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Linux, netbooks threaten Microsoft's fat profits
Nov. 07, 2008

Microsoft's bottom line is hurting from Linux gains in netbooks, says a story. A recent drop in Windows revenues is due in part to the fact that leading netbook vendors Acer and Asus run Linux on about 30 percent of their netbooks, says the story.

(Click for larger view of Acer's Aspire One)

Last quarter's Windows sales fell short of forecasts, says the story, and Microsoft has curtailed growth projections for the year from over nine percent to as little as two percent, citing lower revenue from netbooks. The story quotes Microsoft as estimating that Windows products run on about 70 percent of netbooks, a category that is never defined, but which typically reflects an under-$600 mini-notebook with displays ranging from seven to 11 inches.

The story quotes Acer and Asus executives, meanwhile, as saying that Linux runs on about a third of their netbooks. This is significant, considering that the story estimates that the two companies together control some 90 percent of the netbook market. Asus is credited with touching off the netbook explosion with its Eee PC (pictured below, right), which originally shipped as a Linux-only system for $400 in Nov. 2007. Although the original Asus Eee PC shipped with an Intel Celeron, the new versions of the Asus and Acer netbooks, as well as the vast majority of netbooks, ship with Intel Atom processors, and offer a choice of Linux or Windows XP.

Asus Eee PC
(Click for details)

The story did not quote an exact figure for the Linux share of the booming netbook market, but given the Microsoft, Acer, and Asus estimates, it appears likely to be over a quarter of the market. If accurate, that figure dwarfs Linux's share of the higher-end PC system market, reported by research firm Net Applications last month at 0.71 percent, up from 0.47 percent in Aug. 2007.

The story quotes Dickie Chang, an IDC analyst based in Taipei as saying, "[The netbook market] is a real threat to Microsoft. It gives users a chance to see and try something new, showing them there is an alternative."

New life for XP

Just as troubling for Microsoft, says the story, the vast majority of Windows netbooks run Windows XP, which offers lower margins than does Vista. Yet, if Microsoft had not extended XP's availability beyond its planned discontinuation in June, the company may well have surrendered considerably more of the market to Linux. Microsoft's Vista has appeared on relatively few netbook models, and is widely considered to be too resource-intensive for systems that must meet low netbook price expectations. Microsoft claims, however, that its upcoming Vista successor, Windows 7, will run much better on netbooks.

HP's Mini 1000
offers a homegrown
Linux distro

(Click for details)

The story also cites a Citigroup study as saying that netbooks will represent "about a third" of PC growth in 2008, and will grow at an annual rate of 60 percent through 2010, when Citigroup expects 29 million netbooks to sell.

Despite the arrival of dual-platform netbooks from heavy hitters like Dell and HP, which recently introduced a Mini 1000 netbook (pictured) that runs a homegrown Linux distribution called "Mobile Internet Experience" (MIE), early market entrants Asus and Acer still represent some 90 percent of the netbook market, says the story. By most accounts, Asus has dominated the market. Yet, according to the story, Acer President Gianfranco Lanci recently claimed that Acer's $380 Aspire One was the world's best-selling netbook in the third quarter.

The story quotes an Asus exec as saying that Linux has shipped in 30 to 40 percent of its Eee PCs, and that it expects Linux models to sustain a 30 percent rate going forward. Asus expects to sell 5 million Eee PCs in 2008, says the story, whereas Acer is said to predict sales of 5 million to 6 million Aspire One units, with about 20 percent offering Linux.


The story by Tim Culpan and Dina Bass, "Microsoft missing netbook growth as Linux wins sales," should be available here.

-- Eric Brown

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