Apple and Intel: Rivals Again?

How big would an Intel (Nasdaq: INTC  ) smartphone be? We could find out later this year thanks to LG Electronics, which plans an Intel-based handset.

But LG could be just the beginning. Analyst Doug Freedman of Broadpoint AmTech speculated in a research note that Intel's recent outsourcing deal with Taiwan Semiconductor Manufacturing (NYSE: TSM  ) signals a high-volume push into the smartphone market, News.com reports.

That's hardly surprising. New designs based on Intel's Atom core -- already the brains behind most netbooks -- are meant to support entire systems-on-a-chip, or SOCs. These self-contained processors are low-power and all-inclusive, designed for a small footprint. A smartphone, for example.

And that could prove disruptive to the industry. At the very least, it threatens ARM Holdings (Nasdaq: ARMH  ) , whose low-power designs are built into smartphone chips from Texas Instruments (NYSE: TXN  ) and Qualcomm (Nasdaq: QCOM  ) , among others.

Yet I'm more concerned with the implications for Apple (Nasdaq: AAPL  ) . I had hoped that its partnership with Intel on the Mac would extend to the iPhone at some point. (Current editions of the iPhone use an ARM processor.) But now that Intel's Moorestown chip -- the code name for the second-generation Atom processor -- is planned for an LG device, I suspect that Apple will either stay with ARM, or create a new iPhone processor.

I'm betting on the latter. Apple endured federal scrutiny and a legal challenge from IBM (NYSE: IBM  ) to assemble a chip design team that could transform its mobile devices. The pieces of this chip design team? P.A. Semi, acquired last April for $278 million in cash, and Mark Papermaster, a former IBM hardware engineer who has years of experience working with the Power Architecture that supports P.A. Semi's efficient designs.

Think of the implications. If Apple creates its own processor for the iPhone, and its work on the lightweight Snow Leopard version of the Mac OS suggests tighter ties between the iPhone and the Mac, doesn't it also make sense for Apple to redesign the guts of the Mac?

In other words, will Apple and Intel be rivals once again? Use the comments box below to let me know what you think.

Brrrrrrring! It's related Foolishness calling:

Intel is a Motley Fool Inside Value pick. Apple and ARM Holdings are Stock Advisor selections. Try either of these Foolish investing services free for 30 days. There's no obligation to subscribe.The Fool owns shares and covered calls of Intel. 

Fool contributor Tim Beyers had stock and options positions in Apple and stock positions in IBM and Taiwan Semiconductor at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy sometimes eats chips for breakfast.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2009, at 2:53 PM, SkepticalOx wrote:

    Wait. What? Apple can't use an Intel chip in their iPhone even if LG is using?

    Wouldn't it make sense for Apple to still keep Snow Leopard an Intel-based OS, and then just make a light version Intel based also?

  • Report this Comment On March 17, 2009, at 3:02 PM, TMFMileHigh wrote:

    Hello bnJMSB,

    >>Wouldn't it make sense for Apple to still keep Snow Leopard an Intel-based OS, and then just make a light version Intel based also?

    Definitely. I think Apple could choose to favor Atom for future versions of the iPhone but, if they do, then what was the PA Semi deal for? What good would Papermaster be? Surely Apple gained very smart people as the result of both deals but I suspect they'd be most valuable leveraging their expertise -- chips.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool)

  • Report this Comment On March 17, 2009, at 3:37 PM, SkepticalOx wrote:

    Hi Tim,

    Making chips is entirely different than what they've been doing. Making iPods and iPhones have some resemblance to Mac's in that it is cobbling a bunch of hardware together (that's made by other companies).

    I don't want to underestimate Apple, but other cellphone companies could have a far superior chip in their smartphones if Apple decides to go on their own, and that could be a massive disadvantage, especially when there are so many viable iPhone alternatives.

    My guess would be they are making chips that are accessories to the CPU.

  • Report this Comment On March 17, 2009, at 8:20 PM, ebarrett4 wrote:

    I'm certainly no expert in the area but what about Apple expanding its partnership with NVIDIA and using their new SOC chips (like Tegra) in future iPhones?

  • Report this Comment On March 19, 2009, at 2:52 PM, jghd wrote:

    Intel is not a serious compeditor in the SmartPhone space yet, and they have already failed once (with Xscale). If I were Apple I would not bet my future on someone (Intel) who does not have success in the market, no matter how good they are in the PC and netbook space. Atom and it successor still requires too much power compared with competing offers in the smartphone space.

    Also the ARM (regardless of the generation) is typicaly a very small part (<20%) of any smart phone system. Imaging and video are taking up an ever increasing percentage of thes chips. I would suspect Apple to use newly aquired design capability to add intelectual property to something that makes them unique (posibly in audio/video) but there is little reason to do their own processor. Apple also has enough clout to mandate a new design and IP to a proven smart phone chip company which would require significantly less investment on thier part.

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