What’s Impacting Intel’s Notebook Processor Market Share?

by Trefis Team
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Quick Take

  • With a 70% revenue contribution, PC chips remain the most important segment for Intel’s valuation.
  • Notebooks are replacing desktop shipments, and with increasing demand from emerging markets, notebook shipments are expected to continue rising in the future.
  • Intel plans to introduce more than 140 core-based ultrabooks with a increasing number of convertible and touch enabled designs. It also aims to reduce ultrabook prices to around $599 this year.
  • Strong R&D capabilities and manufacturing leadership with the upcoming production on the 14-nanometer process this year will help Intel retain its technology prowess.
  • A robust pipeline of upcoming platforms can steer demand for AMD products.
  • 3.3% of all mobile PC processors, excluding tablets or handhelds, will be based on the ARM architecture by 2016.

Intel (NASDAQ:INTC) has been dominating the PC microprocessor market for the last two decades. It derives approximately 70% of its revenue from the PC market and thus declining PC shipments recently has impacted the company’s growth rate. Though Intel has expanded its product offering to leverage the fast growing mobile computing market, PCs remain the most important segment for its valuation.

With rapid technology innovation, there has been a considerable shift from desktops to notebooks in the last few years. While the global desktop market is saturated, growing notebooks demand is anticipated to drive PC shipments in the future.

Intel currently accounts for over 80% of the notebook processor market, and we estimate the segment to have a 34% contribution to its valuation. Though the increasing competition might reduce Intel’s market share, we expect the company to continue dominating the notebook processor market for the rest of our review period. In this article we discuss reasons to justify our stance.

See our complete analysis for Intel


What Are The Factors That Will Drive Notebooks Demand In The Future?

The slowing enterprise market, consumer softness in mature markets (US and Western Europe), slowing demand from emerging markets, operating system transitions and cannibalization by tablets are some of the main factors leading to the current slump in PC shipments.

(In Millions)

2009

2010

2011

2012

2013

2014

2015

2016
Total PC Sales

304.9

347.1

363.9

367.2

391.1

418.6

450.1

483.1

Desktop Sales

136.2

145.9

154.8

153.0

155.7

158.8

160.9

162.0

Notebook & Netbook Sales

168.7

201.2

209.1

214.2

235.4

259.9

289.2

321.1

Source: IDC Press Release

Notebooks shipments are estimated to continue increasing for years to come, albeit at a slower pace.

- Increasing shift from desktops to notebooks: Because of their comparatively smaller size and higher mobility, notebooks are replacing desktops both in developed and emerging economies.

- Growing demand from emerging markets: The rising middle class in emerging markets, especially China, is leading to higher proportion of demand from these regions as the PC demand from the developed world nears saturation. In 2012, emerging markets accounted for 54% of the global notebooks demand and IDC estimates the proportion to increase to 61% by 2016. [1]

Factors That Will Help Intel Retain Its Dominance In Notebook Processors

1. Overhaul of ultrabook products and lower prices to fuel demand

After a tepid response for ultrabooks in 2011, due to their steep price, Intel introduced a $300 million fund to achieve improvements in the same. In 2012, it launched its largest advertising campaign in a decade to increase the adoption of Intel powered ultrabooks. Intel claims that the growth in ultrabooks has helped the company achieve its volume goals in the first half of 2012. It ramped up its ultrabook designs from 20 to 140+ in the last year alone. However, despite these efforts, ultrabooks only accounted for an estimated 0.5% of worldwide notebook PC shipments in 2012.

To tap the rising demand from emerging markets, Intel lowered its ultrabook prices to around $699, and aims to further reduce the price to $599 by this year end.

2. New convertible designs

In the next few months, Intel plans to introduce more than 140 core-based ultrabooks, 40+ of which will be touch-enabled. As the line between PCs and tablets is blurring, Intel intends to focus on developing over a dozen convertibles and detachable ultrabook designs in the near  future.

At the 2013 Consumer Electronic Show, Intel announced a low power 7-watt version of Ivy Bridge line of processors for ultrabooks. The low power line of processors will enable OEMs to have greater flexibility in designing thinner and lighter touch based ultrabook convertibles. In addition, it will also introduce its 4th generation core processor family, code-named Haswell, later this year. The processor promises to offer up to 13 hours of battery life, in turn enabling a broad new range of ultrabook convertibles, detachables and tablets.

3. Strong R&D capabilities to help retain technology leadership

Within the semiconductor industry, Intel is known to have best in class R&D capabilities. It is also the only chip maker with its own manufacturing, design and fabrication capabilities which makes it less dependent on other companies. In July 2012, Intel pumped $4.1 billion into ASML Holdings (NASDAQ:ASML) to fund the next generation chip-making technology.

Intel continues to invest in its manufacturing leadership. In 2012, it ramped up its 22-nanometer factories and intends to start production on the 14-nanometer process this year. Intel purchased $11 billion in capital assets and invested more than $10 billion in R&D in 2012.

Factors Than Can Lead To A Decline In Intel’s Notebook Market Share

1. Improving competitiveness from AMD’s Trinity chips

In 2012, AMD introduced its next generation Trinity APUs, which boasts up to 12 hours of battery life and almost double the performance per watt compared to its predecessor. AMD claims that “ultra thin” laptops with the new Trinity chips will cost around half the price of an Intel ultrabook. Despite lower unit shipments, the Trinity notebook marked a 70% sequential increase in sales in Q3 2012.

AMD has a robust pipeline of upcoming platforms which it feels will steer demand for its products in 2013 and beyond. It recently introduced new APUs, code-named Temash and Kabini, which will be the industry’s first quad-core x86 SoCs. While the Kabini platform is meant for ultrathin notebooks, the Temash platform targets the fast growing performance tablets and hybrid markets.

2. Entry of ARM-technology based players in the PC microprocessor market

ARM Holdings licenses its technology to its partners who in turn incorporate it into their own designs to create chips for consumer devices. It accounts for a majority of the mobile market and is slated to venture into the PC microprocessor space later this year. A report by IDC estimates that approximately 3.3% of all mobile PC processors, excluding tablets or handhelds, will be based on the ARM architecture by 2016. [2]

Our price estimate of $32.88 for Intel is at a premium of  close to 40% to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. IDC Lowers PC Outlook As Shipments Decline In Second Quarter Ahead Of Fall Product Updates, IDC Press Release, August 23, 2012 []
  2. IDC: PC processor market shrank in 2012, will grow in 2013, Tech Report, January 16, 2013 []
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