Like smartphones, netbooks are defying the doomsayers. Sales of the miniature, internet-enabled laptops have been growing at a frantic pace over the past few months, and their success could well last into a recession.Indeed, because netbooks represent a cost saving on standard laptops, the economic downturn could even spell an opportunity for their manufacturers. The reasoning would be that consumers who balk at the cost of replacing a 13-inch Dell might opt for a netbook instead.For that to happen, however, customers would have to compromise on functionality. Not surprisingly, cheaper devices tend to be less sophisticated, and teleworkers might find netbooks just too limiting. For a businessman wanting to travel light and occasionally check email or type up a memo, on the other hand, they may be good enough.So far, lack of sophistication has not been a barrier to adoption. Netbook sales last quarter were up 160% on the previous quarter – according to DisplaySearch, a market-research company – with 5.61m units sold over the entire three-month period (see table below). And while growth has come from a tiny base of just 1m unit sales in 2007, netbooks are becoming an increasingly prominent part of the total PC business. IDC, another research firm, reckons sales will account for 11–12% of the entire laptop market next year.

Acer and Asus, two Taiwanese companies, have provided the initial impetus, and they still serve almost 70% of the market. But while it has recently lost market share to Acer, Asus was the original innovator. A year ago the company announced ambitious plans for its flagship Eee netbook – a 7-inch device originally designed for children. Whereas so-called ultra-mobile PCs from heavyweights like Hewlett-Packard had previously sold for more than US$1,000, Asus had managed to produce a basic miniature laptop for less than US$500. Sales of the Eee rocketed in the first few months after its launch. The cheapest netbooks are now available for as little as US$300, and that price looks set to fall further as the leaders in the PC market try to advance into Taiwanese territory.

Competition among semiconductor manufacturers is also helping to lower prices. Most netbooks on the market today are powered by the Atom processor designed by Intel, whose entry into the netbooks market signalled a major shift in step. While Intel had previously focused on the high-performance processors used in standard PCs and servers, it has since been forced to examine ways of reducing the power consumption of its chips.

Now another chipmaker from a different background is readying its push into the netbooks market. Qualcomm, the world's biggest maker of communications chips for mobile phones, has been drawing attention to its Snapdragon platform, which includes a processor based on blueprints from ARM, a UK business that designs the chips used in most of the world's mobile phones, as well as its own wireless-connectivity chips. At its recent technology showcase in London, Qualcomm revealed agreements to sell Snapdragon to a broad range of netbook manufacturers, including both Acer and Asus. It expects products to be made commercially available over the next six months.

Which will count the most: the expertise of ARM and Qualcomm in designing and manufacturing low-power chips for smaller devices, or Intel's marketing might and skill at turning out the highest-performance processors? Under pressure to keep semiconductor costs down to about US$110 per netbook – according to Broadpoint.AmTech, a research company – the new rivals will have little margin for error as they face up to their challenges.

Hardware markets are not the only ones being shaken up by netbooks. Software providers are also braced for change, and Microsoft has the most to lose. Again, with cost the prime consideration, many netbooks are being made available without Windows software, whose inclusion drives up the end price. Instead they use Linux, a basic operating system that carries no licensing fee. Asus now reckons one in three of its Eee netbooks ships with Linux instead of Windows.

Just like smartphones, netbooks offer some cause for Christmas cheer as other parts of the tech industry flounder. But while smartphones require customers to 'trade up', spending more on devices and the services delivered over them, netbooks could have the opposite effect. Upstarts like Asus may be happy to watch sales chew into those of larger, more expensive products, but PC incumbents will hope customers see netbooks as an extra, not an alternative. With a long recession looming, and the netbooks market still growing, they may ultimately be disappointed.