Intel draws criticism over ultrabook pricing strategy

At $1,000, ultrabooks are overpriced for a slumping PC market, attendees say

Intel hopes to redefine the PC market with a new category of thin and light laptops called ultrabooks, but at around $1,000, their hefty price tag leaves questions about the products' viability, attendees at the Intel Developer Forum conference said this week.

At IDF this week in San Francisco, Intel shared further details about ultrabooks, which are laptops under 20 millimeters (0.8 inches) thick with tablet features. The laptops are designed to be a happy medium between the laptop and tablet, featuring the ability to create and consume content. Ultrabooks run on Core processors, and the company aims to roll out advanced ultrabook designs with features such as touchscreens, all-day batteries and instant-boot capabilities over the next few years.

Intel has pitched the initial price of ultrabooks at around $1,000, and hopes the laptops will make up 40% of its consumer laptop sales by the end of next year. But analysts attending IDF said that the price may not go down well in a slumping PC market where buyers are looking for deals. Ultrabooks could remain a niche product like MacBook Air if the prices don't come down, analysts said.

The company launched the ultrabook after extensive research on laptop designs and user experiences, said Erik Reid, general manager of the mobile client platform at Intel, in an interview. Ultrabooks are a redesign of traditional laptops with new low-power components and hardware, and the chip maker is rallying PC makers to adopt the new laptop designs, Reid said.

Ultrabooks are not meant to replace netbooks or other low-cost laptops, but Reid hopes ultrabooks will take over a considerable chunk -- up to 40% -- of consumer PC laptop shipments by the end of next year.

"As volume ramps and as we drive more business in the market, then prices will be coming down into mainstream," Reid said. He did not define the estimated range of mainstream prices, saying it depended on the configuration and PC makers.

Ultrabooks will start shipping this month. Lenovo has announced the IdeaPad U300S, which is priced starting at $1,200, Acer has the Aspire S3, which is priced at 799 ($1,134), and Toshiba has the Portege Z830, which the company said is priced under $1,000. The ultrabooks have Core processors based on the Sandy Bridge microarchitecture.

Though the thin and light designs of ultrabooks demonstrated on the IDF floor impressed analysts, the $1,000 price did not. There are also question marks around the timing of ultrabook launches by PC makers, considering that a new chip architecture with advanced features from Intel is due in a few quarters and Microsoft's Windows 8 OS is also coming up.

If Intel is looking to redefine the laptop market with ultrabooks, the initial pricing won't help them, said Roger Kay, president of Endpoint Technologies Associates. The estimated price has to come down for ultrabooks to make a meaningful impact.

"If there's any fly in the ointment it is the price. Even though they are great packages, you are talking about $1,000," Kay said.

Intel officials said emerging markets provide a growth opportunity in the PC market. But buyers in some markets are more price-sensitive than in the others, Kay said. Southeast Asia and Eastern Europe are particularly price-sensitive markets, and high prices could prevent PC growth.

"Even in developed markets people would like to spend half of that," Kay said.

Ultrabooks are being posited as a high-mobility class product, putting them in competition with products like the iPad, which is priced starting at $500. If Intel aims to reach out to the mass market with ultrabooks, a price between $500 and $750 would make more sense, Kay said.

Laptops need to be bought as needed, but analyst Jack Gold said if he had a choice, he may opt to hold back to buy an ultrabook based on Intel's upcoming Ivy Bridge architecture, which is due in the first half of next year.

"If you can wait a year, or a year-and-a-half, you'll have Windows 8, Ivy Bridge, which will give you better battery life, and it would be lighter form factors and the price will come down," said Gold, who is principal analyst at J. Gold Associates.

In addition to longer battery life, better graphics and faster performance, Ivy Bridge ultrabooks will have long standby times, no fan and quick responsiveness, which are good characteristics for content consumption and creation, Gold said.

At IDF, Intel highlighted some new ultrabook features that will be available with Ivy Bridge. The laptops will have three-second resume times from sleep mode and automatic data updates in which emails, social network feeds and other data are automatically updated even when a laptop is idle.

The Ivy Bridge chips will also use 3D transistors, which will be up to 37% faster and consume less than half the power of 2D transistors on 32-nanometer chips. Ivy Bridge will be made using the 22-nm process and have integrated support for the Thunderbolt and USB 3.0 interconnect technologies.

Prices should come down gradually as competition heats up in ultrabooks, Gold said. Users may wait for Windows 8, which is designed for tablets and PCs, and that could provide a jolt to the ultrabook market and drive prices down.

But if the ultrabook remains at $1,000, it won't be a core volume market for Intel. A $600 to $800 ultrabook sounds right, Gold said.

"There won't be a $300 ultrabook," Gold said.

Copyright © 2011 IDG Communications, Inc.

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