​42years ago a JV between IDG Communications (BX) and the Chinese Ministry of Industry & Information Technology created China Computerworld to educate the Chinese population about computer science and eventually became one of the top 10 newspapers on the Mainland, which is unusual in that it was always oriented toward the computer and information technology markets.  Due to COVID-19, the print version ended in June of 2021 but the JV maintained its website, social media accounts, and associated employees.  Unfortunately the staff has not been paid since February, with a number of employees filing labor arbitration cases against the JV, but it seems that the company has been sustaining large losses and has now declared that it will cease operations after borrowing capital to pay employee’s housing costs and medical insurance.  Whether the end of such a long-standing publication and the last ‘official’ US/China JV magazine is a function of COVID-19 or a sign of the times, it is sad to see it go after that many years of publication.

Chromebooks have been around for longer than most would expect, with the earliest Chromebook coming from Samsung (005930.KS) (Series 5) back in June 2011, followed by the Acer (ACER) AC700 Chromebook only two months later after both were announced at the Google (GOOG) I/O conference in May and Google itself released the Google Chromebook Pixel almost two years later.  Early reviews were uncertain that such devices had a place in the CE space when compared to laptops, but the lower pricing of such devices slowly gave credibility to their value.  However there was relatively little excitement over Chromebooks until Google announced in 2016 that it would make Android apps available on Chromebooks via Google Play, but relatively weak Chromebook processors did not always produce expected performance results.
While Google assisted Chromebook marketing on a general basis, consumers had little understanding of the reason why one would buy a Chromebook, other than price, as the concept of working without Microsoft (MSFT) Windows™ was a bit hard to get used to, and some were wary about everything being stored ‘in the cloud’, particularly business information.  As early as 2013 however the educational market began to recognize the value of Chromebooks, particularly the idea that a large IT department was not needed to maintain such devices, as all O/S updates were done automatically by Google and only a few applications were needed for classroom work.  In 2013 1.8m Chromebooks were sold in the US, up from .4m in the previous year, with Google seeding classroom in the US and Europe, and in 2016 58% of the mobile devices purchased by schools across the US were Chromebooks, although concerns over the storage and use of student history information was a concern.
Chromebook sales in subsequent years followed seasonal patterns as niche devices, although the generational familiarity with the cloud and on-line computing generally seemed to establish Chromebooks as legitimate devices in the CE space.  However the outbreak of COVID-19 in 2020 changed everything for Chromebooks as it pushed legislators across the globe to institute ‘school-at-home’ programs, with laptops and less expensive Chromebooks as the logical choices for remote learning.  Of course, at the same time a better understanding of how much of the world’s population had/has access to broadband internet (currently 62.5%, up from 59.0% in 2020) was also made apparent as many locations were unable to support such projects as connections were slow or non-existant.
That said, Figure 1 shows the jump in Chromebook shipments during the onset and continuation of COVID-19 and the decline in those shipments as vaccine programs allowed students to return to classrooms more recently., We would expect Chromebook shipments to decline substantially on a y/y basis this year, returning to more seasonal patterns, although we expect the overall unit volume to be a bit higher than in the pre-COVID period as the global population becomes more used to cloud computing. 
While Chromebook shipments are expected to decline this year, we were curious to see how Chromebook pricing has been affected by the weaker demand, and surveyed pricing history on Amazon (AMZN) for a variety of popular Chromebooks.  We were surprised to find that current prices were on average near the midpoint between their historic highs and lows, currently 12.9% above the average low and 11.0% below the average high, as we expected more price pressure.  When speaking with distributors about the pricing we noted that in almost all cases the reference point was higher component and transportation costs and in some cases higher inventory levels, but the view was that over the next few months some of those costs might be mitigated unless Chinese lockdown policy remains at current levels.
While we do expect Chromebook pricing to decline, particularly as IT display panel prices show similar weakness, the question remains as to the usefulness of Chromebooks to the general global population in a non-pandemic world.  There are certainly a number of positives that make Chromebooks viable in many situations, although there are also a number of reasons why they fail to qualify as laptop replacements, which we look at below.

• Most work done on Chromebooks is done through the browser, which has become the de facto standard for smartphones, making it a very familiar environment for many users and there are almost innumerable applications that have been written to operate under Android, but each needs to be loaded locally on an Android device.  Chrome, the OS under which most Chromebooks operate, runs applications remotely and will not run Android or Windows applications unless they have been ported to Chrome.  This means that while many users are used to Android applications, they might not be as familiar with Chrome applications, which means there is a learning curve for those that are doing more than watching movies or playing relatively simple games.
• As Chrome is web-based, there is little need for storage on Chromebooks, as opposed to Windows, which runs many applications locally.  This helps to keep costs down and for organizations, reduces the IT staffing needed to perform updates and solve application issues on Windows-based laptops and desktops. 
• Thinking back to the era of ‘client-server’ or ‘dumb terminal’ computing, Chromebooks can be thought of as ‘smart terminals’ allowing users to interact with remote applications rather than doing much of the heavy lifting on the local device, but for those that need local computational power both the lack of storage and relatively weak processing capabilities usually rule out Chromebooks for those in media creation, financial modeling, and product design.
• Progress is being made by application developers to design software that allows power users to perform such functions on server-based hardware through Chrome-based devices, but many of those applications also need high-speed data transfer or the data movement will cause bottlenecks or require local buffering, so the introduction of 5G will help to alleviate that problem over time, but an internet connection is a necessity for Chromebooks, while laptops can be used in any location as long as the battery lasts.

All in Chromebooks are a viable alternative for a portion of the computing public but thought must be given to what such a device will be used for.  If its browsing the web, checking stock prices, and reading e-mails and IMs, saving the higher cost of a Windows laptop is a no-brainer, although we might wait a bit for prices to come down.  For those who need more power in a general sense, a laptop would be a better choice, even at the higher price.
 

We have mentioned a slowdown in the Chromebook market a number of times, with the earliest indication being in our 8/16/21 note and again on 9/27/21 and 10/25/21, but our expectations for the decline in Chromebook demand now seems conservative as we aggregate data from a number of sources.  We had expected a decline of ~17.5% q/q, which would still have implied a 3Q y/y gain of 5.2%.  With a number of sources in thus far, it looks like the aggregate q/q decline is down~49.0%, putting 3Q y/y down 34.8%, far worse than our estimate and the first negative y/y growth quarter for Chromebooks.  Some of the decline might be attributable to component shortages, but more likely the more extreme decline is due to delays or ending of new fiscal year budgets for student laptop/Chromebook programs, a number of which are ending are facing scrutiny as students in many countries are returning to class this fall.
Notebooks overall, of which Chromebooks comprises a share of 7.7% in 3Q (peaked out in 1Q of this year at 20.1%), have fared better, up 9.2% q/q and up 10.7% y/y , although it is the slowest notebook y/y growth since the pandemic began in 2020.  The growth in notebook shipments came from some orders that had not been filled in 2Q due to component shortages and stronger corporate growth coming from those employees that have returned to a full office daily routine.  As we have previously noted, retail notebook sales, the driver in past quarters, have slowed as student laptop programs become less necessary, so the question to be answered over the next two quarters will be “Will the corporate notebook expansion be able to offset slower retail notebook growth?”.
We expect notebook panel shipments to decline between 1% and 1.5%, as we noted in our 11/04/21 note, but worry that while anticipation of Chinese New Year (Feb. 1) and new notebook announcements at CES (Jan. 5) might keep notebook brand target expectations high into 1Q ’22, we are less sanguine about the overall notebook picture in 2022 as COVID-19 sequesterization (?) wanes.  While we don’t expect a major drop in notebook shipments in 1H ’22, it will certainly become harder to see y/y growth against 2021’s strong COVID-19 related demand.  While Chromebooks were the device of choice for on-line student programs, we expect they will fall back into a more normalized volume, showing lower unit volumes and very tough y/y comparisons.  That said, we expect over the long-term, Chromebooks do represent a valid concept that is ideal for situations where most of the use is based on on-line applications and storage, especially if Chrome based applications that allow for data exchange between Microsoft (MSFT) applications continue to grow. 

Expectations for Chromebook shipments in 2Q are over 11m units, a high for the product category and will mark the first time this subset of the notebook segment will hit the 25% share.  COVID-19 is the cause as students move to home based education that requires at least a connection to the internet.  As Chrome books are the lower priced alternative to Windows based notebooks, during the epidemic, with finances tight, they represent a viable alternative to relatively expensive notebooks.
That said, what are Chromebooks?  Are they really notebooks or are they something else?  From the standpoint of broad consumer electronics categories, Chromebooks are notebooks, but they differ from most notebooks in that they are based entirely on the Chrome OS and web browser (Google, and the Android (Google) and iOS (Apple-AAPL) operating systems used on most smartphones.
Windows based laptops come in a broad range of feature sets and prices that can run as high as $6,500 (ASUS (2457.TT) Gaming Laptop) and as low as $195 (Hewlett Packard - HPE 14”), while Chromebooks tend to stay within  a $200 to $400 range. These lower prices come with some advantages and disadvantages, but Chromebooks are not true notebooks in the sense that they do not operate as a repository for information or data processing, but closer to what used to be termed “dumb terminals” back in the days of early distributed computing.
Chromebooks are internet connection devices that look similar to notebooks but tend to have lower resolution and slightly smaller displays and relatively little storage space.  As their function is to connect you to the internet and therefore cloud storage, the concept is that you do not need to store data on the device itself, but in the cloud.  This certainly is in keeping with those that have grown up with smartphones where ypu are constantly battling to free up space by shifting endless pictures of friends and family to the cloud, but it does not work well for those that need instant access to their data and might not have a good internet connection, such as in a vehicle or train.
The other issue that faces Chromebook users is applications.  Since they are based on the Chrome OS, common Windows applications like Excel, Word, and Outlook are not available and substitute applications are far less robust and not always compatible with existing data.  The library of Windows based applications is almost endless, while those for Chrome OS are more oriented toward working on-line, which is ideal for students, who would be streaming classes and writing relatively short documents that could be locally or cloud stored, but not for more complex work with heavier applications that need significant computing power, higher resolution, and internal storage.
Chromebooks do tend to be smaller and lighter than notebooks and the Chrome OS uses between 20% and 25% of the internal resources that Windows does, so there are advantages that will continue once students and others return to classroom based learning, but the question remains as to whether notebook vendors, who are suddenly focused on the segment, will remain so over time.   We look at tablets, which were originally supposed to replace notebooks, and see that panel shipment growth has not grown substantially over the last few years as other alternatives, primarily smartphones continued to improve, and we expect the only reason Chromebooks would see growth beyond the current epidemic, would be if application development made them a more competitive  alternative to more costly notebooks.