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The personal computer industry is poised to sell tens of millions of small, energy-efficient Internet-centric devices. Curiously, some of the biggest companies in the business consider this bad news.

In a tale of sales success breeding resentment, computer companies are wary of the new breed of computers because they sell for a low price that could threaten the PC makers’ already thin profit margins.

The new devices, often called netbooks, have scant built-in memory and are intended largely for surfing Web sites and checking e-mail accounts. The companies that pioneered the category, like Asus and Everex, both of Taiwan, are small, and so is the price. Some sell for as little as $300.

Despite their wariness of these slim machines, Dell and Acer, two of the biggest PC manufacturers, are not about to let the upstarts have this market to themselves. Hewlett-Packard, the world’s biggest PC maker, recently sidled into the market with a hybrid of a notebook and netbook that it calls the Mini-Note.

Several makers are taking the low-powered PCs one step further. In the coming months, they are expected to introduce “net-tops,” low-cost versions of desktop computers intended for Internet access. A Silicon Valley start-up called CherryPal says it will challenge the idea that high-powered machines are required to allow basic computing functions in the Internet age. It is bringing out a $300 desktop PC that is the size of a paperback and uses 2 watts of power, compared with the 100 watts of some desktops.

It wants to take advantage of “cloud computing,” in which data is managed and stored in distant servers, not on the actual machine.

Industry analysts say that the emergence of this new class of low-cost, cloud-centric machines could threaten titans like Microsoft, Intel, HP and Dell, because they have built their companies on the notion that consumers want more power and functions built into their next computer.

Some of the big computer companies put a positive spin on the low-cost machines, saying they welcome new categories. But they would just as soon this niche did not take off, given the relatively low profit margins.

“When I talk to PC vendors, the No. 1 question I get is, how do I compete with these netbooks when what we really want to do is sell PCs that cost a lot more money,” said J.P. Gownder, an analyst with Forrester Research.

Even as some PC vendors are jumping into the fray, others say they are resisting. Fujitsu, one of the world’s top 10 personal computer makers, said that it believes the low-cost netbook trend is a dangerous one for the bottom line.

“We’re sitting on the sidelines because even if this category takes off, and we get our piece of the pie, it doesn’t add up,” said Paul Moore, senior director of mobile product management for Fujitsu. “It’s a product that essentially has no margin.”

Stan Glasgow, chief executive of Sony Electronics, said, “We are not looking at competing with Asus.” But he said the company was investigating what consumers wanted in a second PC.

It is a market that caught the major computer companies - both hardware and software - by surprise after Asus brought out the $300 Eee PC. The company thought it would be used primarily in education, or as a starter laptop for adolescents, but the interest has turned out to be broader.

With an emphasis on Internet-based applications like Google Docs, the Linux-based Eee PC sold out its 350,000 global inventory. It has been in short supply ever since, said Jackie Hsu, president of the American division of Asus. Everex has sold around 20,000 of its CloudBook, which sells for about $350.

The sales are a veritable drop in the bucket compared with the 271 million desktop and laptop PCs shipped globally last year.

But IDC, a research firm, predicts that the category could grow from fewer than 500,000 in 2007 to nine million in 2012 as the market for second computers expands in developed economies.

Intel, meanwhile, is projecting that by 2011, the market for the netbooks will be 40 million units a year, which is why it is jumping in with low-powered chips for netbooks and  net-tops.

Intel’s new Atom chip is competing against upstarts including Via, a Taiwanese company that has a chip called the C7. The C7 is showing up in netbooks and is being used in the Everex models and in HP’s $500 Mini-Note.

William Calder, an Intel spokesman, said that the cost of the Atom for PC makers was around $44, compared with $100 for a state-of-the-art chip. Intel executives think the market for low-cost PCs is too big to pass up, he said, though it raised a potential threat to more powerful and more profitable computing lines.

source: International Herald Tribune