Intel: PC - A 3-Year Walk In The Wilderness

| About: Intel Corporation (INTC)

In April 2010, Apple (NASDAQ:AAPL) released the iPad tablet computer to a fanfare of PC bashing centered on Steve Jobs' comments about the post-PC era. After the iPod and iPhone success, many thought Jobs could foretell the future. The post-PC era comments were soon escalated to the "death of the PC," as though we were dealing with buggy whips and high button shoes.

The fact is that the PC industry, specifically Hewlett Packard (NYSE:HPQ) and Dell (NASDAQ:DELL), was caught flat-footed on product innovation. That the two largest PC producers allowed Apple to gain the tablet advantage is a testament to both companies' distractions. HP was preparing to sell its PC division, and Dell was trying to copy IBM (NYSE:IBM). The response of the PC OEMs to the Apple iPod can only be described as lame and unimaginative.

Even with the inattention of the two "leaders" of the industry, the "corpse" of the PC industry managed to sell 351 million units in 2010, and managed to grow 4% to 365 million units in 2011. In the face of a continued crippled response by the PC players, 2012 returned to 352 million units, including 10 million Ultrabooks. Because the same companies continue to suck their thumbs and whine, the forecasters are expecting WinTel PCs to be down 3.4% to 339 million units, depending on who you listen to. Basically, the WinTel PC market has been flat for the past three years. The irony is that tablet computers ARE personal computers, and if added to the WinTel numbers, the overall PC market is exploding.

I think the pundits of doom for the PC are in for a surprise beginning in the last half of 2013. Intel (NASDAQ:INTC) is riding in on its white horse with the coolest answer to the tablet notebook confusion that I have seen yet.

This is the Intel Reference Design convertible PC called the North Cape. The North Cape is a clamshell notebook and a tablet computer in one. With one hand, the screen detaches and the bezel widens so that it can operate as a tablet. The first cut at this format claims a weight for the tablet of 1.9 pounds, certain to decline, and 10 hour battery life as a tablet and 13 hour battery life as a notebook. The guesstimate price for this unit is far less than buying an individual tablet and a notebook. The separation mechanism is in for patent by Intel, but the reference design is available for any PC OEM that wishes to produce it. Now you can have a tablet that has all of your apps and data resident and uses only one copy of the Windows operating system. Imagine; a student takes the tablet piece to school, and at home, uses it as a notebook to write his reports.

Some things that make the North Cape possible: The Haswell processor, when benchmarked, has a possibility to shock on the low level of power consumption. The package containing the Haswell will also contain a voltage regulator chip that will control power into the chip at up to 320 locations. Non-techies might find this tidbit interesting -- I looked up the pin count on the Ivy Bridge processor; it is an 1155 pin package. 1155 connecting pins! About 300 of those pins are dedicated to providing power and ground to the chip. By providing in-package power management, Intel has gone to the extreme to make the Haswell an energy sipping chip. This is like having a little guy running around in front of you turning on the lights before you go into a room and turning them off when you leave. On average usage, very little of the Haswell chip will be "on" at any instant.

For storage, the North Cape will use an mSATA solid state drive, probably from Intel or Micron (NASDAQ:MU). This drive can be up to 240 GB in a size of about 1"X2"X.140" thick, about the size of a stick of chewing gum. The drive might weigh a couple of ounces. This drive is so small that Intel has to be doing some kind of chip stacking in the individual NAND memories packages that make up the drive. These little drives are extremely high performance at very low power.

The interesting thing to contemplate about the North Cape is that Apple doesn't have a hybrid product to compete against it, and won't, because the Macbook and iPad use different operating systems. If Apple were to do a similar convertible product, it would likely use a Haswell so that it could have the performance of a Mac when required, and then it might as well use OSX/Haswell in tablet mode.

The WinTel PC companies could actually be first for a change, no thanks to the ingenuity of HP and Dell.

I would expect that the WinTel PC walk in the wilderness will do an abrupt U-turn upon availability of the first North Cape style of convertible PC. Longer term, I see this kind of convertible, plus a 5 inch screen smart phone as all but obsoleting the stand alone tablet computer that has been the star of the past three years.

I will be standing in line to get an early North Cape.

As another short-term idea, the upcoming Intel earnings report and conference call will be CEO Paul Otellini's last. I expect his comments to be a combination of a review of his 40-year history at Intel and a very frank assessment of the future. Probably with more information than might be expected on a routine conference call.

Again, as an unreformed gambler, I will be playing the Otellini last CC for the short term with a handful of April call options.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.