UBS Securities’s Uche Orji issued a note to clients Monday pondering whether Intel (INTC) can achieve a target for “ultrabook” laptops to make up 40% of consumer notebook sales by the end of this year.
Yes, such a goal is achievable, writes Orji, who has a Buy rating on Intel shares and a $34 price target.
His view assumes the emergence of a “value” ultrabook segment this year, which would drop in price about 20% from the lowest tier of ultrabook pricing at the moment, on average, going from $860 at present to just under $700.
A big chunk of that will be a drop in the cost of the processor itself, based on the greater economics of Intel’s forthcoming “Ivy Bridge” chip:
Other than large capacity Solid State Drives (SSD), the processor is the single most expensive component in the Ultrabook BOM [bill of materials], ranging from approx $130 to $225 in high volumes to manufacturers. Even at $130, this is approx more than double the $60 ASP we estimate for Pentium dual-core mobile processors that are common in sub-$500 ASP notebooks. Although AMD will be introducing products from its new Trinity accelerated processing units (APU) family that could compete directly with Intel’s Core family, we believe Intel’s processor technology lead and microarchitecture give it better power efficiency traits. Hence, we do not expect a significant amount of price declines from the processor BOM as follow on Ivy Bridge 22nm mobile processors are anticipated to have approx flat to moderately lower ASPs compared to Sandy Bridge when they arrive in mid-2012. Further, Ivy Bridge could include low-cost offerings that may be marketed under the Core i3 family.
The vast majority of the cost decline, some 90%, estimates Orji, could come from a decline in the cost of “peripherals.”
That includes lithium-polymer batteries, which cost 60% more than lithium-ion batteries. If Li-Poly batteries fall in cost by 10%, which is in keeping with historical trends, that could make up 46% of the total decline in the bill of materials cost for ultrabook peripherals.
Other areas of savings could include declines in the cost of the notebook chassis, a 35% fro pin DRAM pricing this year, and the substitution of the solid-state drives typical in ultrabooks with a traditional hard drive using a flash-memory cache.
“We expect ultrabooks to potentially catalyse a notebook replacement cycle – the last major PC replacement in Europe was in 2007 and in the US in 2009.
Orji offers a table summarizing the hypothetical shift in pricing of ultrabook segments this year:
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