Dell bets on a small laptop

The Inspiron Mini 9 will have a starting price of $349 for a Linux version, and will be available in the U.S., Japan, and some European countries. Image: Dell 8.9" glossy LED display, (1024×600) built-in WiFi Box.net online storage optional webcam optional Bluetooth Linux or Windows XP

Hewlett-Packard has one. Asus, the Taiwanese electronics maker, has one. And now, Dell has one, too.

The latest big trend in the PC business is small, cheap laptops that double as portable Internet terminals. These machines typically don't have much storage space for digital files or much visual horsepower for tasks like videoconferencing. Instead, they come with shrunken dimensions (screens are nine inches or less), light weight (they're typically about two pounds), and starting prices under $500.

Though the stylish little machines are a dream come true for road warriors who have longed for more portable workstations, they will also present a vexing challenge for the PC industry. The once-booming U.S. market is now maturing, and pressure on margins is as intense as ever. If lightweight laptops are in the bargain bin now, how's a company to make a profit?

The subject has come up repeatedly in my recent chats with executives from HP (HPQ), Dell (DELL), Intel (INTC) and elsewhere. Generally the companies respond to the profit question by saying they must first provide what customers demand, and better margins will come later.

Of course, the companies are very much aware of the financial implications. HP vice president Dan Forlenza told me his team worked hard on the design of the HP mini-note to keep costs low – the basic version comes with Linux instead of Microsoft (MSFT) Windows, and with 4 gigabytes of flash memory instead of a hard drive. And Intel Chief Financial Officer Stacy Smith notes that analysts have been peppering him with questions about the new Atom processor for low-cost mobile devices, mostly concerned with how it will impact revenues and average selling prices. (Apple (AAPL) has taken another tack so far; rather than offer compact, cheap laptops, it's charging a premium for the slim MacBook Air.)

But the company making the boldest move in the mini-note arena might just be Dell, with the release Thursday of its Inspiron Mini 9. (The "9" presumably refers to the screen size, which is just shy of nine inches diagonal.) Unlike HP, which aims its mini-note at the education market, Dell is pushing its Mini 9 to sophisticated mainstream consumers. A version with Windows XP will sell for $400, and the company promises a Linux version in "a few weeks" starting at $350. The laptops use Intel's Atom processor, have between 4 and 16 gigabytes of flash storage, and come with 2 gigabytes of free online storage from Box.net, which users will be able to expand to 25GB.

When the Linux version is ready, it will offer the highest-profile test yet of Dell's recent embrace of the open-source community. Though Dell has offered systems with Linux for more than a year, some customers have complained that the systems were often expensive and difficult to find.

It will also test Dell's efficiency. Investors dinged Dell stock last week after slim margins in the consumer business helped drive disappointing earnings numbers. With the Mini 9, we'll see if the company manages to squeeze decent profits out of small packages.