Intel risks missing ultrabook goal due to price

Intel Corp.’s mission to get the computer industry to embrace its new ultrabook standard by the end of next year is hitting a roadblock: price.

The world’s largest chip maker aims to convert 40 percent of consumer laptops to the format, which features slim designs, instant startup and all-day battery life. The idea is to make Windows notebooks more like tablets and smartphones — or at least closer to the skinny MacBook Air, Apple Inc.’s best- selling laptop.

Intel’s chips aren’t used in the most popular phones and tablets, so the ultrabook project is a bid to leverage its PC dominance in an era when mobile devices are increasingly the conduit to the Internet. The challenge is that most ultrabooks cost at least $1,000, and Intel has said that the format won’t reach the 40 percent target until prices come down.

“If the cheapest ultrabook is $1,000, the switchover isn’t going to happen,” said Suji De Silva, an analyst at ThinkEquity LLC in San Francisco. “They put a very ambitious goal out there.”

Intel doesn’t make ultrabook laptops itself. It created the specifications and leaves the manufacturing to its partners, such as Acer Inc. and Lenovo Group Ltd. The early entrants to the market — Acer’s Aspire S3, Lenovo’s IdeaPad U300 and Asustek Computer Inc.’s Zenbook — are all under an inch thick and weigh less than 3 pounds, like the MacBook Air.

Too pricey?

While reviews have been positive, the cheapest among the three starts at $900. With high-end components, the price tag climbs to about $1,500, more than twice the average PC selling price, according to IDC.

Consumers have grown accustomed to seeing regular laptops for less than $500. Hewlett-Packard Co., the world’s largest PC maker, offers models that start at $349.

The MacBook Air, which first debuted in 2008, starts at $999. That means ultrabooks are going head-to-head with Apple, without the benefit of that company’s operating system and brand, said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co. in New York. That’s not a showdown ultrabooks are likely to win, he said.

“The biggest driver of success in ultrabooks is going to be price,” Rasgon said. “The only one I’d consider buying today is the MacBook Air.”

In the pipeline

While the MacBook Air does use an Intel processor, the company needs to make its Windows partners more competitive, since that platform still accounts for most of its sales. Intel hasn’t persuaded users of traditional laptop and desktop computers to buy into the ultrabook concept.

Intel says it isn’t worried. There are 70 ultrabook models in the pipeline, and the prices will come down to $699, according to the company.

“You’re going to see some really sexy notebooks in the market in the fourth quarter, and we’ll evolve the category over the course of 2012,” Stacy Smith, chief financial officer of the Santa Clara, Calif.-based company, said in an interview. “We’re ahead of where we thought we’d be.”

Intel hasn’t made headway in the tablet market, adding pressure to get consumers excited about laptops again, said Chris Caso, an analyst at Susquehanna International Group in New York.

“There’s just been no innovation on the notebook front in a number of years,” Caso said. “If you bought a laptop in the last two or three years, there’s no reason to go and buy a new one — unless you dropped it down the stairs.”

Tablet threat

The market for tablet computers, meanwhile, will surge 63 percent next year, according to Gartner Inc. That will make it a quarter the size of the PC industry, up from virtually zero in 2008, the research firm estimates.

“The laptop side has to respond to the tablet trend,” said Jonney Shih, chairman of Asustek, the fifth-largest PC maker. “A lot of people would like to run Windows.”

Research firm IHS expects ultrabooks to account for 13 percent of total notebook sales next year, including both consumer and business models. By 2015, ultrabooks should make up more than 40 percent of the market, IHS estimates. That’s still “ultrafast growth,” the firm said, whether or not it meets Intel’s timetable.

Even so, Intel faces more competition from within the laptop market. Qualcomm Inc. and other makers of mobile-phone chips aim to supply more processors for computers. They’ll get a boost from Microsoft Corp., which is adapting its next version of Windows to work with ARM Holdings Plc’s chip technology. ARM’s designs are dominant in the phone industry.

Flash drives

One reason ultrabooks are more expensive than traditional laptops: solid-state drives. The computers rely on flash-memory chips rather than the spinning magnetic disks in traditional hard drives. Flash storage can be 10 to 20 times more expensive.

Ultrabooks also require more advanced materials to keep them both thin and durable. And they need processors that draw less power yet provide the same level of performance. To help, Intel’s engineers are working with PC makers to bring down their prices, said Eric Reid, a director of marketing at Intel. “We know we need to get to mainstream price points.”

Hewlett-Packard has yet to release an ultrabook, though it has pledged support for the format.

“We expect to offer ultrabook products as part of our overall ultraportable strategy in the future,” said Sheila Watson, a spokeswoman for Hewlett-Packard.

Dell Inc. also plans to offer an ultrabook by next year, said Matthew Hutchison, a company spokesman.

To spur the industry, Intel created a $300 million investment fund. It will sponsor startups working on technology that improves designs and makes them cheaper. Intel also produced an interim technology designed to help computers start up more quickly with traditional hard drives. The approach uses a limited amount of memory chips to store key files.

The company will eventually work out the kinks, even if its 2012 goal is aggressive, Reid said.

“It’s a lot of hard work but we know how to do it,” he said. “Some of the technologies we’re introducing give you the capabilities you want at lower price points.”