Can ARM Stave Off the Intel Invasion?

Mobile-chip architecture specialist ARM Holdings (Nasdaq: ARMH  ) recently made a smart move to increase its dominance in the smartphone and tablet market by focusing on online security for mobile payments. The company announced its plans to set up a joint venture with two other companies -- Gemalto and Giesecke & Devrient -- with the aim of developing a security standard that would seamlessly integrate with mobile devices using ARM-based chips. ARM claims that the JV would be a benchmark in mobile security by developing a Trusted Execution Environment, making Internet-based payments and banking a lot more secure on mobile devices.

With the majority of mobile devices in the market making use of chips made by companies that are ARM licensees, the move should prove to be a winner for the company. At the same time, this would help it move a step ahead in the race against archrival Intel (Nasdaq: INTC  ) .

Catching up with Intel?
Intel is the planet's biggest semiconductor maker. Period. And it already has an edge in the realm of security. Having tied up with MasterCard and Visa to ensure that online transactions are made secure, Intel has also purchased McAfee, the Internet security software maker, for a whopping $7.68 billion in 2011. This led to a security feature named DeepSAFE, which is somewhat similar to what ARM is planning to develop. And Intel is ramping up its mobile presence even more by partnering with Motorola and Lenovo to make mobile devices powered by its Medfield-based processors.

Present secure, future uncertain
If Intel has an early lead in security, ARM has its low power consumption working in its favor. In fact, this has been one of the main reasons why ARM processors are used in Apple products. And everyone knows that Apple's sales can boost the prospects of any company associated with it, including those of ARM. Now, even Microsoft (Nasdaq: MSFT  ) has ensured that its newest operating system, Windows 8, is compatible with ARM-based processors as it slowly makes its way into tablets and computers.

But, what about the future? That's what ARM needs to worry about, if you ask me.

A Foolish conclusion
Unlike ARM, Intel is a huge company with a lot of cash and robust production capacity under its belt. The fact that Intel is a fully vertically integrated company also does make a huge difference in terms of cost control. And its recent bonding with Motorola and Lenovo only reinforces Intel's determination to get into the smartphone and tablet segments. Intel has already increased its market share even more in 2011 to 15.6%, thanks largely to its purchase of Infineon Technologies' mobile chip division. In contrast, Samsung, the second-largest semiconductor supplier and one of ARM's major licensees, fell back at 9.2%.

Having said that, Intel knows it is still an uphill task to break ARM's stranglehold on mobile-chip architecture, with ARM chips finding their way into most of the world's smartphones. This sure looks like the mother of all semiconductor company battles.

And if that makes you unsure about ARM as an ideal investment option at this juncture, you can check out our free report on these three hidden winners of the iPhone, iPad, and Android revolution. Get it while it's still there!

Don't forget to stay up to speed with the latest on ARM by adding it to your Watchlist. It's free!

Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Microsoft and Intel. Motley Fool newsletter services have recommended buying shares of Intel and Microsoft, as well as creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy.
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Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

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 April 18, 2012, at 12:10 PM, KartikJay wrote:

    Diagrammatic representation of the Intel vs. ARM battle:

  • Report this Comment On April 18, 2012, at 1:25 PM, techy46 wrote:

    "why ARM processors are used in Apple products"

    ARM chip designs are used in Apple produce A5 becasue the designs are cheap, RISC requires less power at 45nm and Apple's greedy. Intel CISC chips always beat RISC chips when the tic toc catches up to the larger gate sizes of the RISC chips. It happened with MIPS and PowerPC and it'll happen to Apple and ARMH. Why did Apple switch from PowerPC in MAC to Intel?

  • Report this Comment On April 18, 2012, at 2:35 PM, jpanspac wrote:

    Please explain how low power consumption benefits ARM regarding security.

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