Intel warned over Ultrabooks

Poor retail demand for traditional x86 PCs and slow growth in emerging markets have forced Santa Clara to lower its outlook for the second half of 2012. 

Nevertheless, Intel CEO Paul Otellini said he believes ongoing sales of Ultrabooks will help jumpstart slow plodding sales.

“We’ll see $699 ultrabooks [in the fall],” Otellini pledged. “In a softer selling season these devices become even more attractive [and there already are] over 140 designs in the pipeline.”

However, Charter Equity’s Edward Snyder expressed skepticism over Otellini’s Ultrabook optimism.

“While enterprise spending to build cloud infrastructure is driving a richer mix and assisting gross margins, Ultrabooks have yet to emerge as the blockbuster product Intel has touted over the last several quarters,” Charter Equity’s Edward Snyder opined in an industry note.

Analysts at Piper Jaffray expressed similar sentiments, noting that Intel’s weaker outlook could also be attributed to overpriced Ultrabooks and consumer preference for smartphones and tablets – rather than traditional PCs. 

“We expect lack of excitement in PC clients will drive a mix shift to lower price point notebooks and ultimately pressure gross margin and growth,” the Piper Jaffray analysts concluded.

Meanwhile, Evercore Partners slashed its price target on Intel stock to $26 from $27, while Canaccord Genuity lowered it to $26 from $28. Jefferies & Co reduced its target price on the stock to $29 from $30 and RBC Capital Markets cut it to $30 from $33.

Santa Clara’s lowered outlook comes just days after the MercuryNews reported that a number of Intel’s biggest customers and partners are reportedly “exploring” the use of RISC-based ARM chips which could ultimately find their way into future PCs and servers. 

Indeed, both HP and Dell are apparently considering using processors in some devices based on ARM’s energy-efficient design. In addition, a number of analysts believe Apple – which already uses ARM chips in its iPhone, iPad and iPod – may eventually adopt the same architecture for its MacBook Air and Pro lineups. 

“It’s starting to get interesting,” said Mike Feibus of TechKnowledge Strategies. “Everything that we sort of knew and took for granted is being thrown out the window.”

Nevertheless, Intel spokesperson Jon Carvill insisted Santa Clara wasn’t overly concerned about ARM’s incursion into the x86 dominated PC and server market.

“Our view when working with our customers is to build the most compelling products with the best hardware and software, rather than worry about what our competitors may or may not bring to market,” he added.