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What's Cooking May 2009 • Vol.9 Issue 5 Page(s) 102 in print issue |
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Wagging The Dog Is $400 The New $900? by Rahul Sood |
 Rahul Sood's love for computers started at the young age of 11. Much to the shock and dismay of his parents, he ripped apart his brand-new Apple //c and painted it red before turning it on. His parents’ dreams of having a doctor for a son were shattered when college drop-out Rahul founded what is now one of the most respected high-end computer companies in the world, Voodoo Computers. I’d like to take this month to ask CPU readers a question or two. It’s not as simple as a one sentence Q&A; it requires a bit of background. When you are finished reading this article, I’d love if you could email me any comments that you come up with. Due to the global economic crisis, companies everywhere are slashing their sales forecasts and many more are closing their doors. The stock market is a mess; companies’ valuations have dropped like bombs; and companies that are highly leveraged are facing a precarious situation, so they’re hacking costs, restructuring, and retrenching. On top of this, we are in the middle of a major real estate crisis, which I believe will lead to a credit card crisis at some point. All of this, and many other factors, have changed consumers’ purchasing behaviors significantly. In the last few months, we have witnessed a change in this industry that I’m not sure anyone saw coming—computer companies are seeing their average selling prices fall off a cliff, and most are seeing huge drops in sales volume. In some cases, however, unit sales are through the roof, and there are some manufacturers whose demand has suddenly shifted. In many regions, customers seem to be drawn to extremely low-priced technology, such as netbooks and mininotebooks, rather than standard desktops and notebooks. In other words, netbooks and mininotebooks are outpacing everything else. Sales of mininotebooks are skyrocketing and driving overall average selling prices way down. Of course, there are exceptions, but overall, if you look at the demand trends from Intel, for example, you’ll see the Atom processor sales are growing faster than any other processor on the chipmaker’s roadmap. It’s funny when you put it in real terms, but sales of Atom processors are incredibly successful, much to Intel’s chagrin. Needless to say, the company isn’t completely happy about the sudden success of these processors because it seems as if this trend is eating into their other business, at least for the moment. It’s a bittersweet pill for them because volumes may be high but the average price and margin dollars are very low. All said, you can buy a pretty awesome netbook or mininotebook for under $400, and it does basically everything most people need. In a nutshell, then, customers who were once purchasing technology for over $1,000 are now spending less than $400, and instead of supplementing standard PCs with netbooks and mini-notebooks, they are using these devices as their primary devices—or so it seems. I really don’t think cannibalization was part of anyone’s mininotebook business plan. I am writing this article on my HP Mini 2140, which is a fantastic little device, but I only use it when I’m moving around often. I can’t see myself replacing my desktop or other notebooks with a mininotebook. I do, however, enjoy carrying this thing around; it’s rugged, simple, and cheap. A great supplement, yes; a replacement, heck no. So putting current demands aside, there are economists whose sole job is to determine when things will change so that companies can prepare accordingly. The problem is how does one prepare for the new economy? My question to CPU readers is what do you think will happen when the economy turns around? Do you think we’ll see average selling prices go up again? Do you think the demand for premium PCs will grow and sub-$400 sales will shrink? Do you think those who currently own netbooks and mininotebooks will then turn around and purchase premium systems to supplement their current technology? Do you think that these mini-devices will have enough power in the future to fill a void? I suspect that when the economy “turns around” we’re going to be looking at a completely different industry. The question is, what will that industry look like? As more services hit the cloud, does the importance of the client drop? Gaming will still be strong and will still require a fairly robust machine, but with average selling prices of PCs dropping like bombs, I can only imagine this will affect every part of the industry, including gaming. Anyway, that’s it for this month—looking forward to your responses!  Send your opinions to this opinionated guy at rahul@cpumag.com |
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