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Does Intel’s ultrabook stand a chance?

By
JP Mangalindan
JP Mangalindan
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By
JP Mangalindan
JP Mangalindan
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September 12, 2011, 12:13 PM ET
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FORTUNE — When Apple launched the MacBook Air, it got flack: not fast enough, not enough ports, too pricey, the optional external optical disc drive had as much portable appeal as a brick. Fast-forward three years, and the current version of the Air has become an industry example of what consumers want in mobile computing. Though Apple won’t break down figures, an executive recently told Fortune that the lightweight notebook had been outselling its entry-level white MacBook earlier this year. (That model was ultimately discontinued.) Meanwhile, Gartner research reports Apple’s overall growth in the mobile computing space outpaced PC makers — for the last five quarters.

So what’s a Windows PC maker to do? Fight fire with fire. That’s partly why Intel (INTC) created the so-called “ultrabook,” a new, svelte notebook category. The new name comes with a checklist of required hardware features attached: a model must be 0.8 inches thick or less, weigh under 3.1 pounds, use a solid-state flash drive, get five-plus hours of battery life in between charges and start at a price of $1,000. The chipset maker also set up the Intel Capital Ultrabook Fund, a $300 million fund for investing in companies working on ultrabook hardware and software, aiming foster technical improvements in battery life and storage for example.

If successful, Intel’s prodding of PC makers to more diligently chase Apple (AAPL) could be a big boost to the Windows ecosystem as the surge in tablets threatens to take a bite out of notebook sales. (Apple reportedly threatened to walk away from Intel if the chip maker didn’t make bigger gains in its technology.) But manufacturers like Toshiba, Lenovo, Asus and Acer — all of which roll out ultrabooks this fall — have plenty of obstacles that may be difficult to overcome.

Like design. While Toshiba’s upcoming 2.5-pound Portege Z830, due in November, sports a look in line with the company’s past products, Asus’s offerings have drawn some criticism for looking too much like the Air, right down to the way that sheet of aluminum tapers in the corner. Comparisons in the looks department may be inevitable, though. “They’re similar, but it’s not hard to be similar,” says Van Baker, an analyst with Garter Research. “You need the metal case for the structural strength, and they have to be thin because that’s one of the requirements for the ultrabook brand. So when you say it’s an all-metal case and thin, well guess what? It’s gonna start looking like a MacBook Air.”

Baker also points out the differences remain significant. There’s the operating system for one; Microsoft’s (MSFT) Windows still dominates in market share. Some of the aesthetic flourishes Apple is best known for may be hard to duplicate, meanwhile, such as backlit keyboards that light up in the dark. Such features may not make their way into ultrabooks for some time, if at all. Manufacturing such a thin chassis is a challenge, too, something Asus’ own CEO Jerry Shen told The Financial Times, pointing to possible heat problems due to the processor.

Pricing will also be extremely important. Apple has never been considered “cheap,” but the Air’s recent $999 pricing scheme is reportedly a hassle for some PC makers who are dealing with higher production costs. Analysts Fortune spoke to indicate that, for ultrabooks to be competitive in the marketplace, they need to be priced below $1,000 and somewhere in between $700 and $750. This year, there will be few models that hit that sweet spot — most of them have price tags starting at $1000 and climbing up to $2,000.

Intel and company will also have to do some savvy marketing. The chipset maker forecast that ultrabooks will own 40% of the global consumer notebook market by the end of next year, and 60% come 2013. That’s an extremely aggressive prediction that some PC makers and analysts wonder is realistic. “That’s going to take a lot of spend on Intel’s part, to take a term that they invented and that consumers aren’t aware of and get to the point where they go to a Wal-Mart (WMT) or Best Buy (BBY) and ask for an ultrabook,” explains Baker, who remains skeptical.

Intel also has a mixed track record pushing specific types of computing tied to its chips. In 2004, the company sponsored an effective media campaign extolling the Centrino, which popularized the benefits of wireless Internet mobility. Other campaigns haven’t fared so well. In 2006 for instance, Intel marketed Viiv to boost awareness of PCs designed as living room-friendly media centers. Viiv as a brand went nowhere and eventually died quietly, though the idea of the “media PC” lives on.

PC makers also have to fully commit. According to DigiTimes, Acer, Lenovo, Toshiba and Asustek may produce less than 50,000 units, too conservative to really make a dent in public awareness. And while Asus, for example, is technically capable of producing quadruple that each month, scaling beyond will require substantial investments in the company’s supply chain, an investment that will likely be needed to take this category mainstream. Otherwise, the vaunted ultrabook may become just another uneventful blip on Intel’s vast, expanding product roadmap.

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