Mid-range options booming in notebooks

A Gartner study this quarter says notebook vendors with their eye on the main chance are adding yet more features and functionality while the prices just keep coming down.

All these factors up the ante on mid-range notebooks priced from $2000 to $3000. The mid-range just gets more and more attractive. That is attracting new vendors, creating more choices -- and hopefully, more opportunity -- for Australian resellers.

Taiwan-based BenQ is a relatively new entrant into the notebook game. Paul Schnell, senior product manager at BenQ, confirms that the mid-range notebook category is getting more important. "Our 14-inch screen model -- we are refurbishing that as a model called the S72," he says.

BenQ’s S52 model has a 13-inch screen and weighs just under two kilograms. That makes it quite light and portable but not as expensive as the true ultra-portables. Wireless, also, will "continue to feature heavily" in BenQ product in coming quarters, Schnell says.

LCD specialist BenQ wants to strengthen its notebook performance and presence overall. "We’re seeing growth every month but it’s starting off a very small base," Schnell says. "We’ve a lot more work to do."

BenQ, he says, is aiming for a top five spot this year. Mid-range is crucial to the goal because without a mid-range strategy, it is still too high a leap from entry level to top of the line. Vendors have to make upselling easy, "or customers have nothing to look up to", he says. "Mid-range is as important as entry level and top."

BenQ, he adds, is too small a player to make its mark on price alone. At entry level, making margin has become nearly impossible, as larger vendors have become "very aggressive" in their pricing.
"We’re achieving our expectations but obviously don’t have the world at our feet," Schnell says.

HP in particular is in BenQ’s sights.

HP did not respond to CRN’s invitation to discuss its products for this feature, but Schnell says the companies are ‘obviously’ in the same space with their mid-range laptops.

BenQ is promising agility and commitment to its channel, he adds, which he sees as critical in building volumes -- partly through rebates and the dealer loyalty program -- for the brand across its increasing portfolio. "Our strategy is going to be fairly similar for quite some time. Retail plays a big part in branding and promotional push for us," Schnell says.

"The channel is more of a balance because the customers are coming in and asking for [us].

"Our channel did a fantastic job for our LCDs. So you see people asking to look at other products [too]."

Schnell -- who until last year was with retail giant Harvey Norman -- says the most expensive mid-range laptops cost about $2999 now. "I’m expecting to see in June or August it will go to $1999. One major vendor will crack that and offer the dealer a margin to break that as a stunt," he predicts. "But I think it will bottom out at something like $499 for a PC, but that will be some time away."

Desktops have not yet gone that low, Schnell points out, as vendors prefer to come in with beefed up product instead of dropping the average box price further. What customers want is product that is easier and fun to use.

That means lighter, with better design, better screen technology and fewer cables, Schnell says.
Steve Trang, notebook product manager at Samsung, says that in the past year people have stopped selling notebooks as a standalone product.

Notebooks walk out the door as a five-ticket item, he says, which has got to be good for resellers trying to build up a profitable margin in hardware.

But Trang’s message to resellers is that the channel needs to learn how to sell the bundles as a solution rather than a set of products. "Not that it comes with a free mouse, but what does that free mouse mean for the buyer?" Trang says. "What can you do with this bundle?"

Rod Stern, managing director at Sydney reseller, box-builder and service provider PC Fever, agrees bundles and services are still the way to go. Moreover, a lot more could be done that is not yet being focused on strongly by many Australian resellers, he believes.

To keep the margin up, bundles could -- and should -- valuably include customer support in the form of lessons in basic computer maintenance and network security. The average level of user understanding and capability in such things is still low, he points out.

Other margin boosters include data backup and recovery offerings, repairs, power protection and insurance. Many of these Stern already offers at PC Fever -- in fact, his company is moving more and more towards quality service provision. "We do repair notebooks. A lot of people who sell stuff can’t repair it and don’t know where to send it for repairs and [because we do repairs we] get people happy again," Stern says.

As notebook prices keep falling, they’ll keep getting cheaper as a unit. Yet repairs for, say, a dead graphics card can mean another $1000 or more. On a $2000 or $3000 mid-range notebook, that’s significant.

Insurance can help solve the problem, but few users are insured or aware how much it might cost to fix their notebook once the warranty expires, Stern says.

Few mid-range notebooks have more than a 12-month warranty. And many are not tough enough to handle the bumps of everyday existence. Resellers might want to think about making sure customers know what their options are, he suggests. "Notebooks are the way of the future," Stern says. "But $1300 or $1400 notebooks are toys."

The mid-range is where the real business functionality comes in. DVD writers are now almost ubiquitous, as are 512MB of RAM, 15-inch screens and 60GB of hard drive. But although customers expect everything at that price, they mostly can’t yet get widescreen, Stern says.

Sales are up, analysts agree. Gartner’s rival IDC has noted that overall notebook sales are still increasing. Michael Sager, PC hardware market analyst at IDC, says in a recent report that consumer notebook sales were still going up in the fourth quarter of 2004.

"The notebook PC market saw a solid increase of 9 percent sequentially and a rise of 41 percent compared to the same period in 2003," Sager writes.

The "mobile form factor", he argues, is increasingly accepted. But the market dynamics have changed.

Twenty-three percent more consumer notebooks were sold in the fourth quarter -- up 110 percent on the same quarter in 2003. "IDC sees the decreasing prices and beefed up specs converting purchases away from the desktop form factor. Additionally, the huge rise in digital content and wireless networks in the home are two major factors," Sager says.

The fourth quarter saw 75 percent of notebooks sold with embedded WLAN, 140 percent up on the year-ago quarter. Widescreen notebook sales have doubled in the past three quarters too, he says.

"IDC expects this number to increase as the cost of manufacturing widescreen LCDs continues to decline and as consumer interest in multimedia rises," Sager writes.

He says consumer notebooks are leading -- so Toshiba is in front. Toshiba grew its market share some six points from the third quarter. Perhaps especially heartening for the channel, though, is that direct selling giant Dell lost the most market share of any top six vendor in the final quarter.

Toshiba has 23.5 percent market share, HP 17 percent, Dell 15.7 percent and Acer 12.3 percent. IBM, with 8.5 percent, and Apple, with 5.1 percent, came in at fifth and sixth place respectively.

"One in every three consumer notebooks sold was a Toshiba. HP also saw growth as it gained back its second place position from Dell," Sager says. "Rounding out the top six were Acer, IBM and Apple, who each lost varying amounts of share."

The fourth quarter saw a ‘massive’ amount of notebooks fall below $2000, further boosting the market overall, he added.

Sager says the Australian notebook market attracted one new competitor every eight weeks in the third quarter of 2004. ASUS, BenQ, LG Electronics, Medion and Samsung had all thrown down their respective notebook gauntlets in the year, he says.

"[They] have all invested in local operations and have dramatically increased the competition for incumbent vendors," Sager says.

However, local boxmakers have yet to blossom, despite ongoing efforts by AMD and Intel to spark whitebox growth in Australia, he adds.

What is really working is rewritable DVD, which leapt 33 percent year-on-year, and two-spindle notebooks, which by third quarter 2004 saw year-on-year growth of 16 percent, compared with an 18 percent decline in three-spindle, desktop replacement-type notebooks, Sager says.

Lillian Tay, an analyst at Gartner, points to market share growth of 29.5 percent from 2003 to 2004 for Toshiba, 27.1 percent for HP, 57.5 percent for Dell and a whopping 85 percent increase year-on-year for Acer.

Gartner has also found that Intel’s Centrino marketing effort is paying off big time, with many users prepared to forgo genuine additional features -- such as DVD rewriters -- to have ‘Centrino technology’. "They’ll still buy it if it has Centrino," Tay says. "That’s quite funny."

Meanwhile, the entrance of Lenovo is not likely to change the notebook market’s fortunes significantly in the near term. The Chinese giant has promised to keep the ThinkPad tiller steady and it will be some time before it starts growing its total portfolio locally, Tay says.

Judi Lyddiard, product marketing manager at Toshiba, says most of the Japanese vendor’s notebooks -- especially in the Tecra range -- are now at the $2000 to $3000 mark, representing some 35 to 40 percent of client computing sales from all vendors.

"A couple of years ago, you were struggling to find any [notebooks] in that range," she says.
She says companies are definitely starting to buy again, and budgets are growing too, "and there’s nothing you can do with a desktop that you can’t now do with a notebook.

"A lot of companies out there are now actually encouraging people to work from home," she says. Broadband in the home and wireless on notebooks has really started to drive a trend.

Toshiba has started a new fleet management asset program that helps resellers make some money by helping them into asset management, data recovery, backup and security service provision, Lyddiard says.

Greg Hunt, ThinkPad brand manager at IBM, says some mid-priced notebooks have titanium/magnesium alloy casing that makes them tougher than previously. For desktop replacement, resellers can trade that off against other functionality, such as a wider screen.

Channel sales to SMBs are strong, with mid-range T-series and R-series models proving most popular. Hunt believes many SMBs are using desktops as a server-type box, and notebooks as client PCs. The move from 40GB to 60GB disks broadened notebooks’ appeal to smaller businesses.

"Notebooks also help them balance their work with their home life," he says. "You can work anywhere, any time."

Ergonomics have also improved across the mid-range. Notebooks in that category now having better designed screens and keyboards that are actually usable, Hunt suggests.

A spokesperson for TodayTech says the distributor recorded 100 percent growth in the past 12 months and expects growth to continue. "We offer 12 models of barebone notebooks. Our mid-range notebooks include the M375C, a 15.4-inch wide screen Centrino notebook and the [similar] M37EW with 128MB ATI Graphic accelerator," he says.

TodayTech is pushing multi-purpose notebook bags for resellers to bundle, and keyboards in different languages, such as Spanish, Chinese and French. The company also offers support and service for build-to-order notebooks with an integrated camera.

"Gradually, notebooks will be preferred over PCs, due to their size and mobile attributes," he adds. "With new Centrino platform Sonoma, more emphasis has been placed on digital home entertainment."

OEMs will get faster CPUs, better graphical capability and improved sound quality, he says.