Fears that the runaway netbook market would siphon off profits from the higher margin laptop market have been overblown. That's the key takeaway from the latest DisplaySearch numbers on sales of laptops (or notebook) computers versus sales of netbooks. "There is a small amount of cannibalization but a lot of it is people buying secondary devices. They are buying something a little smaller and a little lighter for more basic computing," says John F. Jacobs, Director of Notebook Market Research for DisplaySearch, a research consultancy focused on technology markets.

That's welcome news to chip giant Intel (INTC), which had been beating back fears from Wall Street analysts that the lower-priced Atom processors used in netbooks would cannibalize higher-priced microprocessors used in more powerful laptops. Likewise, laptop titans Dell (DELL) and HP (HPQ) have been warily watching sales figures for their full-featured and far more expensive laptop lines even as they roll out better and better netbook lines. The fear was so great that consumer electronics giant BestBuy (BBY) initially did not even want to sell netbooks, envisioning them as a very hard way to make money.
It's also welcome news to Microsoft (MSFT). Competition for operating systems is still fierce in the netbooks market. Taiwanese PC maker Asus used Linux operating systems on some of its machines. Google's Android operating system even has a toehold. Although Microsoft's Windows operating system is the leader in the netbook category, it has far more competition than in the laptop segment, where Apple presents its only real competition.

Any indication that netbook sales were sucking the life out of laptop sales would have meant that Redmond might face even more revenue difficulties, like they faced in the previous quarter. Also, this would have presaged stiff pricing competition in what had been a quasi-monopoly market. However, that doesn't seem to be the case. In fact, netbooks and laptops appear to be rapidly converging with more netbook makers selling machines that have larger displays competitive with displays on so-called ultra-portable laptops.

That the onrushing netbook continues to become a more important player in the portable computing market is indisputable. According to DisplaySearch's tally, netbooks' share of the total portables market rose from 5.6 percent in Q2 2008 to 22.2 percent in Q2 2009, which means that the netbook market is growing at roughly twice the rate of the larger portable computer segment.

In Europe, many telecom firms are even giving away netbooks to people who sign up for two-year data contracts. In China and Latin America, netbook penetration is actually higher than the penetration of larger portables. That's logical, given the low price points of netbooks and it might be a trouble sign down the road for Intel, Microsoft and the PC makers. For now, however, the netbook threat is not adding up to much.

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