Nokia plans to turn netbook market upside down

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If the laptop is too big and the smartphone is too small, perhaps the netbook will be just right.

In another sign of convergence, Finland-based Nokia (NOK), the world's biggest handset developer, has decided to develop netbooks -- which could become the holy grail of portable communications, according to Daniel Amir, an analyst with Lazard Capital Markets. While Nokia has yet to make an official announcement, the company will likely release its first netbook next year.

The news could be revolutionary for the market for mobile devices in a number of ways.

What is a netbook? The picture here of an Acer netbook gives you an idea. It's a device that resembles a laptop but is always connected to a network -- like a smart phone or cell phone. Its screen is usually between 9 inches and 10 inches compared to about 15 inches for a laptop. It is also light -- about 2.2 pounds -- and has batteries that last longer -- about 8 hours. Plus, these devices are cheaper, generally starting around $200.

For these reasons, netbooks stand to become a huge market. According to Lazard Capital Markets' Amir the total number of netbooks sold worldwide will reach 25 million this year, up from 10 million in 2008. And growth should only pick up from there.

Nokia will probably turn the model upside down, first by building a netbook based on Google's Android operating system. Most netbooks sold today are based on either the Windows operating system or Linux.

Secondly, Nokia will likely sell the netbooks through carriers. Think of it as a distribution model similar to the way handset manufacturers sell mobile phones. Most likely, carriers will eventually allow customers, who find their smart phones too small, to trade up to a netbook. Netbooks, to date, are usually sold by the computer manufacturers themselves or at retail stores.

While the Nokia news is a first for a mobile handset manufacturer, it is by no means a sure thing that it will be a success. Nokia will face a great deal of competition from companies long experienced in manufacturing for the PC industry. Qualcomm (QCOM), for instance, has been moving towards netbooks for some time now with its Snapdragon platform.

Intel (INTC), of course, is a big player here too, on the chip processor side. And others, such as Dell (DELL) and HP (HPQ) have been considering the Android operating system as well for their future netbooks.

If Nokia's strategy here fails, the company does have a back-up plan. On June 23, Nokia announced that it was collaborating with Intel to create more powerful portable products, so it will have alternate designs in the works. (See, Get ready for more power in your pocket on DailyFinance.)

Having multiple strategies should bode well for Nokia. The company, whose stock has been hit hard by recession cutbacks, recently posted its first ever pre-tax loss of 12 million euros. But the stock is showing renewed strength, thanks to its collaboration with Intel, its move into netbooks and a likely rebound in cellphone sales over the next year (See Nokia: A Bad News Buy, on BloggingStocks.com).

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