The world’s third largest PC manufacturer is pulling back on the manufacturing of netbooks.  Dell said it would stop selling the Inspiron Mini netbook lineup just two weeks after dropping the Dell Streak tablet line as well.  It looks like Dell’s focusing on thin and powerful machines (Ultrabooks), which is the only category of mobile computing world that seems to be holding up and where there is still room for profit.

The problem is that it is a shrinking niche for certain types of PC users. For manufacturers, it’s very easy to lose interest in a smaller market, especially as consumers broaden their computing devices to include smartphones and tablets.   Sales are at risk, and Dell wants to focus more on the tablets and the ultra-books (Apple Air-like notebooks). However, the Latitude netbooks, aimed at the corporate market, are still available on the company website.

Netbooks were extremely popular in 2010, but lost its popularity in the competition with tablets. Furthermore, there is increasing competition from Ultra-Books. Apple’s iPad, Samsung and HP tablets and other Android based tablets began serious inroads to reach consumers’ pockets this year.

“We sold through the Dell Mini some time ago. We’re committed to the highly portable space and have focused on delivering thin plus powerful solutions for which we’ve seen strong success, particularly in our XPS line,” said Matthew Hutchison, director of Dell Global Consumer PR.

Smartphones and tablets have really left their mark on the netbook market.  Last week, Samsung had decided to discontinue the production of the 10-inch netbook models. But for Dell, this is about more than just netbooks; it’s about striking the right balance for all its device production.  Back in August, Dell killed the Streak 5 tablet, one of the smallest versions of Android tablets available, and earlier this month they also discontinued the production of Streak 7 inch tablet.

Dell is now focusing more on providing high quality and high performance computing devices such as products like its recently introduced XPS 14z and the XPS 15z. But Dell sees the demand of PC market is going to continue to weaken, especially in the short term where there’s a shortage of hard disk drives due to the recent Thailand flood and tsunami.

In countries like India, the consumer sentiment is hampered by economic uncertainties and sharp fall of currency. “We are seeing lower off takes [in PCs] pretty much across the board, said Mahesh Bhalla, executive director and general manager at Dell’s India unit. “We see this trend continuing over the next few months.”

Dell reported forecasting revenue at the lower end of its outlook for 1% to 5% growth for the fiscal year, mainly due to industry-wide hard drive issue caused by disruptions due to the flooding in Thailand.