Noting a desktop future

Ever since sales of notebook computers started gathering momentum, industry commentators have been predicting the demise of the desktop computer. The predictions reached a crescendo in the wake of the spectacular growth of the notebook market last year.

Apple founder Steve Jobs proclaimed 2003 the year of the notebook, and this was supported by sales statistics that appear to have been driven by a post-Y2K refresh cycle, a migration away from desktops, improved performance and more attractive pricing.

Researcher Gartner says the local market seems to be following international trends, with growth figures of 31% last year, up from 22% in 2002. This year, sales are expected to show year-on-year growth of 33%.

"If you compare this with the average Europe, Middle East and Africa regional numbers, you will see that although SA is ahead of the rest of Africa, it is behind the developed states of western Europe, so there is a degree of catch-up," says Brian Gammage, Gartner VP and analyst.

SA can be classified with other emerging nations where many notebook sales have been to first-time buyers. "In developing markets we are seeing people who are opting for notebooks as their first computer and not even going to the desktop," says Gammage.

On the surface, increased performance and lower prices are responsible for the notebook boom, but there have been other factors, and these tend to differ from region to region and country to country.

"There have been a number of changes that have made notebooks much more accessible and interesting to a broader audience," says Gammage. "The nature of the workforce is changing and technological advances are continually increasing connectivity options."

Price and performance may not be the only factors influencing the notebook market, but they appear to have been the most common and most significant.

In the years following their debut, notebooks lagged behind desktops because they used the same technology, but it had to be squashed into a smaller package and run on batteries, resulting in relatively poor performance.

"Initially, notebooks were bought by users who demanded mobility at any price," says Andre Rossouw, Rectron technology specialist. "However, it was rare for these users to rely solely on their notebooks, which were not as powerful as their desktops."

Comments Gammage: "When the desktop finally caught up with the demands of new software, the notebook was still sufficiently behind for the performance difference to be important. From about 2001 that was no longer relevant."

With advances in processing power, battery life, screen size and smaller form factors, the difference between notebooks and desktops has become negligible for most users.

"Battery life has become key," says Gary de Menezes, Acer channel director. "Technology has come a long way, enabling notebooks to deliver five to seven hours of battery life."

In developing markets we are seeing people who are opting for notebooks as their first computer and not even going to the desktop.

Brian Gammage, analyst, Gartner

Battery life has increased since the introduction of notebooks that were designed on notebook-specific components instead of modified or compromised desktop components.

Rossouw asserts that the notebook has become the ultimate personal communications, entertainment and information centre. "New offerings are light years ahead of the most advanced notebooks of six months ago and equal to the best desktop machines of today."

As an example of this development, Rutger-Jan van Spaandonk, Core Group director, cites Apple`s latest range of professional notebooks that are available with DVD-burning facilities, graphics capabilities, and screen sizes ranging from 12- to 17-inches.

Initially, notebooks were bought by users who demanded mobility at any price.

Andre Rossouw, technology specialist, Rectron

"Apple is certainly one of the industry`s evangelists, appealing to a lifestyle," says Gammage. "Planet Apple is an exciting place to live if you are in the technology-savvy, high disposable income category."

Gartner research shows that, in general, price is a more important factor than performance.

"Price has been the key enabler for notebooks," says Gammage. "Traditionally, prices of notebooks have been very high indeed, but we`ve seen significant reductions over the past few years. They have reached an absolute price, making them more attractive to a wider audience."

For the local market, the stronger rand of recent months has also contributed significantly to reducing notebook prices, putting them within striking distance of home users and small to medium enterprises (SMEs) for the first time.

"Price always influences any purchasing decision," says Bradley Hopkinson, HP`s personal systems group country manager. "Notebooks have gradually become more affordable for SMEs, providing greater efficiency at a much lower price. This has had a major impact on business."

Hopkinson agrees that, besides all other factors, changes in the dollar exchange rate are closely tied to the local notebook market. "Rather than hoping for any particular position, HP would like a stable exchange rate in future."

Gammage believes hardware commoditisation has increased supply. "Price differentials between notebook and desktop components have been significantly eroded as competition has increased, with smaller companies using alternative components." He says it is not about relative price, but absolute price. "Once you have dropped below a threshold, you are below it. I see this as a threshold thing, not a linear driver to growth, both in terms of performance and price."

After lower prices and improved performance, Gartner has identified changes within the working population as the third main contributor to the popularity of notebooks.

"Workers are becoming more flexible and more mobile," says Gammage. "Consequently, market demands are changing. Notebooks used to be for travelling salespeople, but that`s no longer the case. Now they appeal to a much broader audience."

The wide variety of notebooks on the market is also promoting sales because users can buy according to their needs. "Corporate users tend to go for the thin and light models with emphasis on style, technologies like Bluetooth, and qualities like speed, functionality and portability, whereas SMEs tend to buy entry-level notebooks," says Hopkinson.

"Because of the wide variety, including niche products, it`s important for vendors to understand customers` needs," says De Menezes.

Mobility has also made notebooks more affordable because they pay for themselves in terms of productivity gains in a relatively short period of time.

However, Gammage cautions that a mobile solution is not just a notebook, it has to include applications designed for users in any location.

"The reality of the deployment time and ramp-up time is quite long, consequently I don`t see any immediate change." He also says not everybody has the interest in mobilising computers at present. "That will change with more computer-literate generations, but it won`t happen overnight."

Corporate users tend to go for thin and light models with the emphasis on style...

Bradley Hopkinson, personal systems group country manager, HP

Local conditions have been identified as a factor making mobility a greater value proposition. "Notebooks make a lot of sense in a country with a geography like SA," says Hopkinson. "The relatively great distances between cities mean mobility is attractive to a wider range of workers who travel, and not just sales people."

Wireless connectivity is often said to have promoted notebook sales, but while this may be true internationally, it`s not necessarily so locally. "The current implementation of wireless connectivity is not a significant driver," says Guy Whitcroft, Tarsus MD. "I believe it will become significant only if we achieve a wider area implementation of wireless connectivity using WiMax (802.16) technology."

Christopher Riley, Notebook Company CEO, takes a different view. "Business people who spend a lot of time communicating remotely have been given a boost with the recent announcement that hotspots are no longer illegal." He says the "road warriors" will use wireless connectivity to boost productivity, thereby increasing demand for notebooks.

Whitcroft predicts the demand for wireless connectivity in the home is likely to become significant in SA only in the next three to five years.

The cost-effectiveness of wireless networks could further stimulate the swing towards notebooks in the medium-term.

Gary de Menezes, channel director, Acer

This contrasts with more developed countries where wireless home networks are more common. "Some households in Europe have as many as three notebooks," says Andrew Tsobanoglou, Fujitsu Siemens product manager.

"All Apple notebooks come standard with Airport Extreme technology based on the 802.11g standard, enabling delivery of wireless connectivity at 54Mbps," says Van Spaandonk. "This means high-speed wireless connectivity is available in the home and an ever-increasing number of wireless hotspots."

De Menezes also believes the cost-effectiveness of wireless networks could stimulate the swing towards notebooks in the medium-term. "However, Acer plans to introduce wireless desktops this year and as soon as this becomes standard, the advantage of notebooks will be reduced."

Notebooks have made mobility a practical reality, but portability also means a higher risk of damage, loss and theft. Some companies appear willing to pay the insurance premiums, or take the risk, while others have developed other policies to balance productivity with risk.

"It is important to have a strong backup policy, but in the main the productivity benefit is enough to make sense of spending money on protecting notebooks or taking the risk," says Joubert de Lange, Intel SA market development manager.

Alternatively, "if users have equity in their notebooks, they are far more likely to take good care of them," says Tarsus`s Whitcroft. "We have seen some companies sharing the cost of notebooks, and after a couple of years the employee takes ownership."

Whitcroft says this is a win-win situation because the company knows it is in the employee`s interests to take good care of the notebook.

Most vendors say the biggest buyers of notebooks in the past two years have been SMEs, which have proliferated in SA since 1994. This is consistent with Gartner statistics.

"We have seen the lowest rates of growth coming from the large account sector, formerly the biggest buyer of notebooks," says Gammage.

"Acer has seen huge growth in the home market," says De Menezes. "We are seeing double-digit growth in notebook sales, but only single-digit growth for desktops." He adds the highest level of desktop replacement has been happening in the small office, home office market.

"HP is serious about the home market," says Hopkinson. "As space and security become more important, notebooks are likely to become increasingly popular in this market."

Gartner reports an average growth of notebook sales to the home market of 50% in the EMEA region for 2003, but says this figure is higher in developing countries where the level of home PC penetration is not as high as in western Europe.

In SA, Mecer reports a growth in notebook sales across the spectrum, except for the lower end of the market and the education sector, where the desktop is still more popular.

Most market players agree the immediate future looks bright for the notebook, particularly in emerging markets. "There is still a lot of growth in the local market," says Whitcroft. "Notebooks still account for only about 25% of all computer sales, compared with 40% in Europe."

Whitcroft also points out that sales growth last year did not include any big corporate refresh cycles, but this may change this year, further supporting the likelihood that notebook sales will continue to grow.

Industry players say there is still two or three more years` runway and Tsobanoglou believes the local market could approach current European levels within this current year.

De Lange agrees, but says continued growth will be more in terms of expansion into new markets than the catch-up factor that has been responsible for much of the recent growth.

"The limited manufacturing capacity of plasma and LCD display makers may put the brakes on notebook production and sales," warns Dean Barkhuizen, Mecer MD. "The demand for notebooks will probably remain high, but sales may suffer if screen manufacturers cannot meet the demand."

Barring such commodity shortages, manufacturers believe they are well positioned to meet demand.

HP says although it will continue to focus on SMEs, it plans to take a new range of notebooks to corporate users to re-stimulate that market.

Fujitsu Siemens says it is independent of some market forces because it owns the technology and its good relationship with Intel enables it to know what is coming and position products accordingly.

While enthusiastic about the future of notebooks, most market players admit desktop sales have also continued to grow, just not at the same exponential rate. Those predicting a decline in desktop sales this year are in the minority.

"Users in the retail and financial sectors, as well as call centres, show little sign of migrating from desktops," says Hopkinson.

"There is still a strong home market for gamers," points out Whitcroft. "This market still wants fast, powerful processors with high quality graphics and large screens at affordable prices."

"Desktops are still regarded as being more stable," says David Musikanth, Light Edge Technology marketing director.

Gammage agrees that notebooks are more fragile and tend to fail more frequently, although he says this is a less significant factor than it used to be.

Musikanth says although there has been a significant growth in notebook sales, many customers still consider desktop computers a better choice in terms of value for money. "Desktops are easier to upgrade and high-end graphics capabilities are available only at a premium in notebooks."

"There has been no decline in desktop sales in recent times," says Musikanth. "There is still a very strong market for desktops in the educational sector and we are still selling desktops to SMEs and home users." He adds that many of these users are more concerned with security than mobility and wireless connectivity. "To help meet the demand for Light Edge`s Emerald desktop computers, we have had to open a second assembly plant."

"Desktops are not yet under pressure because the market is getting bigger," says Joubert de Lange, Intel SA market development manager. "The traditional corporate market is still there with most office workers likely to use desktop computers in the near future."

"The South African market is still governed by government and corporate spending power," says Barkhuizen. "These sectors are still very much desktop buyers."

The Core Group has even identified new niche markets for Apple desktops. High-performance desktop machines are finding new customers in the printing, multimedia, Web design, photographic and film industries as well as in various fields of scientific research.

"We have seen demand for Apple Macs to meet the extreme computing power demands of applications as diverse as genetic engineering and film editing," says Van Spaandonk.

In the final analysis, the desktop emerges as being more manageable, less prone to problems and providing greater control over what users are doing.

"It`s not yet the end of the road for desktops," says Barkhuizen. "There is still a demand for desktops worldwide and the fortunes of the local currency could easily change to favour the desktop instead of the notebook."

"Desktops remain a critical component of IT infrastructure and are complemented by notebooks," says Erik Seemann, iiyama out of territory sales manager. "Desktops will, for the foreseeable future, continue to dominate the education, government and home markets."

Tsobanoglou observes that many jobs in government are deskbound and consequently desktops are still dominant in that sector because they remain the most cost-effective option.