Oct 29, 2008 (11:10 AM EDT)
HP Assault On Netbook Market Likely To Fire Up Price War

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HP's Mini 1000 Netbook

HP's Mini 1000 Netbook
(click for larger image)
Hewlett-Packard on Wednesday launched an assault on the emerging netbook market with a line of mini-notebooks expected to dramatically increase the competition over price and features.

The Mini 1000 is a refresh of HP's 2133 Mini-Note PC launched in April. In the latest line, HP has replaced the 1.2-GHz VIA C7-M ULV processor in the Mini-Note with a 1.6-GHz Intel Atom N270 chip. The company has also dropped the starting price $100 to $399. The new system is available as of Wednesday.

HP, along with its major rival Dell, entered the market for so-called "netbooks" behind Acer and Asustek, who proved there was a demand for sub-$500 notebooks with screens 10 inches or less that trade functionality for portability. But HP's latest assault on the nascent market indicates the computer maker is willing to go head-to-head with competitors on price in order to grab market share as fast as possible.

Bob O'Donnell, analyst for IDC, said mini-notebook vendors have already started to drop prices, and he expects HP's entry into the market, along with other major vendors, such as Dell, Lenovo, Sony, and Toshiba, to drive prices even lower. "We're seeing all these guys get into the market, and it's going to drive prices downward," he said. While Acer and Asustek have grabbed big chunks of the market to date, IDC expects the major players to make significant gains next year.

Market share is likely to be critical for survival. With starting prices well below $500, computer makers will need volume sales to make their netbook lines profitable, since profit margins on each machine are slim, analysts say. The emerging market also presents some serious risks for computer makers, since it's not yet known whether consumers will buy the systems as second computers to a desktop or full-size notebook, or choose netbooks as a replacement for the other machines, which are far more profitable.

Nevertheless, the market is growing fast. Mini-notebook sales helped bolster the overall PC market in the third quarter as consumer spending weakened, according to Gartner. Netbook sales make up less than 5% of the overall PC market, but sales of the mini-notebooks, which are used primarily for e-mail and Web browsing, are growing. Acer's market share in the third quarter jumped to 12.5% from 9.7% in the same period last year, driven mostly by mini-notebook sales.