Ultrabook Sales Falling Ultrashort

With the netbook fading rapidly into the sunset, the PC industry was looking to the ultrabook as its hot new ticket item. The ultrabook was meant to be extremely thin but as powerful as a standard desktop, if not more so.

But with second quarter PC sales coming from Gartner, IDC and IHS (formerly iSuppli), it looks like ultrabooks are falling well short of the 40% market share Intel CEO Paul Otellini once predicted.

Otellini first pitched the ultrabook -- basically a PC version of the Apple MacBook Air -- during the annual Intel analyst meeting in May 2011. A month later at Computex, Sean Maloney, who heads Intel China predicted that ultrabooks would account for 40 percent of laptop sales by the end of 2012.

And yet, for the second quarter of 2012, the major market watchers report that ultrabooks are barely making a dent in the overall market, but given the overall economic condition, ultrabooks can hardly be blamed for anything. IDC puts the U.S. market contraction at 10.6 percent from the same quarter in 2011, while Gartner says the contraction was 5.7 percent. Either way, this market is usually growing.

"A saturated market and lack of incentives are leading buyers to delay purchases of PCs for the time being," said IDC in a statement.

Gartner analyst Mika Kitagawa attributed the problem to the maturity of the market. "Consumers are less interested in spending on PCs as there are other technology product and services, such as the latest smartphones and media tablets that they are purchasing. This is more of a trend in the mature market as PCs are highly saturated in these markets," she said in a statement.

IHS analyst Craig Stice thinks it's too early to declare ultrabooks a failure. "Yes, first half shipments have been sluggish but I also didn't have great expectations for a massive sudden recovery in this timeframe," he said.

His reasons for optimism include a lower price; ultrabooks first shipped at $1,000 and are now down to $700. The Ivy Bridge processor is more targeted for ultrabooks thanks to its lower power consumption and power draw, and Windows 8 will complete the true Ultrabook experience, he said.

IDC also believes Windows 8 and lower pricing will help improve the ultrabook sales outlook, and Gartner adds the major promotion kicked off toward the end of this most recent quarter, with Ivy Bridge powered ultrabooks. "This segment is still in an early adopter's stage," said Kitagawa.

But that doesn't explain the popularity and success of the MacBook Air. While Apple doesn't break out its unit sales, MacBook sales in general have bucked the trend and continued to sell well despite their premium price. Apple sold 4 million Macs in Q1, up 7 percent year-over-year, while other vendors were shrinking.

What ultrabooks need is a premium service and aura about them that Apple gives to all MacBooks, argues Rob Enderle, principal analyst with The Enderle Group. "There is an exclusivity that comes with Apple. Everything from the out of box experience to your treatment in stores is different from the rest of the market. So Apple has the equivalent of a Lexus dealership while the other guys are selling Toyotas," he said.

So while the ultrabook vendors are still selling speeds and feeds, Apple sells experiences and gets away with charging three times as much for equivalent hardware, he argues. "You have to create the perception that the premium price connects you to a premium product, the status. It helps to provide a premium experience for these people, which is what the Apple Store offers," said Enderle.

In announcing its second quarter numbers, Intel CEO Paul Otellini said there were 140 ultrabook designs in the works based on Ivy Bridge, up from 110 designs it announced two months ago. He also announced 20 tablets based on the Intel Atom processor running Windows 8 were in the works, along with a dozen convertibles, which can be switched from notebook to tablet.

The big question remains: Is there a bright future for ultrabooks or is this category of notebook PCs essentially dead on arrival? Let us know what you think in our discussion forum.