Will Lower Ivy Bridge Prices Drive Demand For Ultrabooks?

| About: Intel Corporation (INTC)

With a historical market share as high as 87%, Intel (NASDAQ:INTC) has long been the leading manufacturer of notebook processors. However, in recent years, the company has registered a slight drop in its market share, which in 2011 stood at around 84%. So far, AMD (NYSE:AMD) has been the only significant rival of the company in this domain; however, with the entry of ARM-based players later this year, the market is going to get much more crowded.

The initial launch of Intel powered ultrabooks last year failed to garner the expected response as their steep price was a cause of concern for many. However, the company has been vocal about its intention to bring down the prices of Intel powered ultrabooks since then. According to a variety of online reports, the company is considering finalizing or has already slashed prices for its Ivy Bridge Core i3 mobile processors.

Though, a more competitive price might drive up sales of ultrabooks, we believe that Intel's share in the notebook microprocessor market will continue the downward trend throughout our forecast period.

The increase in the number of players in this domain, the exponential growth in tablets and the possible threat of cannibalization by the same has made the steep price tag for ultrabooks difficult to sustain. Intel has made various attempts to convince PC manufacturers to reduce their profit margins to bring down prices of ultrabooks to a more competitive level.

However, since the manufacturers have already been facing a declining trend in their profit margins, it looks like Intel has taken the responsibility on itself by slashing its microprocessor price by over 10%.

We estimate Intel's current average notebook processor price to be around $122, almost double that of AMD processors.

Intel Derives Majority Of Its Revenue From The Asia-Pacific Region

As the demand from developed economies slows, the increasing potential in emerging economies is expected to fuel the global PC demand. Gartner forecasts the global PC shipments to grow at 4.4% in 2012, and as per our estimate the global notebooks shipment will register a 7% increase.

Intel derives more than 50% of its revenues from the Asia-Pacific region. Keeping in mind the comparatively low per capita income in these emerging economies, we believe that there will be a growing demand for lower priced notebooks from these countries.

In such a scenario, AMD might be at a relative advantage with its comparatively lower priced processors. Additionally, the fact that AMD is expected to further reduce prices, to leverage the growing demand in this segment, could significantly slow down Intel's revenue growth from this division.

Despite the potential threat and consequent loss in market share, we feel Intel will retain its dominance in the notebooks microprocessor market, as the "Intel inside" brand provides Intel the added price premium in the marketplace. Additionally, Intel has consistently left AMD behind in terms of process technology, and has already announced that it intends to increase its capital spending in 2012 to build a factory for 14-nm process technology.

Our price estimate of $30.62, is at a premium of over 10% to the current market price.

Disclosure: No positions.