The meteoric rise of the netbook has slowed in recent weeks, according to analysts. (iStock)The popularity of netbooks helped computer makers shore up their sales through the recession, but analysts suggest the market is changing again and the booming sales of these super-portable computers will be short-lived.

Netbooks came to prominence in North America in 2008 when Asus unveiled its Eee PC, a lightweight mini-laptop that had a seven-inch screen and cost less than $300. It was a low-priced, low-powered, light and easy-to-carry machine designed for basic tasks such as emailing, web browsing and working on documents.

As the Eee's popularity increased, PC manufacturers such as Acer, Lenovo, HP and Dell released their own netbooks. Competition increased, and before long, configurations and specifications were altered to allow for larger screens and hard drive capacity (although processing speed and the amount of random access memory, or RAM, remained virtually identical regardless of the manufacturer).

Sales boomed, and more than 394,000 netbooks were sold through Canadian retail stores over the course of 2009, according to data compiled by the NPD Group. That figure, a triple-digit increase from 2008, represented 17 per cent of the entire Canadian personal computer market last year.

But the meteoric rise of the netbook has slowed in recent weeks. In fact, a slight dip of two per cent was recorded in netbook sales in the fourth quarter of 2009, traditionally a big sales period for personal computing gear. Some say it indicates the beginning of a decline in the fortunes of the netbook design.

What was even more surprising about the dip in netbook sales was that in terms of overall computer sales, the fourth quarter of 2009 "ended with a much larger bang than anyone ever anticipated," according to Darrel Ryce, director of the NPD Group in Canada.

"It should be noted that traditional, or 'non-netbook,' notebooks continue to grow and drive market penetration despite the increased presence of netbooks in the market," said Ryce.

Growing competition

One reason for the slowing growth of netbook sales is that much more powerful and versatile thin-and-light notebooks that used to be classed (and priced) as high-end machines have started selling to mainstream consumers for less than $1,000, says Ryce.

IDC Canada analyst Tim Brunt agrees, pointing out that a big shift took place in the laptop market in 2009. An average ultra-portable notebook retailed for about $2,000 in the second quarter, only to plummet to an average of $874 in the third quarter.

"It was a pretty stunning drop from one quarter to the next," Brunt says.

These ultra-portables typically come in 12-inch and 13-inch screen sizes, and they have impressive hardware under their hoods, such as powerful Intel Core 2 Duo processors instead of the slower Atom processor designed for netbooks. Ultra-portable notebooks also have lots of RAM, more hard drive storage capacity and video cards capable of rendering high-resolution video footage or games.

Mark Tauschek, lead analyst at Info-Tech Research Group, suggests that consumer interest in powerful ultra-portables started to grow as soon as manufacturers opted to add these higher-performance machines to their mainstream lineups for last year's fall launch of Microsoft's Windows 7 operating system and the busy holiday shopping season. "When you're offering a 12- or 13-inch, fully powered notebook that weighs three pounds and sells for $700 to $800, it's a compelling case for both business users and consumers."

Brunt says the line between more expensive $500 netbooks and newer ultra-portables starting at $600 began to blur immediately. The value proposition of a pricier netbook didn't stand up next to a slightly more expensive ultra-portable with considerably better performance and storage specs.

Murky future for netbooks

Tauschek says most PC manufacturers are happy to see netbook sales levelling out and sales of ultra-portables rising. Many computer makers entered the netbook category "kicking and screaming" because the profit margins are so slim on each unit. "They'd rather sell a notebook, but they didn't have one in a price range for a struggling economy that would do basic computing at a price point with better margins than they could make on netbooks," said Tauschek.

"I'd be surprised if any manufacturers were making money from netbooks," Brunt adds. "They can't continue to buy market share, so they do need to move away from no-margin products and go back to healthier higher-margin ones like these ultra-portables and tablets."

'I don't think netbooks will completely go away this year, but their 15 minutes of fame are definitely over.'—Mark Tauschek, analyst

Many customers weren't happy with netbooks either, but their complaint was about poor performance, resulting in high return rates. Though netbooks are handy for viewing content, they failed to deliver when it came to producing content such as video, for example — something Brunt says is becoming more important to a wider gamut of PC users. Other consumers had trouble adjusting to tiny screens and keyboards.

So, what does the future hold?

Both Brunt and Tauschek agree that netbook manufacturers are essentially being squeezed from three sides. The sub-$1,000 ultra-portable and thin-and-light laptops are one side. Tablet and slate portable computers like the iPad unveiled by Apple in late January are another. And the burgeoning power and continuing evolution of smartphones represent the third front.

Hybrid devices like the IdeaPad U1 ultra-portable notebook and tablet could make things even more interesting, Tauschek says. "It ends up being two devices, and a netbook isn't one of them. On one hand, you have a cool slate PC, and on the other, you have a functioning laptop with pretty good specs, which makes it all impressive and compelling."

As enterprises and businesses look to refresh their lineup of notebooks in the coming months, they will likely opt for more efficient ultra-portables and thin-and-lights, as opposed to the limited power of netbooks.

The NPD Group doesn't forecast sales figures, but Ryce did posit that netbooks should still do relatively well this year. The wild card, though, is whether tablet devices like the iPad take off and ultra-portables continue their push into the mainstream consumer market.

Tauschek is more bearish: "I don't think netbooks will completely go away this year, but their 15 minutes of fame are definitely over."