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Can Ultrabooks Breathe Life Into Dell's PCs Business?

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It is still early but Dell claims its ultrabook is selling well above expectations – a little less than three times the expected demand. Starting at $999 a unit, the Dell XPS 13 has seen strong demand from enterprise customers.

This is good news as enterprise deals tend to be long-term and can sustain the business until retail demand kicks in. Dell’s major competitor IBM has transformed itself into an enterprise software and services firm while HP, the global leader and Dell’s rival in the PC market, is making efforts to do the same.

See our full analysis on Dell

Near-Term Pricing Power

The main reason that most PC manufacturers are diversifying their businesses is the shrinking margins for PC hardware owing to severe competition. We estimate that the average price of notebook will fall from $668 to $491 by the end of our forecast period. However, the ultrabook with its enhanced performance and sleek design commands a starting price of $999. As more players enter this market, pricing will suffer but will provide a short-term advantage to early players.

Driven primarily by microprocessor maker Intel, Dell and other PC makers are betting big on ultrabook. While attractive design plays a big role in enticing retail customers, enterprise customers tend to be more performance-oriented. We expect flash memory based solid-state drives (SSDs) to be a key feature that will boost ultrabook’s performance. Traditional disk drives tend to be slower and SSDs enable quicker booting and faster response. Ultrabooks essentially takes the most attractive features of tablets and incorporates them into laptops. Intel has designed low power processors specifically to enhance the performance of ultrabook. Key innovations from Intel in this regard are its Rapid Start Technology and Smart Connect Technology.

MacBook Air For Windows Users

We expect ultrabook to dominate the enterprise market in the future. IHS iSuppli estimates ultrabook will account for 40% of the notebook market by 2015. This new segment will likely take on products like Apple’s MacBook Air which are priced similarly starting at $999. Tablets are expected to take market share away from laptops, but this will remain low as only casual PC usage will be affected.

We are maintaining out sales forecast for Dell as we expect the decline in regular laptop sales will be compensated by the increase in ultrabook sales. We expect the market share to decline from its current level of 12.5% to 12 percent by the end of our forecast period. If ultrabooks helps increase market share to 15% during the same period, we can expect an upside of just about 10% to our current Trefis price estimate.

We have a $25.60 Trefis price estimate for Dell, which is 65% above than the current market price.

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