Dell Shares

The netbook is a product category that has received considerable attention over the past several months from the media and investment community, so I wanted to share Dell's point of view on it.  We see this relatively new product as another category of the notebook market and one that is growing rapidly.  In Dell's case, the Inspiron Mini line is an excellent way for us to continue down the path of expanding the number of product platforms designed around specific customer needs and cost points.  As for the opportunity, Wall Street analysts estimate netbooks may reach 20 to 30 million units in calendar 2009 while IDC expects total notebook units for 2009 to be approximately 148 million on a worldwide basis.  Thus, netbooks are certainly a meaningful and growing part of the overall notebook market with the potential to represent 13 to 20% of total notebook units shipped worldwide this year.  Revenue and profit share will be lower given the lower average selling prices for netbooks.

 Dell entered this category last fall and currently offers three products in the "netbook" segment in 9, 10 and 12-inch screen sizes.  Consistent with Dell's overall consumer approach to differentiate based on industrial design as well as specific functionality in each price point, the Mini line-up is stylish and packed with solid mobility features including integrated 3G mobile broadband connectivity.  Dell has also established key cellular broadband partnerships in North America and Western Europe and recently announced a deal in which China Mobile will offer 3G broadband on the Mini 10 inch netbook in China.

 We view netbooks as incremental to conventional notebooks with some differences in usage by mature and emerging geographies.  In mature markets, we believe netbooks will principally function as secondary devices.  People looking for basic email, web access and social networking functions may favor the small screen sizes, keyboards and lower power footprint.  They also serve as an excellent travel companion device for those who are highly mobile and looking for a smaller form factor on the road.  However, a traditional notebook is generally a better option for consumers looking to perform functions such as photo and video editing or use productivity software applications such as Office.   In emerging markets we believe that many first-time and value conscious users may be attracted to netbooks as they offer basic functionality at an attractive price point.  Netbook usage may find its way into other areas besides consumer, such as schools and education.  Though this may act to reduce overall hardware average selling prices, it also presents an excellent opportunity to increase the addressable industry opportunity and raise margins through attached services, software, etc.

 Overall, there are different usage models and applications that will drive people towards different sized devices and technologies.  This is a quickly evolving space that will see the introduction of more powerful and more efficient processors from the likes of Intel, so we will watch this play out.  Regardless of where these technology improvements take us, Dell's direct relationships with its customers, allow us to deliver what customers want and take them where they want to go with the proper features, whether it is mobile broadband, keyboard configuration, screen size, etc.  The growth in this space looks to outpace that of traditional notebooks over the next several years, and Dell will be a part of that growth.