success story in the PC industry, with sales predicted to double this
year, even as overall PC sales fall 12 percent, according to the research firm Gartner. By the
end of 2009, netbooks could account for close to 10 percent of the PC market, an astonish-
ing rise in a short span.

By late 2008, netbooks had begun to take market share away from laptops [2] It is estimated
that almost thirty times more netbooks were sold in 2008 (11.4 million, 70% of which were
in Europe) than in 2007 (400,000).[3] For 2009 sales are expected to jump to 35 million, ris-
ing to an estimated 139 million in 2013 [4] This trend is reinforced by the rise of web-based
applications as well as mobile networking and, according to Wired Magazine, netbooks are
evolving into ‘super-portable laptops for professionals’: Indeed, netbooks have become a
favorite of travelers, who like their small screens and keyboards, especially on planes.

Indeed, netbooks are evolving, to cover not only their initially intended audience, but also
a more professional one. What those two users segments certainly have in common is
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Nokia enters the PC industry (2)                                                                            2
                                                                  oligopoly, the rise of netbooks could hurt
   Netbook popularity in 2008.
                                                                  both major players in their respective areas,
                                                                  Microsoft and Intel.
    20                                                    19      Based on an architecture called ARM, from
                                                                  ARM Holdings in Britain, cellphone chips
                                                 15               consume far less power than Atom chips,
    14                                                            and they combine many functions onto a
                               12       12
    12                                                            single piece of silicon. At around $20, they
    10                                                            cost computer makers less than an Atom
       8                                                          chip with its associated components.

                                                                  But the ARM chips come with a severe
                                                                  trade-off — they cannot run the major ver-
       2     1
                                                                  sions of Windows or its popular comple-
           Jul-08   Aug-08    Sep-08   Oct-08   Nov-08   Dec-08   mentary software.

   Source: PriceGrabber
                                                                  So netbook makers have turned to Linux, an
                                                                  open-source operating system that costs
that they are increasingly demanding more                         $3 instead of the $25 that Microsoft typi-
powerful capabilities, and always on the                          cally charges for Windows XP. Companies
move, which makes these devices evolve                            like Acer, Dell and Hewlett-Packard already
in similar ways as the smartphones, making                        sell some Atom-based netbooks with Linux.
both types of devices – smartphones and                           They are also exploring the possibility of
netbooks – evolve towards a ‘converged                            using the Android operating system from
device’.                                                          Google, originally designed for cellphones.

Although this convergence is driven from                          The cellphone-chip makers argue that the
the user demand, it certainly is also favored                     ARM-Linux combination is just fine for a
by a group of companies that has emerged                          computer meant to handle e-mail, Face-
to help drive this transformation — firms like                    book, streaming video from sites like You-
Qualcomm, Freescale Semiconductor and                             Tube and Hulu, and Web-based docu-
Samsung Electronics, which make cheap,                            ments. And Intel and Microsoft warn that
power-saving chips used in cellphones and                         consumers should remain skeptical about
are now applying that expertise to PCs.                           the performance of a computer that costs
                                                                  less than $300. ‘When these things are sold,
Most of the netbooks run on an Intel chip                         they need clear warnings labels about what
called Atom, which is a lower-cost, lower-                        they won’t be able to do,’ said Mr. Maloney.
power version of the company’s standard                           ‘It would be good to wait and play with one
laptop chips. And about 80 percent of net-                        of these products before the industry gets
books run Windows XP, the older version                           carried away.’
of Microsoft’s flagship software. Not just
that, but Intel expects cheap netbooks to                         For Intel, the Atom chips represent lower-
expand the PC market to include hundreds                          profit products, but could turn into a major
of millions of children who have cellphones                       sore spot if consumers become comfort-
but no computers. The company has doz-                            able with netbooks and start to view them
ens of deals in the works with service pro-                       as replacements for standard computers.
viders to seize on this potential, said Sean
M. Maloney, the chief sales and marketing                         As for Microsoft, in its last quarter, they
officer at Intel.                                                 posted the first sales decline in its history
                                                                  for the PC version of Windows. It blamed
Now the new breed of netbooks, built on                           netbooks for the drop. On average, Micro-
cellphone innards, threatens to disrupt that                      soft charges computer makers $73 for Win-
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Nokia enters the PC industry (2)                                                              3
dows Vista, the version of Windows used           As Mr. Huang of Nvidia said, the PC indus-
in desktop and high-powered laptop PCs.           try sits at an inflection point. ‘Disruption
That is triple what it receives for a sale of     will forever change the market’, changing
Windows XP for a netbook.                         stakeholders’ competition forces, opening
                                                  up new opportunities, and creating new ap-
As a result, PC makers like HP, Acer and          plications and uses for the PC.
Dell, which face razor-thin profit margins
selling laptops, are using the rising compe-
tition to place more price pressure on both       Is the success of netbooks
Microsoft and Intel, Mr. Sacconaghi said.
                                                  mirroring the one of
Indeed laptop makers have lots to win with        smartphones?
this rise of the netbook industry, favoring its
convergence with smartphones, by entering         It seems as if the mobile operators could
this new industry – trying to grab some more      be the winners of all this turmoil, by hav-
revenues or increasing margins through aug-       ing access to a whole new market: on-the-
menting pressure on their providers –, or at      move PC users with the promise of the
least feeding up the gossip about it:             higher ARPU’s of smartphones (according
                                                  to AT&T, ‘on average, the iPhone 3G gener-
• Acer spent the last MWC showing off its         ates ARPU that is more than 1.6 times the
  first foray into the smartphone market—         average of our post-paid base’ [5].
  there were 8 Windows Mobile devices
  on display. ZDNet UK has a video inter-         Smartphone sales increased by 22.5 per-
  view with Aymar de Lencquesaing, se-            cent year-on-year: ‘In mature markets,
  nior corporate VP of Acer, which covers         such as North America and EMEA (Europe,
  the basics. As to why Acer is heading for       Middle East, Africa), the converged mobile
  the smartphone market: ‘mobile is in our        device segment grew 70.1 percent and 25
  DNA. We’re already leaders in notebooks         percent respectively in 2008,’ said Ryan
  and now we’re leaders in netbooks, it’s         Reith, another senior IDC research analyst’.
  only natural that we felt that we wanted to     As long as operators are able to continue
  offer the markets and the customers, par-       to subsidize these devices, and develop-
  ticularly the operators, a full suite of de-    ers continue to enhance applications, then
  vices, of mobile data devices,’ according       this segment will be a silver lining to an oth-
  to de Lencquesaing, who said that Acer          erwise gloomy market.’ As long as smart-
  plans to launch more than 8 handsets            phone users have significantly higher ARPU
  this year. Acer considers the smartphone        it’s likely the subsidies will continue.
  market to be still in its early stages and
  open, and has a goal to be in the top five      Indeed, the netbook’s lower price point
  smartphone vendors in five years. It plans      and its portability are likely to be causing
  to use the relationships it has based on its    wireless carriers to view them as being
  other data devices to push smartphones          equivalent to large smartphones that merit
  into the market.                                subsidization to lock in wireless data sub-
                                                  scribers. Subsidies for netbooks are likely
• As for Dell, the Wall Street Journal re-        to become available in North America in
  ports that the company has already ap-          2009, and have already been popular in
  parently built two prototypes based on          Europe in 2008. Half of Europe’s netbook
  Google’s Android operating system and           sales were made by a telecommunications
  Microsoft’s Windows Mobile, and is aim-         operator, and a quarter of netbook sales in
  ing to focus on smartphones. Although           North America could be via carriers in 2009.
  a Dell spokesman told the WSJ that the
  company hasn’t disclosed plans to offer         Just to mention some examples of partner-
  phones, adding: ‘We haven’t committed           ships between MNO’s and laptop manufac-
  to anything.’                                   turers follow:
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Nokia enters the PC industry (2)                                                                4
• AT&T announced that customers in At-             and we’re making a conscious long-term
  lanta could get a type of compact PC ca-         effort to capitalize on that.’
  lled a netbook for just $50 if they signed
  up for an Internet service plan — an offer       Its vision contrasts sharply with some of its
  the phone company may introduce else-            smaller rivals such as LG Electronics, who
  where after a test period.                       have said they will do whatever it takes to
                                                   achieve their sales goals. ‘We will combine
• Almost-free netbooks bundled with a              market share and margins in the right direc-
  long term contracts have become popu-            tion to maximize profits,’ Kallasvuo said in
  lar in countries such as Japan and Ger-          an interview. Nokia lost some market share
  many. In September, Acer partnered with          in the second half of last year, as they threw
  T-Mobile in Germany to offer its netbook         the towel in some battles price. But Nokia is
  for one Euro on a €35 per month two-             predicting that the fall will handle better than
  year data contract.                              its rivals. ‘When times are difficult, those
                                                   with stronger positions perform relatively
• Lenovo inked its first netbook-on-con-           better than its competition. So, in general, I
  tract deal with Bougyues, a popular              think many of our competitors are limited in
  Telecom in France, last month, says a            terms of their ability to do things,’ Kallasvuo
  company spokesperson. From Nov. 17               said the newspaper. ‘The fact that we trade
  to Jan. 18, Lenovo is bundling its Idea-         in all price levels will give us the possibil-
  Pad S10 netbook along with a mobile In-          ity, if there is a slowdown, to sell another
  ternet package from Bougyues as part of          device, which is not always the case with
  a special offer.                                 our competitors, which have more limited
                                                   portfolio,’ said Kallasvuo.
• HP is also exploring similar deals to
  launch a netbook on contract with a              To that end, Nokia has acquired a dozen
  major carrier, according to Wired Ma-            companies, including Navteq for 8,100
  gazine [6].                                      million dollars, to launch Ovi – its Inter-
                                                   net services business - as long as growth
Summing up, we have a promising demand             stalls in the market for phones. The firm has
of mobile data traffic, a suppliers’ (hardware     said that it pursues smaller acquisitions to
and software) sector that is changing its          strengthen its service offerings and Kal-
competition forces, and a ‘converged de-           lasvuo told the newspaper that its portfolio
vice’ that is definitely attracting the interest   of services does not lack ‘any significant
of MNO’s. So, what role is Nokia willing to        piece.’ Indeed, Nokia has the capacity to
play in this scenario?                             invest. Apart from Navteq, in the last year,
                                                   Nokia has purchased Twang, Plazes, and
                                                   OZ to beef up its social networking, mes-
                                                   saging, and location-based services.
From manufacturer to
                                                   In this way, Nokia continues to develop the
experience provider                                strategy that Olli-Pekka Kallasvuo marked
                                                   in the company’s annual shareholders
As noted by the chief executive Olli-Pe-           meeting in Helsinki in May 2008: ‘Our goal
kka Kallasvuo to the daily Financial Times,        is to act less like a traditional manufac-
Nokia will focus on developing earnings            turer, and more like an internet company’.
amid a slowdown in mobile phone market             Certainly, if we go by the different changes
in which many competitors prices fall.             undergone by Nokia throughout its history,
                                                   which has its roots in paper, rubber, and
‘The industry as whole is in the middle of         cables, to become a powerful industrial
a transformation, and it’s a very exciting         conglomerate in just over 100 years, no
time,’ said Kallasvuo. ‘It’s moving from a         doubt that the company has the skills to
device industry to an experience industry,         reinventing itself.
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Nokia enters the PC industry (2)                                                          5
In this way, and within this strategy, com-     ordinates and uploaded to the Ovi website,
bining the business of smartphones and          where they appear on a map to be shared
netbooks do not seem just an end in itself      with friends.
but a means. To this end, the customer is
ready, according to Olli-Pekka Kallasvuo        And Nokia has convinced leading mobile
[7]: ‘We don’t have to look even for five       operators such as Vodafone and T-Mobile
years from now to see that what we know         to support Ovi on their handsets. Ovi will be
as a mobile phone and what we know as           offered alongside their own services, and
a PC are in many ways converging? Today         operators will take a cut of the revenues
we have hundreds of millions of people who      which Nokia hopes to make from advertis-
are having their first Internet experience on   ing, e-commerce and subscriptions to pre-
the phone. This is a good indication’.          mium services. And the operators are less
                                                worried about Nokia’s push into services
And Nokia wants its services platform Ovi       this time around than when the company
to become a hub that integrates mobile ser-     launched Club Nokia, because their own ef-
vices between handsets and personal com-        forts to build mobile portals largely failed.
puters (PCs). To see what it has in mind,
consider two popular online services: digi-     Another step to guarantee themselves in
tal maps and photo sharing. Pictures taken      the long term the access to other types of
using a mobile phone equipped with posi-        revenues in services, this is what the laptop
tioning technology — such as Nokia’s new        - and more specifically the NETBOOK - in-
touch-screen N97, also launched recently        dustry seems to mean to Nokia.
— can be automatically stamped with co-

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