Intel CEO Sees Ultrabooks Hitting $699 ‘Sweet Spot’ This Fall

While some Ultrabooks have dropped to as low as $649 recently as PC makers move to less expensive materials, Otellini projected last fall that they would hit the $699 target at year-end 2011 (CED Dec 30 p3). The first Ultrabooks launched last fall at $899. Lower Ultrabook pricing has partly come about because Intel lowered its costs for producing Ivy Bridge processors as it increases 22-nanometer production. Intel has more than 140 Ivy Bridge-based designs in the pipeline, 40 of which are touch-enabled and 12 that are convertibles, Otellini said.

"Ultrabooks continue to build momentum, and achieved our volume goals for the first half,” Otellini said. “With visibility into many designs, we are very confident that we'll see $699 systems at retail this fall."

With increased production of Ivy Bridge ICs -- the chips will account for half of Intel’s shipping volume in Q3 -- Otellini deflected reports that prices were being lowered. While the costs of making Ivy Bridge chips are dropping “rapidly,” Intel isn’t changing its pricing strategy for them, Otellini said. Rather, Intel is “filling in more price points with Ivy Bridge” that previously were filled by previous generation Sandy Bridge chips, he said. With increased Ivy Bridge production, Intel will likely take down some 32-nanometer capacity, Chief Financial Officer Stacy Smith said.

Intel’s Q2 inventory rose to $4.9 billion from $4.4 billion in the previous quarter and $4 billion on Dec. 31, the company said. The increased inventory was “as expected” given that about half of it was Ivy Bridge-related, Otellini said. Inventory in Q3 will be “pretty flat” with the previous quarter, Otellini said.

Intel also has landed more than 20 Microsoft Windows 8 tablet designs, some based on its 32-nanometer dual-core Clover Trail Atom system-on-a-chip. Tablets with Clover Trail chips, which would replace Oak Trail, will be less than 9 mm thick and weigh less than 680 grams. The Clover Trail platform also adds 3G/4G LTE capability. Asus has demonstrated the Clover Trail-based Asus Tablet 810, which features an 11.6-inch LCD and Windows 8 operating system. Lenovo also is expected to release a Windows 8-based ThinkPad tablet running on Clover Trail. While Intel has gained design wins with tablets, “I don’t think those numbers are going to be material” to the company’s earnings this year, Otellini said.

Lenovo also is among those that introduced a smartphone built around Intel’s Medford processor. While Intel’s efforts to expand use of Atom processors “could gain some traction” in tablets, set-top boxes and industrial devices, “we question whether the efforts will succeed in the handset sector,” FBR Capital Markets analyst Craig Berger said.

Intel’s Q2 net income slipped to $2.82 billion from $2.95 billion a year earlier despite a rise in revenue to $13.5 billion from $13 billion. The downturn in net income was partly because operating expenses jumped to $4.72 billion from $3.96 billion a year earlier on a rise in Ultrabook-related marketing spending. Intel’s marketing, general and administrative costs jumped to $2.51 billion from $1.98 billion, the company said. European revenue rose to $1.65 billion from $1.56 billion a year earlier, but was down from $1.77 billion the previous quarter. Intel’s PC Client Group, which includes notebook and desktop PC processors, said operating income improved to $3.4 billion from $3.2 billion a year ago as sales rose to $8.68 billion from $8.32 billion. Intel’s architecture group, which includes netbooks, baseband processors, tablets and smartphones, had an increase in Q2 operating income to $4.47 billion from $4.45 billion, despite sales slipping to $1.1 billion from $1.38 billion.