Can Intel Survive an Ultrabook Flop?
Investors may have hoped that Intel's (NASDAQ: INTC) downward trend would soon come to an end, but a recent report could be a sign that things are about to get worse.
Research firm IHS (NYSE: IHS) iSuppli has discovered that Ultrabooks -- the heavily hyped portable computers that were designed to compete with Apple's (NASDAQ: AAPL) MacBook Air -- are not doing well at retail. By the end of the year, roughly 10 million Ultrabooks are expected to have shipped worldwide. That's right -- in an industry where more than 350 million Windows-based PCs are shipped every year, only 10 million of them will be wafer-thin models featuring Intel technology.
Intel was previously expected to ship as many as 22 million Ultrabooks this year. In 2013, the company was expected to deliver 61 million Ultrabooks, but iSuppli believes that number has been reduced to just 44 million units.
What is the source of Intel's troubles? Craig Stice, a senior principal analyst at IHS who specializes in computer platforms, thinks he knows the answer.
"There once was a time when everyone knew the 'Dude, you're getting a Dell' slogan," Stice said in the report. "Nowadays no one can remember a tagline for a new PC product, including for any single Ultrabook."
Stice said that the PC industry has "failed to create the kind of buzz and excitement among consumers" that is needed to boost sales and bring Ultrabooks a degree of mainstream success. "This is especially a problem amid all the hype surrounding media tablets and smartphones," he added. "When combined with other factors, including prohibitively high pricing, this means that Ultrabook sales will not meet expectations in 2012."
Intel has said that it aims to sell less expensive Ultrabooks in the future. However, that may not be enough to persuade the buying public.
The sad truth behind cheap computers is that they are just that -- cheap. Consumers learned this the hard way by purchasing $400 and $500 dual-core Windows Vista machines a few years ago. Most of them were too weak and/or had too little RAM to handle the cumbersome OS. For a few hundred dollars more, frugal shoppers could have acquired a much better device with a Core 2 Duo processor and three gigabytes of RAM, which was enough to make Vista run at a reasonable pace.
This issue was not exclusive to Vista, however. Consumers found the same problem when buying cheap Windows 7 machines as well. That is one of the problems with allowing anyone and everyone to build Windows hardware. It is also why Microsoft (NASDAQ: MSFT) decided to build its own tablet -- to ensure that Windows 8 was featured on at least one polished device.
Intel cannot win over consumers with the price alone. If Ultrabooks are too expensive, shoppers will turn to the market leader of thin laptops -- Apple. At $1,200, the 13-inch MacBook Air is by far the best product in its class. If an Ultrabook is too cheap, consumers may worry about its quality and reliability.
That is a valid concern of course, as most Ultrabooks do not live up to the hype. While there have been a few that scored high marks from reviewers, many do not.
There is another problem as well, one that few analysts seem to catch. Ultrabooks do not feature the same bells and whistles that accompany traditional laptops in the same price range, such as ultra-powerful processors, DVD or Blu-ray drives and massive hard disc drives. While many argue that DVD drives are becoming obsolete and that HDDs are cheap and break easily, some consumers still like them.
Thus, Joe Consumer may not care if an Ultrabook's 128GB solid state drive is sturdier and more reliable than a 500GB HDD. He may only care about the fact that the larger hard drive can store more music.
These are issues that Intel may never be able to overcome. If it fails to do so, then the Ultrabook initiative -- which may cost the company as much as $300 million -- could ultimately fail.
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