Intel risks missing ultrabook goal with high prices

An Asus Zenbook, one of the superthin “ultrabook” computers promoted by PC chipmaker Intel.
Chris Tzou | BLOOMBERG NEWS
An Asus Zenbook, one of the superthin “ultrabook” computers promoted by PC chipmaker Intel.
Posted Nov. 13, 2011, at 9:28 p.m.

SAN FRANCISCO — 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 chipmaker 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’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 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 and Lenovo. The early entrants to the market — Acer’s Aspire S3, Lenovo’s IdeaPad U300 and Asustek Computer’s Zenbook — are all under an inch thick and weigh less than 3 pounds, like the MacBook Air.

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, 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.”

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.”

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.

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, said Eric Reid, a director of marketing at Intel.

“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.”

Tim Culpan in Taipei and Adam Satariano in San Francisco contributed to this report.

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