Friday, November 25, 2011

Ultrabooks and the Shifting Value Added in Laptops

The most interesting thing about an ultrabook is not that it will finally provide an instant on feature - matching the major advantage of a tablet. What I find particularly interesting is that an ultrabook's value added profile looks very different than past laptops.

Consider the following costs:

Intel has three processors commonly used in the latest processors: the Core i3, i5 and i7. The least expensive versions of these processors are listed at $127, $184 and $294 as of November 14, 2011.
( While there exist faster processors, there's a good argument that putting your money into a solid state drive or SSD will produce better performance for most people.

Ultrabooks are specified to have an instant on capability. While hybrid SSDs can be used to cache regular hard drives to lower the cost of instant on capabilities, the evolution is towards pure SSD devices. If we take a typical SSD sold today as likely in the 120 gigabyte range, we have the interesting situation that the cost of an Intel SSD is around $295. And of course, if you try to match a more typical storage capacity of laptop, you can easily spend $550 to get the storage up to 300 gigabyte.

Now clearly, the price of ultrabooks has to come down for them to more attractive to buyers, but we can expect a classic experience curve to drive costs down.

In other words, while the world sees Intel as a microprocessor company, in terms of value added, Intel has moved to capture even more value in the storage subsystem at least in the leading edge category of ultrabooks.

Now, traditional hard drives are not going to disappear. On a cost per gigabyte basis SSDs cannot compete with traditional hard drives. But given that Intel has had a hard time of diversification in the past, it's interesting to see how they are attempting capture more value in laptops.

And of course, AMD has been going down the same road of increasing its value added and share of components with its purchase of the graphics company ATI.

As usual in tight margin businesses, vertical integration looks attractive.

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