Tablets Surge Pushes Down Intel’s Notebook Processor Prices
The average price of Intel’s (NASDAQ:INTC) notebook processor is seeing a decline led by the ongoing consumer shift to tablets, e-readers, and smartphones that are priced lower compared to traditional notebooks as well as more demand for PCs from emerging markets like India and China that are seeing growth in PC shipments versus declines in developed markets. In addition, competition from other semiconductors manufacturers like AMD (NYSE:AMD), Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM) is also contributing to downward pressure on Intel’s notebook pricing. Due to declining netbook sales globally as well as its Atom processors, Intel is now hoping to make a comeback with its ultrabooks processors expected to be priced competitively against Apple’s (NASDAQ:AAPL) MacBook Air.
While we anticipate Intel’s average price for its notebook processor will decrease from near $110 in 2012 to $86 by the end of our forecast period, Trefis members expect an increase from $115 in 2012 to $102 during the same period. The member estimates imply an upside of 6% to the Trefis price estimate for Intel’s stock.
We currently have a Trefis price estimate of $27.73 for Intel’s stock, about 40% above the current market price of $19.76.
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Consumers Opting for Tablets over Notebooks & Netbooks
Growing demand for tablets, e-readers and smartphones that are available for a lower price compared to notebooks has forced chip makers like Intel to lower their processor pricing. Intel launched the Atom microprocessor for netbooks in 2008 but the share of netbooks is overall PC sales seems to be declining. IDC estimates that worldwide PC sales grew at measly 2.6% in Q2 2011 and netbooks accounted for just 12% of overall PC sales, down from 22% in Q2 2010. [1] On the other hand, demand for tablets like iPad has seen a sharp increase. While Intel has introduced Atom chips for tablets and smartphones, its presence in these markets is very limited compared to handsets built on ARM architecture. [2]
Intel is now placing its bets on ultrabooks, which are thin-and-light laptops with tablet features and compete with Apple’s MacBook Air and other similar products. While Intel expects ultrabooks to account for 40% of notebook market by the end of 2012, PC vendors are taking a rather cautious approach. [3]
Focus on Emerging Markets
As the PC market in the developed countries slowly nears saturation, the focus has been shifting to emerging countries where demand for lower priced PCs (desktops, notebooks and tablets) is growing. According to market research firm IDC while the PC shipments in the U.S. fell 4.2% to 17.8 million in Q2 2011 shipments in China grew and surpassed the U.S. reaching 18.5 million. Overall, the Asia-Pacific region has shown a healthy trend in PC shipments last quarter, with China getting closer to become the biggest PC market globally. (See Intel, AMD Depend on Emerging Market Growth for PC Demand)
Our complete analysis for Intel’s stock is here.
Notes:- Worldwide PC sales gained just 2% in second quarter, say IDC and Gartner, 14 July 2011 [↩]
- Intel ponders netbook strategy with tablet rise, Techworld, Aug 5, 2011 [↩]
- Intel Declines to Cut CPU Prices for Ultrabooks: Reports, Eweek, 18 Aug 2011 [↩]