Intel’s Assault on MacBook Air, iPad Could Pay Off in 5 Years, FBR Says

Ultrabooks will become the mainstream notebook of choice for PC makers in the next five years, said Craig Berger, managing director for FBR Capital Markets, during a Web briefing. In a discussion with Anand Lal Shimpi, CEO of AnandTech.com, Berger said Intel will push Ultrabooks to become the preferred notebook by 2016 whether as a traditional notebook, tablet or “merged” form factor. “If you ask about notebooks or Ultrabooks in 5 years, they're basically going to be the same thing,” Berger said. FBR forecasts 40 percent notebook penetration by Ultrabooks in 2015, “but if Intel’s products are really good, that number could upside,” Berger said. Those estimates include Windows Ultrabooks using ARM-based processors but not tablets, he said.

Intel launched Ultrabook in response to “very successful” Apple’s MacBook Air and iPad devices, which Berger called “the first Ultrabook devices.” He cited MacBook specs of “less than 20 millimeters thick, less than 3 pounds, active-use battery life more than 5 hours, and a solid-state device (SSD) for instant-on operation. Intel adds the stipulation “priced under $1,000” for Ultrabooks. These MacBook Air competitors will allow Intel to sell its own ultra-low voltage processors and “stave off the threat from ARM processors,” Berger said. Intel is supporting the effort with a $300 million marketing effort and “established these Ultrabook specs to win the Ultrabook moniker,” he said. “A confluence of previously unavailable technology,” led by affordable SSDs and Windows 8 is making the move to the Ultrabook model possible, he said.

All Intel notebooks will be Ultrabooks in three years “if they don’t mess it up,” said AnandTech’s Lal Shimpi. Some notebooks could be Windows-on-ARM-based devices, and Windows 8 devices could qualify, too, if they meet specs including Intel Ultra Low-Voltage processors, weight of less than 3 pounds, instant-on capability and thickness less than 20mm, Lal Shimpi said.

While strong in the tablet and smartphone category, ARM-based processor penetration in notebooks will remain at 15 percent or less in notebooks, Berger said, due to backward compatibility of x86-based devices and entrenched software ties. FBR believes Intel will be a winner in the evolving notebook market as its stepped-up competitive response to Apple will limit the uptake of ARM-based notebook PCs, Berger said. As Ultrabooks gain more market share, that “should allow Intel to meaningfully participate in true tablet devices in 2014,” he said.

Part of the Intel spec for an Ultrabook is SSD flash storage, and that could put pressure on Marvell and LSI, which make controllers for hard disk drives, Berger said. FBR sees “revenue risk” of eight percent for Marvell and six percent for LSI as solid-state drives replace hard drives, Berger said. Beneficiaries of Ultrabook growth could be Atmel and Cypress, “as Windows 8 should offer enhanced touch capabilities for notebook PCs,” Berger said.

Companies including Nvidia, Texas Instruments, and Freescale are not as likely to participate in the notebook PC market with their ARM-based processors given Intel’s efforts to reduce power consumption, extend battery life, and race down the process technology curve to stay ahead of ARM-based processor production from foundries, Berger said.

Intel’s rollout plan for Ultrabook has three stages, Berger said. The first wave, hitting the market now and moving through mid-2012, is built around Sandy Ridge processors. This early stage “is still more like notebook PCs as we know them today than tablets,” Berger said. By mid next year through mid-2013, Sandy Ridge APUs will be state of the art, offering “even longer” battery use, mainstream pricing under $800, “always-connected technology” applicable to intermittent downloads to email, Facebook and Twitter, improved input/output options, enhanced security and embedded 3G and 4G options, he said.

The third stage of Intel’s Ultrabook vision begins in 2013 with its Haswell processor. “This is the really the good stuff, where power consumption metrics are more competitive,” Berger said. He described a hybrid laptop that acts like a notebook PC in standard mode, “and when you want it to become a tablet you pull a touchscreen down on top of the keyboard and you have a tablet,” he said. Unlike today’s tablets that are “consumption-only,” the third-stage Ultrabook will offer a complete Microsoft software suite, full processing power, a standard size keyboard and use for content creation as well as consumption, he said.

Using numbers from IDC, Berger said the mobile PC market, excluding tablets, will grow to 383 million units in 2015, a 14 percent compounded annual growth rate since 2010, which will be driven by lower PC prices in emerging markets. Ultrabook shipments are expected to grow from 2.6 million this year to 157 million in 2015, according to IDC numbers. Legacy notebook PC shipments, meanwhile, are forecast to slow to minus three percent growth through 2015 when units will fall back to 172 million units, he said. Peak year for legacy notebooks is forecast as 2012, with 226 million units due to ship.

ARM-based notebook PCs will likely be limited to 15 percent of notebooks given Intel’s Ultrabook onslaught, questionable support for legacy applications including Microsoft Office, and incremental software buys from consumers, Berger said. ARM-based tablet opportunities are incremental, and Apple will likely maintain the most global market share, with a 65 percent share expected in 2015, Berger said. ARM-based processor shipments into non-Apple PCs and tablets could grow to about 115 million units in 2015, he said.

On the drive side, notebook PCs account for roughly 40 percent of hard disk drive volume today but that will shift quickly to SSD, where the controller market is “very competitive and likely to commoditize quickly as pricing “races to the bottom,” Berger said. SSD controllers could sell at a 30 percent price discount over time given lower technical barriers resulting from the lack of a spinning drive, he said.