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With New MacBook, Ultrabook, and Tablet Processors, It's Game Time for Intel

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The situation at Intel may be better -- or at least less bad -- than the latest numbers would have us believe.

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It's fall, football season is underway, and it's make or break time for Intel Corporation (NASDAQ:INTC). The chipmaker has a new quarterback in CEO Brian Krzanich, and a refreshed lineup. Haswell processors are finally hitting the shelves in force, and Bay Trail – destined for tablets and low-end notebooks – will make its first appearance in the next few months. October marks the release of Windows 8.1 and, with a wave of new machines hitting the market, the PC industry is positioned for a strong performance this holiday season.

Anything less would be a disappointment. Haswell has extended laptop battery life into the 8- to 10-hour range that was once only seen in tablets and smartphones. With Windows 8, Microsoft (NASDAQ:MSFT) opened the door for new, more mobile form factors. Collectively, the PC world is fielding one of the most aggressive teams it's ever had – and if it fails to impress, we should be worried.

Amidst the gloom of falling computer sales, there have been some hopeful signs. For one thing, prices are holding up. Earnings statements from five of the largest PC vendors – HP (NYSE:HPQ), Dell (NASDAQ:DELL), Apple (NASDAQ:AAPL), Acer (TPE:2353) and Lenovo (HKG:0992) – show that revenue per unit has remained steady since at least the beginning of 2011. At the same time, tablets and smartphones have been racing towards lower price points, a trend that may account for some of their growth. Additionally, while global PC shipments fell 11% year-over-year in the second quarter, the decline stateside was less than 2%. The US has historically been a leading indicator, and slowing declines suggest that the market may be bottoming out.

For its part, Intel had a rough start to 2013. Revenue in the first two quarters was down 4% versus the previous year, hit by slow PC sales and lean inventories. Earnings fell 25%, largely due to the rollout of Haswell, and ramp-up costs for the Broadwell line of chips due out next year. The company expects margins to improve in the next two quarters and earnings to clock in at a much-healthier $1.15/share.

So, all around, things may be somewhat better – or at least, somewhat less bad – than the numbers would have us believe. This bodes well for the back half of 2013. Also promising are the new machines hitting the market. Love it or hate it, Windows 8 has stirred up the once-stodgy PC industry. While many of last year's devices were – like the operating system itself – more experimental than practical, this fall should bring a more mature lineup. Windows 8.1 is expected to round out some of the rough edges and jarring changes that weighed down the new OS, while OEMs (original equipment manufacturers) have now had a few cycles to polish their touch-based and convertible products.

The biggest improvement comes from Intel. In June, the chipmaker introduced Haswell, a new generation of PC processors featuring remarkable power savings. Apple was among the first big companies to sell a Haswell-based machine, the 2013 MacBook Air. It saw a 40% gain in battery life over the previous year's model, controlling for battery size. Because Intel chose to release Haswell in staggered fashion, most notebook-class chips are only now hitting the shelves. In the last month, Acer, Asustek (TPE:2357), Sony (NYSE:SNE), Dell, Lenovo, and Toshiba (TYO:6502) have all announced new PCs running Haswell, and this pace of new products will probably continue into the Windows update next month.

Meanwhile, the Atom line of processors is about to see equally big gains to battery life, plus substantial performance improvements. Last week saw the launch of the Avoton, aimed at high-efficiency servers. Early 2014 will bring Merrifield, intended for high-end smartphones. Bay Trail rounds out the trio, and is probably the most interesting of the three; it does something no ARM chip has done and fills the gap between a full-fledged PC processor and an underpowered mobile chipset. It can run both Android and the full version of Windows 8, will earn higher margins than Intel's current Celeron and Pentium lines, and could save manufacturers the hassle of designing for different chip architectures to address different markets.

To be sure, most analysts expect continued bleeding from Intel and its partners. We're told that consumers would rather spend $300 on an appendage for their smartphones, than on a Windows 8 tablet pre-loaded with Office. That may be true -- you win some and you lose some -- but the time has never looked better for a come-from-behind upset. At this point, the locker room speeches have been given, bruised manufacturers have suited up, and now the PC industry has to prove that it's still in this game.

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