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.

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