Intel on Track for SmartPhone Chipsets First-Half 2012

Intel’s Ultrabook platform will dip to mainstream price points of $699 and higher this time next year, said CEO Paul Otellini during Intel’s Q3 earnings webcast Tuesday. Price has been a sticking point for some manufacturers this fall as Intel has said it wants Ultrabook prices to fall below $1,000 to drive demand, but processor pricing has forced OEMs to take a hit on margin, some OEMs say (CED Oct 12 p2). Initial pricing on Ultrabooks has been running $799 to $1,199 SRP in the nascent category.

"Everything we envision for Ultrabook presumes it happens at mainstream price points, so we don’t think people are going to spend more money on computers tomorrow than they do today,” Otellini told analysts. As the first generation of Ultrabooks comes to market for the holiday selling season, 70 designs are in the pipeline, Otellini said. In addition to the desired sub-$1,000 price point, main selling points of the Ultrabook are “thin and light,” enhanced security and long battery life, which Otellini said “is just the beginning.” The next two generations of the platform will evolve to include touchscreens, always on-always connected capability and more affordable price points, he said.

As the notebook form factor shrinks, “Intel’s bill of materials has a chance to go up,” Otellini said, citing OEM’s use of integrated graphics and solid state drives “more often than not.” The thin form factor -- less than 20mm thick -- that’s inherent in the Ultrabook spec causes an overall increase in design price for the Ultrabook ecosystem. As a result, components such as touchscreens, batteries and low-profile drives “cost more,” he said. Intel’s $300 million investment in Ultrabook is aimed at “accelerating price points through volume commitments” to reach lower price points, Otellini said. “We've really thought this through in terms of how to get volume and profitability at same time,” he said.

Volume production of Intel’s Ivy Bridge processor, the first to use the company’s 22-nanometer manufacturing process, began in Q3, “ushering in the era of 3D transistors, which will pay dividends in power, performance and density for generations to come,” Otellini said. The first PCs incorporating Ivy Bridge processors will be on shelves in spring, he said.

Intel’s Medfield chipset for Android smartphones is on track for introduction “early next year,” Otellini said. Otellini noted there will be Intel-based phones in the first half of next year “from a variety of suppliers.” Regarding competing processors for mobile devices, including ARM processors currently used in tablets and smartphones, Otellini said concerns over battery consumption in Intel’s x86 Atom architecture are unfounded. “Just like there’s no one ARM processor, there’s no one version of Atom,” he said. Intel has tailored processors for different uses, lumping low-end PCs and tablets together for one solution and a different version for handsets and cell phones, he said.

Regarding threats from ARM processors in the PC space, Chief Financial Officer Stacy Smith said Intel has $30 processors that compete with ARM processors “at the very low end,” and that Intel’s processors offer “very good margin.” He noted that AMD processors come in at $20, “but we still win the lion’s share of the market because we bring more performance, features and we're a reliable supplier.” A similar scenario will play out as ARM comes into the PC market, but ARM will have a competitive disadvantage versus AMD because the latter is “socket and application compatible,” he said. ARM’s lack of compatibility in the PC space means higher costs and complexity to OEMs, he said. “Intel is solving “issues of physics two years ahead of everyone else, giving us a cost-to-performance feature advantage that makes it very difficult for people to match,” he said.

Intel’s corporate-high Q3 revenue of $14.2 billion was up 28 percent year-over-year, Smith said. Net income was $3.5 billion, up 17 percent over Q3 2010, he said. The company was pleased with “momentum in its notebook PC business,” which saw double-digit growth over last year, and with consumer demand for its second-gen core processor family, he said. Trends in the quarter played out “largely as expected” with mature markets including the U.S. and Western Europe remaining “soft,” he said. Enterprise PC demand was strong and consumer demand in emerging markets continued to grow with China up 12 percent, India up 21 percent, Turkey improving 14 percent and Indonesia jumping 23 percent, he said. Intel shares closed up 3.59 percent to $24.24 Wednesday.

Enterprise sales forecasts remain positive but “everyone is cautious” around consumer sales in the U.S. and Western Europe, Smith said. Concerns over components shortages -- screens, hard drives and power supplies -- arising from the tsunami in Japan have subsided, he said. Smith said recent flooding in Thailand shouldn’t be a factor in the PC supply chain in Q4 where “alternate supplies and inventory levels will carry us through."

"Intriguing” events for 2012 will include the growth of the Ultrabook and the release of Windows 8, Otellini said. Microsoft OS releases have “historically benefited Intel nicely,” Otellini said. He acknowledged the possibility of an “ARM incursion in the PC space” but said it will be “minimal.” Although Intel’s presence in the tablet market “is not that large,” Windows 8 will offer the competitive advantage of legacy support for Windows-based applications and devices, he said. “We have more net upside than downside,” he said.