Intel has an Ultrabook conundrum on its hands

The bill of materials (BOM) and specs for upcoming Ultrabooks reveals that chip giant Intel has more than a bit of a dilemma on its hands for the notebooks that it hopes will be the future of things to come.

It’s all rather a bit more complicated now that ARM is in the fray. That’s explicitly stated on the first slide of the NDA presentation we saw: “To compete effectively with ARM-based platforms, Intel must reinforce the full PC experience while pushing the envelope on form factors”.  Further, it wants its partners to help generate excitement for people, and says that “it must appear unique and different from the norm”.

At the first press conference here in San Francisco there were about 150 or so journalists from all round the world and we estimate between 60 percent and 70 percent of them were kitted out with iPads. Apple makes something like a 30 percent margin on its iPads. The original design manufacturers (ODMs) must be thinking that BOMs which vary between £500 and £900 or so cannot necessarily be that sexy. Margins will be very tight. Will a high end Ultrabook cost around $1,400 to $1,500 and, if so, what are the margins going to be like.

A senior chip analyst we bumped into here said that every market research company had lowered its estimate of growth in the PC market. Even before the holiday season, he said, companies are already massively discounting notebooks and it could get even more brutal in the future.  There must surely come a time when Intel has to realise that at the arrival of ARM and the runaway success of Apple has to be taken very seriously indeed, given the expense of very advanced fabrication plants.  

Consistently turning in gross margins of 55 percent plus, Intel has always previously managed to square the circle. Moore’s Law has worked up to now, and Intel has needed big profits simply because to shrink the die it has to make huge profits. But fabs are costing more and more with every generation, and when profits shrink, as surely they will, there will come a time when, in modern parlance, the situation will become clearly “unsustainable” in the egosystem.

I am on the side of those who say tablets are not necessarily the future. They have many limitations, some of which simply put me off. The lack of a real keyboard, the inability to have many windows open at once, and the cost of the bright shiny things have, so far, put me off.

But the sheer cost of high end notebooks puts me off too. They have a shelf life of about three years – I’ve had notebooks ever since they’ve been invented. The hardware gets clogged by the software.  It’s as sure as eggs is eggs that people are just not going to pay well over the odds for a machine, however thin it is, that costs $1,500 and is either made of plastic or some alloy that is not magnesium alloy.

It will be interesting to see what Intel has to say about the Ultrabooks this week. Surely, it is caught on the horns of an interesting dilemma. As the world economic situation continues to be in stasis, or in decline, we will all still need chips and an internet connection. But we won’t want to pay that much for PCs. Everything is free, isn’t it?