DigiTimes: Apple’s MacBook Air is pricing Intel-based Ultrabooks out of the market

Asian trade publication DigiTimes reports this morning that next-gen notebooks built around Intel’s Ultrabook platform “may suffer defeat if not less expensive than MacBook Air”. The entry-level MacBook Air lowers the price barrier to just $999, which gets you up to an 11-inch screen, a 1.6GHz dual-core Intel Core i5 chip and 64GB of flash storage in a beautifully designed package that turns heads. Market sources reason:

The sources pointed out that Intel’s ultrabook concept is not a brand new innovation, but a design to allow first-tier notebook players to quickly catch up with Apple’s advances in the ultra-thin segment and help the notebook industry recover from the impact of tablet PCs. The sources pointed out that the new MacBook Airs are priced at about US$999-1,599 with rather strong demand in the US; however, designing an ultrabook based on Intel’s technical suggestions will still be unable to reduce the machine’s price level to lower than the MacBook Air’s unless Intel is willing to reduce its prices, which already account for one-third of the total cost. If Intel does reduce its prices there is a chance for vendors to provide pricing below US$1,000.

This is despite Ultrabooks cutting down on features like the optical drive and the designs calling for flash chips soldered onto the motherboard and sealed batteries, just like the Air. Apple’s experience engineering really small devices just keeps on building and there are few – if at all – companies able to challenge the Cupertino, California consumer electronics powerhouse with the old pricing argument. Of course, seasoned watchers are anything but surprised…

Huge profits Apple’s been reaping on sales of gadgets like iPhone and iPad have allowed the company to pour substantially more money into the pockets of suppliers to secure a multi-year stream of components. In return, Apple gets the lowest possible prices on parts, one of the reasons they are able to price the Air so aggressively while maintaining healthy margins. In addition, contract manufacturers have over the years refined and perfected mass production of Apple’s custom-engineered unibody construction process which reduces the number of parts needed to support the chassis. All of the above ultimately works in Apple’s favor. We’re likely to see even more affordable Macs as Apple is rumored to merge OS X and iOS into a single operating system, widening the addressable market for its products. Jefferies & Co. analyst Peter Misek told Barron’s this morning that “the merger of the platforms could boost unit sales across the product line, and he models a 50-cent-per-share-per-year boost to EPS for ‘every 1 percent increase in unit volumes’ as a result. He also thinks a final merger into one 64-bit platform could boost Apple’s margins by 25 to 125 basis points”.