Intel's Ultrabooks Prove Rumors Of The PC's Demise Are Greatly Exaggerated

| About: Intel Corporation (INTC)

Craig Ellis - Caris & Company: Paul, just back on Ultrabook topic, as you look to end of the back half of the year, how do you see the Ultrabook mix shaking out as a percent of notebooks, I think in the past, you've referenced a 40% of consumer notebooks by the end of this year. Is that still a reasonable number?

[Intel Corporation (NASDAQ:INTC) CEO] Paul S. Otellini: Yes, it is. We really haven't changed our view on that. A couple of things give us confidence there. One is, first half shipments on Ultrabooks were essentially right on our expectation set over six months ago. And the design pipeline for what we see in the second half, and the price points that we see, we think will get as there. In a softer selling season, I think these machines become even more attractive. And so, I'm fairly confident, we'll hit our volume goals of this in terms of percent mix for the consumer notebooks.

Intel's Q2 Earnings call (transcript here) revealed that Ultrabooks sales are robust, even in a generally weak macro environment, with declining consumer spending.

Many commentators bemoan the impending death of the PC at the hand of tablets like the Apple Inc. (NASDAQ:AAPL) iPad. According to them, this will be the end for "old tech" companies like Intel, Microsoft Corporation (NASDAQ:MSFT), and Dell Inc. (NASDAQ:DELL), whose technologies are supposedly obsolete. But the personal computer is far from dying. Why?

Well, as it stands right now, tablets are great devices for consumption of media and information, with long battery lives and instant-on capability, but they're absolutely useless for content creation. Intel's Ultrabook push seeks to bridge the gap between traditional notebook computers and tablets: Ultrabooks have all the computing power of a real computer, with the same instant-on capability and long battery life of a tablet.

Of course, Ultrabooks have their doubters. It's no surprise that Michael Steeber of the website called Cult of Mac—no, I am not kidding—spun the data to make it sound like Ultrabooks are doomed:

Intel's attempt to knock the MacBook Air down a peg seems to be failing them. Some depressing sales figures were released that show how little of an impact the Ultrabooks have had on the MacBook Air. In Q2, only 500,000 total Ultrabooks were shipped, compared to 2.8 million MacBooks. Ouch.

Steeber's argument, however, ignores several important factors. First, for a historical comparison, Apple's popular MacBook Air actually struggled for several years before taking off. But second, and more importantly, the upcoming Windows 8 launch is responsible for an Osborne Effect, a fancy way of saying that consumers are less likely to buy a Windows 7 computer when a major upgrade is just around the corner.

Metro-based Windows 8 is touchscreen-friendly, so it's no surprise that more than 40 of the Ultrabook designs in the pipeline are touch-enabled. As prices on Ultrabooks continue to fall due to Intel's structural reduction analysis, Ultrabook sales will continue to increase, competing against both high-end laptops like the MacBook Air and tablets like the iPad. Despite the popularity of Mac's OS X among certain groups, it's important to note that Windows maintains a market share of >90% in desktops and laptops, demonstrating that most people simply prefer the Windows experience to the Apple experience.

Microsoft's move towards integration of a tablet and desktop OS is important, because it's the philosophy it has applied to Office 2013. Since Microsoft has not yet announced any plans of making Office 2013 available for the iPad, touch-enabled Ultrabooks will become the de facto leader for enterprise applications, due to the widespread use of Microsoft Office software.

Microsoft and Intel are definitely positioning themselves very well to continue to dominate their respective parts of the computing market. Companies like Dell and even Hewlett-Packard Co. (NYSE:HPQ) may even see a resurgence in PC sales as Ultrabooks continue to build market share.

The PC isn't dead. Not by a long shot.

Disclosure: I am long INTC, DELL, MSFT.