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Intel puts big bet on ultrabooks

By Steve Johnson, San Jose Mercury News –

SAN JOSE, Calif. — Racing to branch out from traditional personal computers where most of its chips are used, Intel Corp. is making a huge bet on ultrabooks, a laptop-tablet hybrid that runs exclusively on its microprocessors.

Although it doesn’t make the devices itself, the Santa Clara Goliath has announced a $300 million fund to invest in ultrabook technologies and just launched an ultrabook ad campaign costing an additional “hundreds of millions of dollars,” its biggest marketing push since 2003.

Some industry observers have high expectations for the gadgets, including research firm IHS, which predicts the machines will grab 40 percent of notebook sales worldwide by 2016. But if ultrabooks flop, some experts say, it will raise major doubts about Intel’s ability to promote its chips for other mobile products, especially smartphones, where it’s been locked out of the market.

“They have to hit this,” said tech analyst Rob Enderle. “If they don’t, they are out of mobile—at least out of the mainstream of mobile products. This is probably the biggest risk they’ve faced since they were formed.”

Intel isn’t the only company with a big stake in its bet. Because ultrabooks are widely viewed as a notebook form that can compete with tablets, many companies that make notebooks and related personal-computer components hope the hybrid resuscitates their businesses, too.

“This is kind of ‘do or die’ for the PC industry,” said Patrick Moorhead of Moor Insights & Strategy.

So far, 21 ultrabook models have been offered by such manufacturers as Hewlett-Packard Co., Dell Inc., Acer Inc., AsusTek Computer Inc., Lenovo Group Ltd., LG Electronics Inc., Samsung Electronics Co. and Toshiba Corp. Lightweight and less than an inch thick, the first ones to hit stores late last year were promoted as quick to start with batteries lasting at least eight hours, data protection features and screens of up to 15 inches.

Yet they cost upward of $1,000, which critics call too expensive. The online publication Notebook Review complained that these first ultrabooks “don’t really deliver premium performance.” And CNet wondered “why an ultrabook would be any better than current iPads or MacBook Airs” from Apple Inc.

But Intel officials and industry observers counter that ultrabooks are an evolving concept and that models to be introduced in the near future will be much improved.

One factor that could enhance their appeal is Microsoft’s new operating system, Windows 8, which reportedly could be released to computer makers later this year. It helps enable touch-screen capabilities, which should soon be built into a “convertible” ultrabook, according to some analysts. The device would operate like a traditional notebook when its clamshell is opened and like a touch-screen tablet when closed.

Windows 8 also requires less powerful processors than Windows 7, which should help lower ultrabook prices, according to IHS. To further conserve power, Intel this year plans to introduce an energy-efficient chip for ultrabooks.

Intel says another upcoming machine will incorporate voice-control capabilities, so a person can simply tell it to play media, check email or perform other functions.

In April, Intel CEO Paul Otellini boasted that “more than 100” ultrabook models were under development. Indeed, analysts at BMO Capital Markets recently reported that computer makers “are pushing hard to launch new models” and predicted the devices would account for 10 to 15 percent of total notebook sales this year.

“We have been absolutely thrilled with the momentum we have, with the excitement,” said Karen Regis, director of Intel’s ultrabook marketing strategy. “I think the industry has been hungry for this kind of innovation.”

But while Intel came up with the term ultrabooks, it may have to battle hard to own the concept. One of its chip rivals, Advanced Micro Devices Inc. of Sunnyvale, Calif., is promoting “ultrathins,” which some analysts say could be offered at a lower price. Moreover, Intel’s heavy promotion of ultrabooks “is likely to benefit AMD’s ultrathins in terms of market adoption,” Raymond James analysts concluded in a recent report.

More competition could come from chipmakers using designs from British firm ARM, which are used predominantly in smartphones. Microsoft has agreed for the first time to let them use its operating system when Windows 8 is released, which is expected to result in various ultrabook-like devices with ARM chips.

Despite such challenges, the Santa Clara, Calif., chip giant has a good chance of success with its hybrids, “particularly if the prices come down,” said Roger Kay, an analyst with Endpoint Technologies Associates. But if the company fails, it would be a painful disappointment.

“It’s a major thrust of the company,” Kay said. “Intel has a very big bet down on ultrabooks.”

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