But some people may not be getting the computers they hoped for this holiday season

Image: Amazon.com

On the eve of Cyber Monday, Apple (AAPL) Macs held the top three spots on Amazon's (AMZN) "Most Wished For" laptop list, as well as the top four spots on the desktop computer wish list.

But wishes are not horses — or premium-priced Macs — and judging from Amazon's "Most Gifted" lists, some of those Christmas wishes might be filled by more affordable Microsoft (MSFT) Windows machines.

On the laptop "Most Gifted" list, the top two spots Sunday morning went to a $549.99 Toshiba Satellite and $418.98 Acer Aspire, respectively. The $1,199 MacBook Pro had been pushed to No. 3.

On the desktop computer "Most Gifted" list, three of the top four were still Macs, but a Hewlett Packard (HPQ) Compaq had moved into the No. 2 spot.

On Amazon's "Bestseller" lists — a broader measure of what's being purchased on America's largest online retail store — no Macs topped either list Sunday morning. But four Macs were among the top 10 bestsellers for both laptops and desktops.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

A few years ago rivals mocked Jonney Shih, chairman of Asustek, and his purse-size laptop computers. Millions of netbooks later, Shih is having the last laugh.

Jonney Shih, CEO of Asus, in Taipei.

On a hillside above the Hsing Tian Kong temple in the northern reaches of Taipei, Jonney Shih sits on a wobbly stool next to an ornate low wooden table. Dressed in a taupe suit, white shirt, and silver tie emblazoned with jaguars, Shih, 57, cheerfully waves off three umbrella-wielding employees who try in vain to shield their boss from the hot sun and a swirl of menacing bees.

But Shih, who is waiting to be photographed for this magazine, sits serenely, perspiration-free in the sun, intent on a game of Chinese chess. "In Buddhism you learn to accept everything, to let it flow through you," Shih says. "Then you can slow down and think clearly."

It turns out the ferociously driven Shih is a less-than-model Buddhist. (Buddhists aren't supposed to be thinking about technology while they're meditating — something Shih is known to do.) But his ambition, combined with engineering skills and spot-on business instincts, also makes him the most brilliant technology executive you've never heard of.

He is the largest shareholder and chairman of Asustek (pronounced a-soos-tech), the $21-billion-a-year tech conglomerate that introduced the first netbook three years ago, ushering in a revolution in the stagnant PC industry. When it hit stores in the fall of 2007, Shih's $399 EeePC was derided by rivals as a low-power plaything. But Asustek, or Asus for short, went on to sell millions of the mini-notebooks and soon vaulted to No. 5 in worldwide PC market share.

Today virtually every PC manufacturer on the planet, including Dell (DELL), Hewlett- Packard (HPQ), and Toshiba, offers its own version of netbook. (The exception is Apple (AAPL).) But the biggest netbook maker, with 38% of the market, is another Taiwanese tech company, Acer, which also happens to be Shih's former employer. Asus, which had the market all to itself for about eight months, is now in second place, with a 30% share.

So Shih, after creating what has grown into a $10 billion category in two years, needs to come up with another breakthrough, and he'll apply his own flavor of Buddhism to the challenge. "Most people think Buddhism is passive or about escape," he says. "It's not. It's about confronting what's in front of you with a clear and flexible mind. That might be a hot day or your competition, but you accept it and do everything the best at that moment."

That sounds fairly magnanimous, but whether it's in Chinese chess or the PC world, Shih's best effort has a way of crushing the life out of whoever gets in the way. Shih's "not that well known in the West because he doesn't put himself first," says Jen-Hsun Huang, CEO of chipmaker Nvidia. "He's humble, but he always has a mental model for exactly what he wants his company to do."

The Giant Lion
Asus was started in 1989 by four former Acer engineers. (The name "Asus" comes from the mythical Greek horse, Pegasus.) At the time Acer, one of the original companies to transform the island of Taiwan into the center of computer manufacturing in the world, had already gone public on the Taipei exchange.

Many Acer employees took their stock gains and launched their own businesses. At a café in Taipei, four subordinates tried to persuade Shih, who was running R&D at Acer at the time, to join them in starting a company to design and manufacture motherboards — the central circuit boards in PCs that connect crucial components, including the processor and memory.

Shih demurred out of loyalty to his mentor Stan Shih (no relation), co-founder and chairman of Acer. But he did encourage his former reports to start Asus and took a stake in their new company. In 1994, after three years as president of Acer's business unit — selling Acer technology rather than designing it — Shih joined Asus as CEO.

When a chip company comes out with a new processor, it's up to the motherboard designers to integrate that chip into a standard circuit board that can run the computer. Whichever company can get its motherboard out first and squeeze the highest performance out of a chip set wins the business of the PC makers.

Back when Shih was at Acer, he made his reputation by building killer motherboards. When Intel (INTC) was rolling out its 386 processor in 1985, Shih and a group of engineers showed up at the Computer Electronics Show in Las Vegas ready to do battle. "We didn't sleep much that voyage," Shih recalls.

In the competition among motherboards, Dell's offering was the highest performing, but it wasn't a technology suitable for mass production. Shih's was, and it beat out the best from IBM (IBM), Compaq, and everyone else. (At the time, many PC makers produced their own motherboards, which they sold to other manufacturers as well.) The orders came pouring in, and Shih's reputation around Intel and the rest of the PC industry was made.

After moving to Asus, Shih continued his success with Intel's 486 processor, and computer makers such as Hewlett-Packard, Sony (SNE), and Dell found that if they used Asus motherboards, their computers performed better. By the mid-'90s, Asus sold more motherboards than anyone, and its revenue and profits climbed steadily throughout the decade.

But in 2001 other companies, ECS and Foxconn, started undercutting Asus's prices in the motherboard business. Asus's share in unit volume fell to No. 2, and annual profit dropped dramatically to $300 million in 2002, from $500 million the prior year. In response Shih launched what he called the "giant lion" strategy.

"You need to be a lion. A lion has position in the jungle," Shih says. "So we kept driving the performance, quality, and innovation of our motherboards — we kept our leading position in the jungle. But I realized that at the same time you have to have big market share. You need to be a giant lion." Shih founded a subsidiary, ASRock, to compete at the low end, leveraging Asus engineering and manufacturing.

The giant lion mauled the competition: Within two years Asus was back as the No. 1 revenue producer in the motherboard business, and its volume exceeded the output of the second, third, and fourth companies combined.

Meanwhile the company started making "white label" consumer electronics for the likes of Dell, HP, and Sony. Named Pegatron after the first part of "Pegasus" (the wholly owned subsidiary was spun out in 2008), it manufactured notebooks as well as routers, MP3 players, gaming consoles, and whatever else big brands wanted made. But Shih wasn't satisfied to be a mere contract manufacturer, and in 1997, Asus started making laptop computers under its own brand.

A computer for the masses
Asus is Taiwan's HP and Apple rolled into one. It is the No. 1 seller of notebooks there, but its laptops win for their performance, reliability, and style, not their discount prices. Asus has notebooks covered in leather, hand-polished steel, even bamboo.

But Shih's ambitions extend beyond what clearly is a maturing market. He wanted to build a machine for the next billion PC customers. His breakthrough notion was to provide a device that offered good enough performance to surf the web and do simple computing tasks in a very easy-to-use, affordable package.

Fortuitously, Intel at the time was working on a chip that would help Shih accomplish his goal. "Behind the scenes we had been working on Atom, our low-cost, lowpower chip," says Sean Maloney, Intel's executive vice president. "Jonney immediately wanted it." The question was how to package a machine around it.

For three months Shih and the head of Asus's motherboard business, Jerry Shen (now the Asus CEO), personally worked out the basic concepts: what features to include (Wi-Fi, a touchpad, and a solid-state drive) and what to throw out (Microsoft Windows, initially, and a full-size keyboard). Then they brought in a team of engineers to make their ideas real. At one point, as they struggled over the machine's software interface, Shen locked the team in a Taipei hot-springs hotel for two days. They finally emerged with their answers. When the first few thousand EeePC netbooks went on sale in Taiwan in October 2007, they sold out in 30 minutes.

Like other tech companies, Asus was hit by the global recession, and last winter it posted its first quarterly loss in the company's 20-year history. The company has cut costs through layoffs and salary cuts, and has scaled back its inventory. More recently, however, Asus has rebounded, blasting through analyst estimates for its third quarter, and its stock is trading at a 52-week high on the Taipei Exchange. (Asus has made Shih rich, but his only concession to his wealth is a chauffeur-driven Volkswagen Phaeton. "It's 80% of a Bentley and half the price," he jokes.)

Asus, which gets 40% of revenue from Asus-branded technologies, is forecasting a 30% increase year over year in netbook and notebook sales in 2010. Of course, rival Acer also forecasts growth, and the maker of the Aspire One model isn't likely to cede its No. 1 position in netbooks anytime soon. And so Shih is spending his time meditating about Asus's next industry-changing hit.

The next netbook
At Asus headquarters in a bright corner room filled with fabric swatches and beanbag chairs, the next phase of Shih's clear thinking is being prototyped. This is the company's top-secret design lab. Lying on counters are notebooks that look as if they are folded, origami-style, from sheets of aluminum. Others have keyboards that slide back and slightly up when the case is opened for a more ergonomic position. An international team of designers swap ideas on couches.

Shih's instinct tells him that the "next netbook" won't come from an engineering specification but from understanding how people use devices to communicate, get work done, and play. More than ever he is pouring company resources into design.

He pulls out a prototype of the forthcoming Eee Keyboard, an aluminum-clad keyboard with a touchscreen on one side. Via a wireless connection, it turns a flat-screen television into a websurfing, Facebook-friendly device. From his pocket emerges a smartphone that Asus developed with navigation company Garmin (GRMN).

The Asus-Garmin phone has been a dud, and the keyboard isn't out yet, but those items suggest that Shih is thinking about more easy-to-use, affordable products that are integrated as part of a digital lifestyle. "My competitors are doing their own version of the EeePC," Shih says, "but I don't know if they have the vision of how everything can work together."

Is Shih's insight about integrated technology the "giant lion" that will help Asus regain its leadership position in netbooks? It hardly sounds revolutionary, but by now rivals know better than to underestimate Shih, especially when this "bad Buddhist" is thinking clearly.

Microsoft moved a lot of install disks, but hardware makers got a bigger bump two years ago

Photo: Philip Elmer-DeWitt

When Microsoft (MSFT) launches a new operating system, as it did two weeks ago, PC manufacturers like Hewlett Packard (HPQ), Dell (DELL) and Acer are supposed to reap the benefits. And everything seemed to be in place on Thursday Oct. 22 for that to happen.

"Never before has the industry launched such a variety of new form factors, price points, technology upgrades, and design innovations at one time," wrote NPD's Stephen Baker just before Windows 7's release. "This past weekend I happened by a Best Buy store and there was not one single PC for sale with Vista on it. Lots of Windows 7 machines, however, all of which were marked 'not for sale until October 22.' Someone did a great job in the supply chain making this happen. This will give Win 7 a tremendous boost out of the gate." (link)

Two weeks later, Baker is singing a different tune. Microsoft got a big boost according to NPD's weekly tracking data, racking up sales of Windows 7 that were 234% higher than Vista's during its first few days of sales. (More on that below the fold.)

But PC makers didn't make out quite as well. Although they had a relatively strong week, with unit sales up 49% year over year and 95% from the week before, it was nothing like Vista's launch in Feb. 2007. Then, sales soared 68% year over year and 170% from the week before.

In a press release issued Thursday, Baker explained what happened:

“A combination of factors impacted Windows 7 PC sales at the outset,” Baker wrote.  “Vista had a slight advantage at launch, as January traditionally has a bigger sales footprint than October.  The other hurdle Windows 7 faced was sales of PCs with older operating systems (XP and Vista) were high, making up 20 percent of sales during the Windows 7 launch, compared to just 6 percent of older operating sales during Vista’s launch week.”

Another thing to remember about that Vista launch week is that it set a relatively low bar. Retail Vista sales were considerably below Microsoft's forecast — almost 60% lower than sales of Windows XP during its first week in 2001.

Ironically, it was the computer manufacturers who did best in Feb. 2007. Sales of new PCs with Vista pre-installed were up 67% the week that Vista launched compared with the same week in 2006.

Apple (AAPL), of course, sells both OS X and the Macs that run it, so when it launched Snow Leopard in August, it made money on both sides of the deal.

See also:

• PC sales spike with Windows 7 debut
• Apple pays Google for Windows 7 hits
• Mac share grew after Windows 7 launch

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Who'll win over consumers this holiday season? We test-drive the newest netbooks and notebooks.

This Christmas expect small computer overload — so many options, so little time (and money).  All the major computer manufacturers are coming out with lightweight 'net-connected laptops, and they're banking on big sales: The researchers at IDC expect some 160 million notebook computers to sell worldwide by the end of the year.

But which company will come out on top? It's a tight market right now in the notebook world. HP's (HPQ) remains the market leader in personal computers; Dell (DELL) is, for now, the No. 2 PC maker. But Taiwanese rival Acer is coming on strong, especially in the netbook market.

In netbooks, Acer's got a considerable lead: This year it has almost 2 million units sold. (In contrast, HP has sold some 792,000 netbooks this year.)

We decided to take a look at the small laptops that have been getting some serious buzz to determine which one might win the holiday buying bonanza, such as it is. (With consumers strapped for cash, low-priced netbooks should prove to be winners among consumer electronics.)

Here's the breakdown of HP and Acer's leading notebooks and netbooks — and how the devices stack up.

NETBOOKS

HP Mini 110. Photo: HP

HP Mini 110

• $329
• 2.89 pounds
• 3-hour battery life
• Nearly full-sized keyboard
• Intel Atom Processor
• 10.1" LED widescreen display
• 1024 MB of memory
• 160 GB hard drive
• HP webcam
• HD audio

Acer Aspire One. Photo: Acer

Acer Aspire One A0751

• $349
• 2.75 pounds
• 4-hour battery life
• Full-sized keyboard
• Intel Atom Processor
• 11.6-inch LED display
• 1024 MB of memory
• 160 GB hard drive
• Acer webcam
• Built-in stereo speakers

My choice? Acer's Aspire One

With the specs almost exactly the same, this was a hard decision. But a couple of dealbreakers in HP's design gave it to Acer. Although, Acer's full-size keyboard throws you off a bit (because you don't expect it), you don't realize how great it is until your fingers are squished on HP's netbook. Acer decided to do this after specific feedback from customers saying that this was not comfortable. Not to mention that the HP Mini tried to save space by putting the navigation buttons on the side of the scrolling mouse pad versus putting it under it, like conventional design has it. Now I'm all for innovative design, but this was not intuitive. The user has to constantly adapt to this new navigation style. (I had to use both hands most of the time in order to work at the same speed I normally do.)

That's not to say the HP Mini doesn't have its own strengths: The speakers and sound quality was great and the web cam was brighter and better than what I saw from Acer. The HP Mini also looks sleeker despite being a bit heavier. But because of its keyboard and mouse design, for $20 more, Acer's still the better choice.

Expected holiday winner? Acer

Although Asus started the netbook category, Acer saw a golden opportunity and jumped in when most other companies were still reticent, says IDC analyst Bob O'Donnell. Acer hit the market hard and "came up with a great product and price," he says. Although it might not have as large of a market share as this year because more competitors are entering the field (Toshiba's bringing the goods now), it's still expected to remain the leader.

NOTEBOOKS

HP Pavillion dv3. Photo: HP

HP Pavillion dv3

• $749
• 4.7 pounds
• Intel Core 2 duo
• 2.2 GHz
• 13.3-inch HD LED display
• 4-hour battery life
• 2 GB of memory
• 250 GB hard drive
• 8x DVD double-layer drive
• Altec stereo speakers
• Regular touch pad
• HP Web cam

Aspire Timeline 4810T. Photo: Acer

Acer Timeline 4810T

• $699
• 4.2 pounds
• Intel Core 2 Duo 1.4 GHz
• 14-inch HD LED display
• 8+ hours of battery life
• 4096 MB of memory
• 320 GB hard drive
• 8x DVD double-layer drive
• Dolby Sound Room Audio system
• Multi-gesture touch pad
• Acer Web cam

My choice? HP Pavillion dv3

Close comparisons again, but HP's decision to include Intel's choice for stronger processing speed made all the difference. The Acer started to lag and slow down when I was at my optimal multitasking state of consciousness. That's not desirable for any computer these days, especially when more folks are looking for longer-term value in their notebooks instead of investing in a desktop. I was also disappointed with the sound quality, considering Dolby was involved. It was very low even at its highest. And yes, my hearing has suffered from constant earbud wearing, but that still doesn't excuse bad.

I also wasn't a big fan of the multi-gesture touch pad. Although I understand the "concept," it doesn't work. Yes, this feature can be turned off, but you can't translate the same idea of a touchscreen into a mouse touch pad. Your brain doesn't work that way. It's fine to explore on the netbook, but I think Acer should have held off on its regular notebook. Overall, HP did it for me — mainly because of the processing power, but also because Acer's little "features" wound up becoming more like nuances. (Also, props to HP for installing a battery that elevates the laptop to give it a better user experience.)

Expected holiday winner? HP

HP still has reasonable lead over second-place Dell. Yes, Acer sales have increased rapidly, but they're also expected to slow soon. As the PC market has become more specialized and fragmented, HP has adapted to its customers well, targeting specific demographics. As HP looks are more of these targeted opportunities, it'll probably continue to remain the leader, O'Donnell says.

In a sign that should bode well for Apple's (AAPL) earnings in its third fiscal quarter — which ended Saturday — the MacBook has clawed its way back to the top of Amazon's (AMZN) bestseller lists.

The Mac, which once led the pack in the online retailer's Computers & PC Hardware Bestsellers category despite its $1,000 to $2,000 sticker prices, had fallen behind the blistering sales pace set by netbooks like the Asus Eee and the Acer Aspire One, which sell in the $300 to $400 range.

By June 1, the bestselling Apple computer on the list — a white plastic MacBook — had been pushed down to the No. 14 position.

But netbooks have started to fall out favor recently — as witnessed by reports of return rates as high as 30% and an NPD study that found that 60% of consumers who bought them didn't understand the difference between a netbook and a notebook.

Meanwhile, Apple announced on June 8 that it was refreshing its notebook line and lowering its prices. Result: its computers have become hot sellers on Amazon once again.

Apple's entry-level 13-inch unibody MacBook, renamed the MacBook Pro, has been one of Amazon's top 100 bestsellers for 20 days — basically since the moment it went on sale. As of Monday morning, it was the site's No. 4 bestselling computer overall and No. 1 in the laptop category.

In fact, three of the top 10 and five of the top 20 bestselling laptops on Amazon are now MacBooks.

Apple is not the only beneficiary of what some see as growing consumer disillusion with netbooks. HP (HPQ) Pavilions, Toshiba Satellites and Samsung Mini Notebooks are also selling briskly online.

See also:

• AMEX vs. Amazon; Macs vs. netbooks
• Amazon’s Christmas bestsellers: Acer, Apple and Asus

Here's a tale of two demographics.

If you list the five bestsellers in Amazon's "Computers and PC Hardware" category today, you get five netbooks — three ASUS Eees and two ACER Aspire Ones. That's been the story pretty much all year.

If you list the five most popular items in "Computers and Software" on American Express's shopAmex site, you get four Apple (AAPL) products — three MacBooks, one Apple TV and one Sony (SNE) Blu-Ray player.

The first non Apple computer on the AMEX site is No. 17, a Dell (DELL) Inspiron. The first Apple on the Amazon list is No. 14, a white MacBook.

Why the difference? The Amazon site is open to everyone and tends to attract bargain hunters. The AMEX site is open only to card members, and although it advertises 30% discounts, it's attracting a different sort of clientele — one that doesn't seem to be put off by Apple's premium pricing.

Here are those lists:

A report last week that Apple (AAPL) is preparing to slash prices on its entry level MacBook and iMac models has triggered a flurry of speculation about what the new price points might be.

According to AppleInsider's Kasper Jade, Apple sees the cuts — which could come in the next month or two — as an "interim solution" to the growing popularity of netbooks, those sub-compact laptops that Steve Jobs once dismissed as "a piece of junk" but which are flying off the shelves at $299 to $349 apiece.

For example Acer, whose Aspire One netbooks are Amazon's bestsellers, saw its U.S. market share grow 49.4% (to 13.6%) in the first quarter of 2009, according to Gartner Research, even as Apple's share shrank to 7.4%, down 1% year to year. Mac sales actually fell last quarter for the first time in nearly six years.

How low will Apple go to turn that around? Jade's reporting — based on unnamed sources "familiar with the matter" — is fuzzy on that point, but in the comment stream he makes it clear that he's talking about price reductions in the range of $100 to $150.

Applying these cuts to the current entry-level machines, we get:

• White 13-inch MacBook: $849 – $899, reduced from $999
• 20-inch 2.66 GHz aluminum iMac: $969 – $1,019, reduced from $1,119

With gross margins last quarter of 36.4% — up from 34.7% in Q1 — Apple can certainly afford to sacrifice some profit to grow share. As AppleInsider points out, Apple last month started selling 2GHz iMacs to the education market for $899.

The real questions is, will it work? Will consumers who are buying $349 Acers — or like Microsoft's (MSFT) Lauren, $699 HP (HPQ) Pavilions — give the MacBook a second look if it's priced at $849?

Would you?

On Wednesday, Gartner Research reported that Apple's (AAPL) share of the U.S. computer market, which topped 9% in calendar Q3 last year, dropped to 7.4% in Q1 2009 — putting it in fourth place behind HP (HPQ), Dell (DELL) and Acer.

The next day, Apple's share price rose nearly 2% to finish Thursday at $121.45, its highest close in six months.

Why the disconnect? Chalk it up to the ASPs.

As Gartner's Mikako Kitagawa notes, sales for Apple's competitors are being driven by the explosion of interest in low-cost netbooks — not just among penny-pinching consumers, but in the professional and education markets as well.

As result, Gartner estimates that average selling prices (ASPs) for computers sold in the first quarter may have fallen as much as 20% across the board — cutting sharply into PC makers' revenues.

Except at Apple. Despite rumors that its engineers may be working on some kind of device with a 10-inch screen, the company has so far shown zero interest in duking it out with the likes of Acer and Asus in the bargain basement mini-notebook market.

So even as Apple's market share shrinks, its margins and gross revenue are likely to have held up better than any of its competitors.

Moreover, while Gartner's Ms. Kitagawa is seeing signs of channel inventory restocking at other companies — evidence that the global PC market has not yet hit bottom — she singles out Apple's "deft control of inventories [which] limited its shipment decline."

All this — and a flood of deferred iPhone earnings — may help explain why analysts are scrambling to raise their Apple price targets (and talking up the stock) in advance of the company's fiscal Q2 earnings report next Wednesday, April 22.

Below the fold: Gartner's preliminary estimates of domestic PC shipments for Q1 2009.

Look what Santa left under Amazon.com's tree this Christmas morning:

• 7 Acer netbooks
• 7 Apple MacBooks
• 4 Asus netbooks
• 2 Samsung netbooks
• 2 MSI netbooks
• 1 OLPC (One laptop per child) XO laptop
• 1 Lenova Ideapad laptop
• 1 Toshiba Satellite laptop

Can you spot the ringer on Amazon's 2008 Christmas-day list of 25 bestselling notebook computers?

You guessed it. It's those seven premium-priced Apple (AAPL) MacBooks in a shopping cart dominated by stripped-down netbooks, heavily discounted Windows notebooks and a 2-for-1 "$100" laptop.

Except for the MacBooks and one $599 Toshiba, every computer on that list sells for less than $500.

The seven MacBooks, by contrast, sell for three times as much: an average of $1,473.41, after rebates.

It's almost as if Macintosh buyers were insensitive to price, even in a recession. In fact, the best-selling Apple on that list isn't the cheapest; it's a $1,299 unibody MacBook marked down to $1,218.98. The cheapest Apple — a $999 white MacBook, marked down to $929.99 — is No. 22.

Over on Amazon's desktop bestseller list, Apple did even better this Christmas morning: 4 of the top 5 are Macs.

Amazon (AMZN) is the world's largest online retailer, but for definitive holiday sales figures we'll have to wait for the quarterly reports.