The notebook computer market was resilient in 2014, reversing two consecutive years of decline as users replaced their Windows XP machines and enjoyed subsidies from Microsoft. Overall, in 2014, global notebook shipments reached 175.5 million units, expanding 3.6 % year-on-year.
However, the outlook for 2015 is less bright, as Microsoft cut subsidies for Windows 10, while the Euro and currencies in emerging markets weaken. The original forecast for notebook shipments this year was a miniscule 0.4% growth rate, but it may end up contracting if conditions do not improve.
Notebook shipments fell by 18 % in the first quarter–traditionally the low season–compared to the same period in 2014 and 5 % on an annual basis, as vendors’ inventory remained high.
The market failed to heat up in the second quarter of 2015 for a number of reasons, despite the release of Intel’s CPU Broadwell. First, users are not replacing their notebooks at the same rate as last year. At the same time, notebook brands will not launch new models until the second half of the year including the launch dates for Windows 10 and Skylake. Consumers are holding off on new purchases until the new models are released. The notebook computer shipments in the first and second halves of the year 2015 is expected to see a ratio 45: 55. However, as the NB demand stays sluggish, brands’ strategies of new launches will determine the NB sales result in the next few years.
Figure 1: NB shipment estimates
Can the 2-in-1 PC create a surge in the notebook market?
Touchscreen notebooks have yet to become mainstream consumer products as seen by their low market penetration caused by low priced notebooks and other factors that have placed touchscreen notebooks at a disadvantage. While the penetration rate jumped from 0.9% in 2012 to 10% in 2013, that figure increased just 3.5% the following year to reach 13.5% in 2014. The booming touchscreen notebook market was very short-lived, before gradually withering up. Its initial explosive growth misled the industry to believe it would become a trending product, but in the end touchscreen notebooks remain specialty products.
When Microsoft first launched Windows 8, it intended to make the live tiles touchscreen a key function of the operating system. But consumers failed to warm to the concept so Microsoft scrapped it – and with good reason. The system was cumbersome to use and the touchscreen caused the notebooks to get dirty easily. At the same time, clamshell notebook prices dropped fast, making touchscreen module costs a burden for brands. At this point, the touchscreen notebook market is expected to continue growing, but at a relatively slow pace of 3 % to 4 %. Penetration will reach 15 % to 17 %, and it will be difficult to significantly increase penetration rates in the long run.
Within the touchscreen notebook segment, 2-in-1 PCs have been eating away at the market share of clamshell notebooks. In 2014, 2-in-1 PCs had just a 30% share of the touchscreen notebook market, but by 2015 that had increased to nearly 50%. 2-in-1 PCs have caught on faster with consumers because of their convenience and functionality: they work equally well for work and play. As a result, a number of key brands have all launched 2-in-1 PCs, including Acer, Asustek, HP, Lenovo and Dell, in an attempt to boost sales in the saturated notebook computer market.
While touchscreen notebooks have been a cost burden for manufacturers thus far, that is set to change in the second quarter of 2015. At that time, some panel makers will produce on-cell touch models without the cover glass module. This design will be more cost effective for both brands and manufacturers, helping to boost their revenue. As cost structure improves, brands will roll out different promotion strategies for clamshell notebooks.
When vendors lower the prices of touchscreen notebooks, it creates a strong incentive for consumers to purchase them. Some brands deliberately blur the distinction between the prices of standard and touchscreen notebooks to boost sales. They emphasize to consumers that for less than US$300 it is possible to own a touchscreen notebook. Since the price is low for a computer of any kind, consumers will feel that they are getting an excellent value. Regardless of the kind of marketing rhetoric, manufacturers’ ultimate aim is to use touchscreen notebook to reposition their market position and acquire rivals market share.
Figure 2: Comparison of the Market Share of 2-in-1 and Touchscreen Notebooks
Will the 3:2 aspect ratio increase consumer interest in notebooks?
With the 2-in-1 PC market picking up, panel manufacturers are rolling out 3:2 aspect ratio panels, emphasizing this aspect ratio is best for 2-in-1 notebooks. Traditional computer displays typically have an aspect ratio of 16:10 and 16:9, which is flatter and longer. Manufacturers are now emphasizing 3:2 panels can be used as tablet computers. When the 3:2 aspect ratio is applied to notebooks, the visual range for users increases and it appears familiar because it is the same aspect ratio as most printed documents.
The Korean brand LG Display has launched 11, 12 and 13.1-inch 3:2 aspect ratio panels. Among the three, the 11-inch model emphasizes size and is similar to the B5, and can compete with basic 2-in-1 PC screens as well as those on notebooks and tablets. 12-inch 3:2 aspect ratio panels have recently become mainstream in the notebook and tablet markets and can be positioned as middle and premium 2-in-1 products. The 13.1 inch screened panels are very close to A4 size, comparable to typical 14 and 15.6-inch panels and can be applied in the large-size 2-in-1 PC market.
Initially, LG Display was the only manufacturer of 3:2 aspect ratio panels. As a result, some brands hesitated to adopt the new products. But when the Japanese brands PLD and Sharp began using 3:2 products, it became clear the market had accepted them. If panel manufacturers can continue improving the cost structure for 3:2 products and giving them more application channels, they may become tomorrow’s star in the notebook market.
Figure 3: Mobile PC sizes
With Chromebook’s market share increasing, is Microsoft threatened?
Once seen as primarily focused on mobile devices, Google is now competing fiercely with Microsoft in the low-priced notebook segment. Google has largely focused on the education market in North America with its Chromebook but launched the budget laptop in mainland China in the spring of 2015. The Chromebook has been selling briskly; indeed, it is one of the few bright spots in a lackluster notebook market. Shipments in 2014 reached 6.27 million units and are expected to rise 93% to 12.1 million units this year. Meanwhile, Microsoft’s share of the notebook market has dropped from 92% in 2013 to 82% in 2015.
In 2015, Google has also launched an 11.6 inch Chromebook model in China. This Chromebook is equipped with 2GB memory and 16GB eMMC produced by local Chinese brands Haier and Hisense. It also has Rockchip’s SoC and ARM 4-core processor and a battery life of 10 hours. Selling for just US$149, it is expected to gain market share fast. While in the past, Google sold more than 80% of its Chromebooks to educational institutions and governments in North America, it is now keen to boost sales in China, the world’s largest notebook market, by working with Hisense and Haier.
The Taiwanese brands Asustek and Acer are also forecast to launch 11.6-inch notebooks equipped with a Rockchip ARM processor in May and July 2015, respectively.
Google is also working with Asus to launch a 10.1-inch IPS Chromebook Flip, which can be used as a tablet, as it weighs just 910g and priced at US$249. Acer plans to work with Google as well, to launch a 2-in-1 Chromebook in May.
Google’s strategy goes beyond simply pricing its notebooks competitively. It is differentiating the Chromebook from traditional laptops by adding 2-in-1 functionality and other features. The success of Google’s strategy can be seen in the response of vendors, whose faith in Microsoft is wavering. Indeed, brands are beginning to roll out Chromebooks to diversify their product range and manage risk.
Will the MacBook and iPad Pro dominate their competitors?
In 2014, Apple’s shipment growth outstripped that of Japanese and Korean notebook brands, as the California-based tech giant became one of the top six laptop vendors worldwide. Apple’s growth rate was an astonishing 46% year-on-year, much faster than any of its competitors. Its success shows that doing the right thing at the right time can produce remarkable results. Apple wisely followed Microsoft’s lead in lowering notebook prices to boost market share, and that strategy bore rich fruit.
Apple’s strong brand equity and hard work have also helped it boost notebook sales. Apple has not only upgraded existing products but also launched a new model, the 12-inch MacBook. Although the market has not always reacted consistently to 12-inch notebooks, judging from the increasing shipments in 2015, it is clear that 12-inch models are helping to push sales of Apple’s 11.6-inch and 13.3-inch models. The price tag of US$1,299 is certainly a key factor in rising sales. In this case, it can be observed even Apple, which has a powerful brand, needs to play the price game sometimes.
In the tablet market, Apple has consistently been the leader, both from the standpoint of design and product features. With that in mind, Apple is expected to launch the 12.9-inch iPad Pro in the fourth quarter of 2015. The iPad Pro will be equipped with a Force touchscreen and Bluetooth stylus. This will give the iPad a different look. Although Apple’s tablet is very different from a Chromebook, it is likely to be equipped with both Mac OS and iOS, just as Google’s low-cost laptop has Chrome OS and Android. This is surely making Microsoft nervous. Indeed, Apple has a new opportunity to lead the next-generation integrated notebook and tablet market.
Figure 4: NB market shares and shipments by OS
If the notebook market wants to bounce back, it will require both new hardware and multiple systems
In 2015, the notebook market remains saturated. Nothing is happening in the market with the capacity to boost shipments significantly. Consumers are not replacing their notebooks in large numbers. Meanwhile, even though both 2-in-1 PCs and Chromebooks are growing at a healthy rate, overall shipment volumes remain small. In most cases, consumers tend to hold off purchases until there are promotions, in addition notebooks are not mandatory purchases in the consumer market. The exception is large attractive brands, such as Apple with its loyal fan base has been able to create purchase tide with ever new product release and upgrade. This shows that in the current notebook market, regardless of operating system or user experience, brands can only win customers by thinking out of the box and creating remarkable products, and releasing products attractive to consumers will be a direction consumers need to work on.