Which Stock Will Control the Future of Mobile Devices?

Smartphones are morphing into handheld computers in a shift that could force the mobile phone and PC markets to collide. As portable devices become more like personal computers, demand for cellphone microchips with the horsepower to give consumers the functionality they want appears primed to explode. Let's take a look at the two leading chip makers in these industries to uncover which company is better positioned to control the future of mobile devices.

While Qualcomm (Nasdaq: QCOM  ) and Intel (Nasdaq: INTC  ) are both chip makers, they currently supply different markets. Generally speaking, Qualcomm produces chips for phones, whereas Intel primarily focuses on chips for the PC space. However, the line between these separate sectors has started to blur, forcing the two companies into a sudden-death match for mobility market share.

The companies will face off next week at the Consumer Electronics Show in Vegas, where Qualcomm plans to showcase notebook computers running on its chips. To counter, Intel will take a page out of Qualcomm's book and introduce its new Medfield chip for cellular devices.

Deja vu?
It isn't the first time Intel's tried to break into the mobile market. The company has lost countless deals to Qualcomm and other chip developers licensing technology from ARM Holdings (Nasdaq: ARMH  ) .

At this point, Intel's chips consume significantly more battery power than ARM chips. However, Intel hopes to change that with its new Medfield processor. According to Intel, Medfield promises enhanced graphics and faster Web browsing. It also claims to use less battery than the top three smartphones currently on the market. However, we'll have to wait until CES next week to see if Medfield can live up to these impressive marks.

PC does it
Despite making ground on the mobile phone front, Microsoft's (Nasdaq: MSFT  ) decision to run its newest operating system, Windows 8, on ARM technology could invite Qualcomm and other competitors into the Intel-dominated PC industry. This means Intel will need to work even harder to maintain its more than 80% hold on the computer and tablet market. 

In 2010, PC sales accounted for 72% of Intel's net revenue. That's a large percentage of the chip maker's business that could be vulnerable to stronger competition in the sector.

Don't mess with the best
From where I'm sitting, it seems Qualcomm has a decent position in the mobile device market. And the company's push into Intel's turf is the right move if it wants its ARM-based processors to conquer the market for mobile computers. Intel, on the other hand, has the most to lose if its latest mobile plans fall flat.

For now, Qualcomm has a clear lead over Intel, but we'll have to wait until CES next week before crowning a winner in mobile computing. Until then, click here to track the latest developments on these stocks and more, with the Motley Fool's free Watchlist service.

Fool contributor Tamara Rutter does not own any stocks mentioned in this column. Follow Tamara on Twitter for more Foolish news and wisdom, using the handle @TamaraRutter. The Motley Fool owns shares of Microsoft, Intel, and Qualcomm. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Microsoft and Intel, creating a bull call spread position in Intel, and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 06, 2012, at 3:04 PM, russfischer1013 wrote:

    You guys just don't get it. Thisis not Intel vs. Qualcomm it is Intel vs. TSMC. and apparently TSMC understands that they lose to Intel.

    Morris Chang is the Chairman of TSMC and one of the eagles of the semiconductor business. For him to suggest that HIS customers should find other sources is incredible!!

    “It’s horrible to imagine the outcome.” For Morris to say this is unbelievable!

    Folks, I’m stunned….Given what can be seen in the market, TSMC management would have to concerned. QCOM, NVDA, and others have to be ultra concerned.

    In all my years in the semiconductor business I have never seen or heard comments like these no matter how dire the situation might be.

    Basically, Morris is telling his customers to cover their ass as well as they can, because he can’t make them competitive against Intel.

    Remarkable, absolutely remarkable!

    Russ

    TSMC VIEWS INTEL AS INDIRECT COMPETITOR

    13 hours 20 minutes ago - Asia Pulse via Comtex

    Taiwan Semiconductor Manufacturing Co. (TSMC, TAIEX:2330), the world's largest contract chip-maker, views Intel Corp. as a special rival because the U.S. chip-maker is competing against TSMC's customers, company chairman Morris Chang said Monday.

    "TSMC's technologies and performance have reached quite a high level, bringing us into contact with different rivals," Chang said in an interview with Chinese-language Economic Daily News.

    "The competitors we face are Samsung Electronics Co. (KSE:005930) and GlobalFoundries Inc., with Intel standing 'behind a veil' because it is a rival against many of our customers," Chang said, adding that these TSMC customers include integrated circuit designers and integrated device manufacturers.

    Intel, the world's top chip-maker, currently has two contract foundry customers making field programmable gate array (FPGA) products, which do not compete directly against Taiwan Semiconductor Manufacturing Co. (TSMC, TAIEX:2330), Chang said.

    He said the semiconductor sector used to be led by giant U.S. and Japanese companies, but TSMC has been viewed by these companies as a "formidable" rival since two to three years ago due to its upgraded competitiveness.

    Samsung and GlobalFoundries are newcomers in the industry, Chang said, and suggested that TSMC's customers should diversify their foundry sources rather than rely on TSMC only.

    "All of our customers rely on TSMC in foundry production, and Intel relies on its own foundry plants," he said. "If our technologies are not improved enough and Intel keeps improving its technologies, our customers' products will lose competitiveness to those of Intel. It's horrible to imagine the outcome."

    "TSMC will stand behind our customers and cooperate with them. The battlefield between our customers and Intel is where we compete against Intel," he added.

  • Report this Comment On January 06, 2012, at 6:28 PM, winklerf wrote:

    Does anyone that writes these articles realize that Windows 8 for ARM will be an independent OS from Windows for x86? It will be as much the same OS as Mac OS is Windows. No legacy Windows software will run on it. All software will have to be brand new. Anything that is going to be transferred over will require significant effort on the developer's part. Why bother for a market that doesn't exist yet? That leaves an empty OS with a small code base competing with the legacy of DOS and Windows. Good luck with that. It will only appeal to the same market that tablets appeal to, content consumers.

    All of the work that Intel and Google are doing to optimize Android for x86 is similar to what will have to be done for ARM in Windows 8. The problem is that Windows is actually a real OS with an enormous number of features. Chances are that Windows 8 for ARM is not going to work very well out of the gate. With the pathetic computational capacity of ARM, it just isn't going to have a chance against any x86 competitor, including AMD.

    So, do we bet on the player that is going into the market with a small barrier to entry where the OSs are small and simple with apps that come and go in a flash, or the one that needs to penetrate into a stable platform that has been around for decades? The basis of a company's value is largely based upon how hard it is for a new competitor to take their business away. One can just look at the current state of Palm and Blackberry to understand how tenuous that position is in mobile communications. We don't know what the mobile communication device of choice will look like in five years. However, we do know what the computing infrastructure around it will look like in five years. Betting that the major players in the mobile communications milieu will stay the same while those in the computing milieu will a significant chance of upset is an exercise in projecting trends beyond rationality.

    There are two possible future computing paradigms. Either there will be the cloud paradigm where all computation occurs on servers, whether they be in the home or on the net, and mobile devices will merely be dumb terminals. Or, there will be the distributed paradigm where there will be computationally powerful devices everywhere, which will minimize the need for communication through sophisticated client software that can produce a full experience with limited data from the web.

    In either case, the computation sits on a complex OS, not a glorified browser. This requires a sophisticated processor that can maximize processing throughput by managing data so there are fewer high latency memory accesses, running multiple data at once, and predict code branching so the data pipeline isn't frequently flushed. This is where the profitable processors will be, and ARM has a long way to go to be competitive with x86 in this regard.

    One might be inclined to look at how x86 displaced RISC architectures that were the preferred server processors a decade ago, and think that ARM is going to rise up and do the same thing to x86. However, there is very little analogy between the two. The x86 architecture at that time took over the server space not because it was smaller and more efficient, but because it reduced software investment. All of the little stuff to make a system work had to be written from scratch for each successive generation of server for each server architecture. This scenario fits the hodge-podge software environment of smartphones to a "T" where software is throwaway. This suggests at the very least that the architecture doesn't matter in mobile. The same can't be said in the world where many thousands to millions of lines of code per application aren't going to get thrown away because they represent a much larger investment than the hardware itself. When ARM tries to graduate to real processing, it will fall flat on its face.

  • Report this Comment On January 07, 2012, at 4:35 AM, webmind wrote:

    ARM is going to beat INTC for mobile computers? Are you high?

  • Report this Comment On January 07, 2012, at 11:54 AM, verylargelarry wrote:

    fidgewinkle...

    "Does anyone that writes these articles realize that Windows 8 for ARM will be an independent OS from Windows for x86? It will be as much the same OS as Mac OS is Windows. No legacy Windows software will run on it."

    So, you think INTC will be introducing x86 tablets? Or will INTC introduce something new? With a highly polished OS coupled with scads of apps? Or will they, like others, have to plow new ground as well?

    My perspective is that ARMH and QCOM have been working on these issues and INTC is playing catch-up. Sometimes issues like you've noted have actually been anticipated by designers.

    I admit long QCOM and ARMH for quite a while, though never short INTC.

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