Intel Bullish on Ultrabooks, Despite Slowing Economy, PC Sales

CEO Paul Otellini is predicting Ultrabooks will account for 40 percent of laptop sales by the end of 2012, though some analysts are less optimistic.

Intel executives are remaining optimistic about sales of Ultrabooks in the second half of the year, despite the struggling global economy and weakening consumer PC sales.

Intel President and CEO Paul Otellini, in a conference call with analysts and journalists July 17 to discuss the company€™s second-quarter financial numbers, said that Ultrabook sales in the first half of 2012 were about what he had expected, and that he was confident that by the end of the year, Ultrabooks would account for 40 percent or more of worldwide laptop sales.

He noted that there are more than 140 Ultrabook designs€”powered by Intel€™s new 22-nanometer Ivy Bridge chips€”in the pipeline from systems makers, with more than 40 of those offering touch-screens and another 12 being convertibles, able to be used as either a traditional notebook or as a tablet.

Intel executives first announced Ultrabooks€”very thin and light notebooks that offer the productivity capabilities of traditional laptops on features such as long battery life, touch-screens and instant-on€”last year, setting them up as an alternative to Apple€™s popular MacBook Air and a challenger to the increasingly popular tablets, such as Apple€™s iPad.

The chip maker set stringent guidelines for what could be considered an Ultrabook, including a price tag of less than $1,000. However, of the two-dozen or so systems on the market now€”based on Intel€™s 32nm Sandy Bridge chips released last year€”only a few come in at less than $1,000, with some going as low as about $800.

Many analysts have said that driving down the price of the systems will be a key factor in the success of Ultrabooks, given the lower prices of many tablets and traditional notebooks. In addition, rival Advanced Micro Devices is pushing what officials there are calling €œultrathins,€ which have similar characteristics as Ultrabooks but will come in at about $500. PCs powered by ARM€™s highly energy-efficient chips also are on the horizon.

Otellini said he expects some of the new Ultrabooks that will roll out later this year will bring prices down to as low as $699. He also argued that the current unsettled economic environment could prove to be a boon for Ultrabooks.

€œThe value of Ultrabooks is still pretty good,€ he said. €œIn times of tight consumer budgets, people buy quality. €¦ In a softer selling venue, these systems become even more attractive.€

Intel has made significant efforts to push Ultrabook sales, including creating a $300 million fund for businesses that make hardware and software for the systems, and kicking off a multimillion dollar advertising and marketing campaign. However, despite media reports, Otellini said that Intel had not reduced the price of any processors in hopes of driving down the overall cost of Ultrabooks.

Some analysts already have seen some impact in PC sales, thanks to Ultrabooks. In a report last month, analysts with NPD Group said that Ultrabooks have bolstered a struggling Windows laptop market, particularly at the high end. Ultrabooks now account for 11 percent of sales of Windows notebooks that cost $700 or more.

€œUltrabooks have helped establish a market for more premium-priced Windows notebooks at retail,€ Stephen Baker, vice president of industry analysis at the NPD, said in a statement at the time, 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 be offered stylish, thinner, and more premium device offerings than ever before within the Windows ecosystem.€

However, not all analysts share Otellini€™s optimism about Ultrabooks in the near future. IDC analysts said earlier this month that Ultrabooks sales have been constrained, thanks to pricing and the anticipation of Microsoft€™s release in October of Windows 8.

Mikako Kitagawa, principal analyst at Gartner, also said that the work Intel and OEMs have done around Ultrabooks has taken some attention away from PCs, but has had minimal impact so far.

€œA big portion of R&D spending has been allocated to Ultrabook development, together with Intel€™s massive investments to establish the market segment,€ Kitagawa said in a statement. €œThough Ultrabook was at first introduced in the market in 2011, the major promotion kicked off toward the end of 2Q12 with the Ivy Bridge-based Ultrabook release. This segment is still in an early adopter€™s stage.€

Beau Skonieczny, an analyst with Technology Business Research (TBR), also questioned how well Ultrabooks will do in the second half of 2012. In a research note July 17, Skonieczny said he expects Ultrabook sales to be slower than what Intel expects€”even with the $699 price€”hindered by slower consumer sales in a difficult economic environment, and less-expensive tablet alternatives from Apple and other vendors.

€œSimilar thin-and-light notebook offerings from AMD at lower price points will also limit Ultrabook adoption, leading to more gradual sales growth for Intel through 2012,€ he wrote. €œTBR expects Intel€™s sales and profitability to gain momentum in 2013 as enterprises will shed uncertainties around Windows 8 and start to adopt newer PCs and Intel-based tablets, helping Intel achieve a stronger mix of premium-priced commercial products.€