Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.
Can Intel Buy UltraBook Success?
How much money is Intel pouring into its UltraBooks? No one outside Intel knows. But you can bet it’s massive.
Intel wants to keep the price of laptops reasonably high so it can get high prices for its processors; Intel also knows that Windows 8/ARM laptops will be very cheap.
So it’s very much in Intel’s interests to get UltraBooks to succeed and maintain processor prices at a level commensurate with Intel’s margins.
In the past, Intel has paid huge sums to get the PC-makers to do what it wants.
Just look at the amount of money that Intel used to pay Dell to keep Dell a tame Intel house.
The US SEC reported in July 2010 that in every quarter between 2002 and 2006, Dell would have missed its numbers if it had not been for money paid by Intel.
Intel paid the money to obtain exclusivity in the supply of processors to Dell.
In Q1 2007. Intel payments represented 76% of Dell’s operating income.
In 2006 Intel money represented 38% of Dell’s operating profit.
In Q4 2004 Intel paid $25 million to meet a forecasted shortfall in Dell’s numbers.
Another quarter required a $70 million top-up from Intel; and another quarter needed a $125 million Intel injection.
An ‘Opteron Fund’ of $275 million was set up to keep Dell an exclusively Intel house.
When, in May 2006, Dell introduced AMD-based products Intel stopped its payments and Dell profits fell 36% that quarter.
In the same year as the SEC report, the boss of the US FTC concluded that Intel’s conduct “unfairly prevented companies from competing, and harmed consumers by stunting innovation, diminishing quality, and keeping prices higher than they would otherwise be.”
Intel is now operating under a Consent Decree imposed by the FTC.
We’re told that Intel has a $300 million fund to get PC-makers to develop UltraBooks.
Intel, it is said, is working with smaller PC companies to get them to develop UltraBooks and with component manufacturers to get prices of UltraBooks down.
At $1,000+ from the big manufacturers, UltraBook sales are sluggish. At $800 or $700 they might get some traction.
Intel wants UltraBooks to be expensive enough to support a full price for processors, but doesn’t want them to be too expensive for people to buy. It’s a tight-rope.
So the success of UltraBooks probably depends on how much money Intel is allowed to throw at their development under the terms of the Consent Decree.
And judging by the way the financial community neutered US government regulators to precipitate the credit crunch, one assumes that a $50 billion revenue company like Intel can find ways to throw a ton of money the way of the PC manufacturers.
Of course a ton of money hasn’t been enough to do a successful diversification job for Intel in the past.
Will it this time?Tags: boss, operating profit, processors, sec report, sums