Are Ultrabooks dead on arrival?

July 23, 2012: 1:36 PM ET

They were supposed to rejuvenate badly sagging computer sales. That doesn't seem to be happening.

By Don Sears, contributor

acer_ultrabookFORTUNE -- So-called Ultrabooks were supposed to revive moribund PC sales. So far, they seem to have done anything but.

What are Ultrabooks, anyway? They are Windows-based, Intel-powered laptops made by almost all the major non-Apple (AAPL) vendors like HP (HPQ), Dell (DELL), Asus, Samsung, and Acer. They typically weigh less than four pounds and are under .8 inches thick with high-performance drives, normal-sized screens and long battery life. (These are not netbooks, an industry sugar high that drove sales for a short time before consumers realized many models were underpowered.) In essence, Ultrabooks were intended as an answer to Apple's MacBook Air.

Many of the Ultrabooks coming out this year will feature Intel's new Ivy Bridge chip architecture that consumes less power while increasing computing and graphics processing. Expect the marketing blitz to pick up steam as we get closer to traditional Back-to-School campaigns followed by Christmas shopping fever. Historically, most laptop purchases are made in the fourth quarter.

MORE: 3 reasons Microsoft's Surface is no joke

For now, consumers don't seem to have fallen in love. Recent reports from two analyst firms show the global PC market in dire need of oomph. Both IDC and Gartner reported sluggish shipments worldwide for the second quarter down 0.1% from the second quarter of last year at 87.5 million units. In the U.S., the numbers were a whole lot worse, shrinking 10.6%. While poor PC sales are nothing new -- the trend extends back seven straight quarters now -- the push to establish Ultrabooks as a standalone, high-end laptop category appears stalled. Intel (INTC) had said it expected this category to make up 40% of all laptop sales by year's end. That now seems doubtful.

Compounding the lack of demand is market timing. Ultrabooks have only really come to life in early 2012, yet the next version of Windows is due this holiday shopping season. So if you buy an Ultrabook right now, it will have Windows 7. A lot of consumers don't want to be stuck with an outdated operating system in a few months. "A big portion of R&D spending has been allocated to Ultrabook development, together with Intel's massive investments to establish the market segment," said Mikako Kitagawa, principal analyst at Gartner in a July 11 statement. "Though Ultrabook was at first introduced in the market in 2011, the major promotion kicked off toward the end of 2Q12 with the IvyBridge, based Ultrabook release. This segment is still in an early adopter's stage."

It is likely too early to say Ultrabooks are dead in the water, but lackluster shipments already have hardware manufacturers adapting their tactics. First up is the price. In early June, new versions of Ultrabooks were announced that shaved off hundreds of dollars off their initial prices around $1,200, with some versions at nearly half the price of early models. That leaves PC makers largely where they were to begin with, struggling to compete with Apple.

MORE:

Airbnb CEO: "Grow fast, but not too fast"

Apple has been setting the pace in the market with its MacBook Pro and MacBook Air models, the latter being the crème-de-la-crème of super light and thin, beautifully designed notebooks. Sony (SNE) has been doing this for years as well with its Vaio line, but not with the same sales impact or marketing behind it as Apple. In fact, Apple boasted real growth of 4.3% this quarter, according to Gartner, while major vendors slumped.

If the MacBook Air were a luxury automobile, it would be a Porsche or a Mercedes, and its sticker price would be high with little to no room for discounting. If you like Mercedes, here's what it will cost you. Covet it and pay up, so the thinking goes. Right now, many Ultrabooks are priced closely to an Air. The question, in other words, is why not simply buy the Mercedes?

More than market share or quarterly profits are at stake. PC manufacturers are partly trying to change the way they do business. Apple focuses on profit, while PC and laptop makers have traditionally found success in volume sales and lower-cost laptops and desktop replacements. By cloning the features of the Air with top-line materials, Ultrabooks were intended to compete at the top end. With expectations incredibly high for the category, the lack of demand is already forcing discounts and losses for the hardware vendors.

MORE: Here come the tweeting robots

"The U.S. market suffered a double-digit contraction in the second quarter as market saturation and economic factors combine with anticipation of Windows 8 and other changes later in the year. In this context, consumers are delaying purchases, and vendors and retailers are slowing down their PC activities to clear existing inventories," said David Daoud, research director at IDC, in a statement. "The situation is exacerbated by consumer notebook saturation, a slowing replacement cycle in the commercial sector, and the big macro-economic and political events affecting confidence and spending."

Microsoft (MSFT) isn't making it easy for hardware vendors or Intel. MS recently announced it is creating its own hybrid-tablet device, Surface, that runs a full version of Windows, with a touch screen and built-in keyboard, and synchronizes with its mobile operating system. It's way too early to know if Surface will impact consumers, but it will certainly impact its hardware partners. More uncertainty is not likely to be welcomed by Microsoft's hardware partners.

The trend may end up being a good for consumers hoping to snap up a deal but it's not going to cheer hardware manufacturers looking for signs of life in the market.

Join the Conversation
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.