Intel May Cut Core i3 Price to Reduce Ultrabook Costs

According to an analyst report, Intel officials are seeing greater pressure from such rivals as AMD and Apple, and need to cut the price of Ultrabooks.

Intel officials may be considering cutting the price of particular low-power chips in hopes of driving down the cost of Ultrabooks, which are competing with such devices as Apple€™s MacBook Air, tablets and new systems coming out powered by processors from Advanced Micro Devices.

The move would be the latest effort by Intel to drive down the price of Ultrabooks, which has been a key challenge for the chip maker since introducing the very light and thin notebook form factor in 2011. Intel executives initially said they wanted Ultrabooks to come in at under $1,000 to compete with the MacBook Air. However, tablets€”with prices of many at less than $500€”continue eating into notebook sales.

At the same time, rival AMD is pushing some if its new Trinity accelerated processing units (APUs) for low-cost and low-power notebooks, which officials are calling €œultrathins,€ some of which they expect to be priced at less than $500.

Systems makers have found it difficult to get Ultrabook prices to less than $1,000, though a few have come in at about $800. In addition, OEMs and component makers, citing already-thin margins, have been reluctant to cut the prices on their products much more to accommodate Intel€™s price demands.

Intel has made some efforts to drive down Ultrabook prices, including creating a $300 million fund to help companies making hardware and software for the form factor. In June, Intel officials said they have created a concept plastic chassis for Ultrabooks that is just as strong as the current machined aluminum and die-cast metal currently used to make Ultrabooks, and comes in at a fraction of the cost.

However, until now, Intel has resisted cutting the prices of its own processors. According to Cody Acree, an analyst with Williams Financial Group, a report in Chinese newspaper the Commercial Times indicates that Intel may cut the price of one its ultra-low-voltage Core i3 chips by $25 to $27€”a reduction of about 11 percent from its current price of $225€”to lower the cost of Ultrabooks.

Acree suggested that growing competition from AMD may have helped precipitate Intel€™s move, noting Hewlett-Packard€™s introduction of its new Sleekbooks powered by AMD chips, rather than Intel products.

€œThis move has allowed HP to offer Sleekbooks for $700 versus Ultrabooks at about $1,000,€ he wrote in a report. €œWhether the Commercial Times is absolutely correct is less important than the pricing trend that we believe is beginning to become more evident.€

AMD over the past few years has not been tremendously competitive against Intel, Acree wrote. That appears to be changing with Trinity. When they released the first of the Trinity chips in May, AMD officials said that while the ultrathin notebooks they were aiming for might be slightly bigger than the Ultrabooks, they also would cost as much as $200 less, making them more attractive to mainstream consumers.

€œWe€™re taking a different tack from Intel,€ Leslie Sobon, corporate vice president for desktop product line management at AMD, told eWEEK at the time. €œYou should not necessarily have to pay a premium for thinness.€

Intel executives have said that there are almost two-dozen Ultrabooks on the market now powered by last year€™s 32-nanometer Sandy Bridge Core processors. However, with the rollout of chips based on the new 22nm Ivy Bridge architecture€”which promises greater performance and significant energy-efficiency gains over Sandy Bridge processors€”Intel officials have said there are more than 100 Ultrabook designs in the works and that they expect prices to drop to under $700 this year.

However, despite concerns over pricing, there is evidence that Ultrabooks are gaining a foothold among notebook buyers. In a June 28 report, market research firm NPD Group noted that Ultrabooks are giving a much-needed boost to the struggling Windows notebook market, particularly in the high end, where Ultrabooks now account for 11 percent of sales of Windows notebooks that cost more than $700.

Overall sales of Windows notebooks fell 17 percent in the first five months of 2012, but the decline was only 3 percent for those priced at more than $700. Meanwhile, sales of systems costing $900 or more jumped 39 percent.

€œUltrabooks have helped establish a market for more premium-priced Windows notebooks at retail,€ Stephen Baker, vice president of industry analysis at the NPD Group, said in a statement, noting that because of Ultrabook adoption, sales of $700-plus notebooks accounted for almost 14 percent of all Windows notebook sales so far this year, compared with 12 percent in 2011. €œConsumers continue to respond positively to finally being offered stylish, thinner, and more premium device offerings than ever before within the Windows ecosystem.€