PC Makers Take Aim at Cheap Notebook Market

TAIPEI, Taiwan — A growing market for low-price, no-frills notebook computers driven by Taiwanese computer maker Asustek has spurred the world's top PC firms to develop competitive models, according to analysts and industry players.

Dell, the world's second-largest computer company by sales, has contracted with at least one Taiwanese manufacturer to build a line of notebook computers that will retail this year in developing markets and cost less than $500, an industry analyst in Taipei said.

On Friday, Stephen Felice, the president of Dell's operations in the Asia Pacific and Japan region, said the Round Rock, Texas-based company would introduce several notebook computers in the "lower price bands" this year.

"The very low end is going to be a high-growth opportunity predominantly in countries where there are first-time buyers and people who are just getting used to technology," Felice said.

Hewlett-Packard, the world's top-selling computer brand, and Acer, the third-largest brand, plan to introduce low-cost notebook computers this year to compete against Asustek's Eee PC — a line of 2-pound laptops that retail for between $300 and $500 — and several other cheap notebook computers, analysts said.

Both HP and Acer will release laptop computers with 8.9-inch and 12-inch screens in the spring and summer to compete with the Eee PC, said Jerry Shen, Asustek's chief executive officer.

Between October and the end of last year, Asustek sold more than 300,000 Eee PC computers, the Taipei-based company said. Executives expect to sell between 3.5 million and 5 million of the computers this year.

Spokespeople at Dell and Acer reached on Friday said they could not comment on speculation about possible products. HP spokespeople were not immediately available for comment.

Dell will keep the cost of the computers low by using the free Linux operating system, said an industry analyst, who requested anonymity, citing sources at Taiwanese manufacturers.

The shift has been driven by strong sales of Asustek's Eee PC, which stands for "easy to learn, easy to play, easy to work" and is marketed under the brand name Asus, analysts said.

Asustek was able to drop the price of its Eee PC line of computers, which start at about $300 in the United States, by replacing the hard drive with flash memory and using low-cost computer chips.

The company designed its own interface for the computer using the Linux operating system — a move that prompted Microsoft executives to reduce the cost of the Windows XP system for Asustek customers willing to upgrade, Shen said.

"When the top managers (at Microsoft) brought the machines home to their wives and kids, they liked it, so they decided maybe we will hurt their business," and dropped the price, he said.

Helen Chiang, a market researcher at the consulting firm IDC's Taipei office, said notebook computers priced below $500 could become a significant market segment, perhaps reaching sales of 5 million units this year.

Sales are likely to be particularly strong in developing nations, where many people cannot afford powerful notebook computers but might prefer the mobility of laptops to desktops, she said.

Other low-cost notebook computer makers have also emerged, though none are marketing their products as widely as Asustek.

Last November, One Laptop Per Child, a nonprofit organization founded by Nicholas Negroponte of the Massachusetts Institute of Technology, released a $188 laptop designed for children in the developing world.

Intel is producing the "Classmate PC", a no-frills computer that sells for between $200 and $300 and is aimed developing nations.

By cutting costs and keeping laptops small and light Asustek executives believe they can tap a latent market in more developed nations.

The idea behind the Eee PC was to produce a low-priced computer that would appeal to people who use it primarily to surf the Internet and for simple functions like creating documents and spreadsheets, Shen said.

All of the Eee PC models are equipped with wireless capability, speakers, a microphone and a high-resolution screen. Higher-end models, which in Taiwan cost nearly $500, include built-in video cameras and have additional memory.

"If you provide good mobility and good connectivity, most people will be satisfied," Shen said. "We kept the costs down by just giving a fit for the user demands."

But analysts have been cautious about the prospects for low-function, low-cost notebook computers.

Consumers accustomed to more powerful computers are likely to be turned off by limited space for software and — at least with the Eee PC — a small keyboard, said Brian Ma, a Singapore-based analyst with consulting firm IDC.

"It's going to be difficult to convince a large number of users to go for the product because from a functionality point of view, it's limited in what it can do," he said.

Shen is optimistic that demand for low-function, low-cost notebooks will grow.

The company will resolve a current backlog in the first half of this year and plans to release a second generation of the Eee PC line next month that will sell for "almost the same price" as current models but will have bigger screens, improved battery life and more storage space, he said.

In the United States, where Asustek has sold roughly 100,000 Eee PCs, the Best Buy retail chain is considering stocking the computers, he said.