Can ARM Catch Intel Before Intel Catches ARM?

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Chip titan Intel (Nasdaq: INTC  ) is finally taking mobile serious, and it's putting a boatload of its weight behind pushing into ARM Holdings' (Nasdaq: ARMH  ) territory. Meanwhile, ARM is eyeing Intel's home turf and licking its chops. As each camp invades the other's market, who will come out ahead?

I'll show you mine if you show me yours
ARM CEO Warren East recently sat down for an interview with Dow Jones and naturally thinks his side will come out ahead. East predicts that within a couple of years, ARM-based chips should claim upward of 10% to 20% of the traditional notebook PC market that Intel now dominates, thanks mostly to the introduction of Microsoft Windows 8 later this year and its Windows RT flavor that supports ARM architecture.

The first Intel Atom-powered smartphone was recently launched in India, the Xolo X900 made by local OEM Lava. East believes that Intel will only be able to garner 5% to 10% of the smartphone market over the same time, expecting ARM to steal more market share from Intel than Intel can steal from ARM. He added, "It's going to be quite hard for Intel to be much more than just one of several players. But [Intel will] be a perfectly credible player."

Intel Inside?
Intel CEO Paul Otellini recently outlined Chipzilla's aggressive mobile strategy at its annual meeting with analysts. The company will continue to tap its advantage in vertical integration and push the envelope with Moore's Law and power efficiency while ARM players will continue to rely on contract manufacturers such as Taiwan Semiconductor Manufacturing, whose 28-nanometer production constraints have been holding back companies such as NVIDIA (Nasdaq: NVDA  ) and Qualcomm.

Apple (Nasdaq: AAPL  ) has always been split, with Intel chips in Macs and ARM chips in iDevices. Otellini is looking to make Intel's chips "so compelling" for all of Apple's product families (including the iPad) that Cupertino "can't ignore" the chip behemoth. There are certainly reasons why the Mac and iPad maker may be interested in consolidating its chip strategy one way or the other, but an architectural shift in either direction is still a tall order.

A tale of two chip markets
East and Otellini have different broader visions of where the chip market is going. East naturally thinks there will be upward of 20 chip players in the cutthroat market, while Otellini believes the sector will consolidate and leave only two to three larger chip makers standing. Of course, executives are somewhat biased to their own respective industries.

The smartphone processor market has mostly been more competitive with a wider selection of offerings, with many stemming from ARM's designs. ARM chip makers are still able to add layers of differentiation such as NVIDIA with graphics or Qualcomm with basebands. Intel may be speaking more out of experience in the PC chip market, where it mainly only tussled with one primary competitor, Advanced Micro Devices (NYSE: AMD  ) . That may be why Otellini sees the mobile chip space following in the same footsteps.

It's also worth pointing out that the PC market and mobile market should see very different growth rates in the coming years. Emerging markets and data centers should drive traditional PC chip growth, although smartphone and tablet growth will likely dramatically outpace it as mobile adoption accelerates. So even if Intel ends up grabbing a smaller piece on a percentage basis, that's still a faster growing pie that can still pay off handsomely in dollars.

Dollars and sense
ARM chips currently boast a significant cost advantage over Intel's prices, which is one reason East is so bullish. Smartphone processors usually cost around $20, and even if PC-bound variants go up to $25, that's still far cheaper than the $80 to $200 that Intel fetches for its Core lineup. OEMs could pass along those cost savings to consumers through lower prices, which would spur adoption.

On the other hand, a big drawback will be legacy application support. East brushes off this concern, saying that nowadays "people just want to run an Internet browser, an email package, some Office applications and Adobe Photoshop or something like that, and not much else." In that case, ARM chips can handle the majority of use cases that the average user needs. On the flipside, the majority of Google Android mobile apps will work on Atom chips thanks to a process called binary translation, so Intel has less of a hurdle to clear with app compatibility.

Intel: Still top dog
Even though I recently sold my own ARM shares over monetization concerns, I tend to agree with East's view of how the market will shake out. I think ARM will maintain its mobile dominance as Intel grows its share, while ARM's price advantage may let it win a decent chunk of the Windows 8 market.

Although in fairness, if the question boils down to who is a better buy of the two, Intel is king.

Beyond Intel, there are also plenty of reasons why you should buy Apple. This freshly released report digs deep into the Mac maker's growth and where its biggest opportunities and risks lie in the coming years. Current and prospective shareholders alike should grab a copy, which also comes with quarterly updates. Apple is also one reason why the mobile revolution will be "The Next Trillion Dollar Revolution."

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google, Microsoft, Intel, and Qualcomm. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Intel, Adobe Systems, NVIDIA, Apple, Microsoft, and Google. Motley Fool newsletter services have recommended creating a diagonal call position in Adobe Systems. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended writing puts on NVIDIA. 

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (6) | Recommend This Article (5)

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 May 27, 2012, at 5:49 PM, prginww wrote:

    The mobile business is a $10 billion business this year. It will be a $10 billion business next year and every year for as far as anyone can see. Probably not much more and not much less.

    Now that Intel has the more immediate problem of server chip domination under control, they can turn to the mobile chip business.

    Intel will get the lion's share of that $10 billion over the next two or three years. Just make sure you don't own shares of the losers in the struggle.

  • Report this Comment On May 28, 2012, at 12:48 PM, prginww wrote:

    Can the hare catch the tortoise when they are racing in different universes?

  • Report this Comment On May 28, 2012, at 3:52 PM, prginww wrote:

    Windows, Windows Phone and Windows Server will allow for a head-to-head competition of ARM vs X86 to occur in 2013 without any extroploation or guessing, We've seen this CISC vs RISC battle fought several times of the last 3 decades. It's never turned out very well for RISC chips. Wouldn't want to be betting against tic tok.

  • Report this Comment On May 28, 2012, at 4:53 PM, prginww wrote:

    Intel is closing in on zero day security threat prevention that will be using the expertise of McAfee and hardware hooks built into the Intel CPU and server chips.

    This will be the final nail driven into the coffin of AMD.

    So, we are talking about perfect computer security. With that available, why would you even think about using an un-secure techology from ARM....that's insanity.

  • Report this Comment On May 29, 2012, at 5:17 AM, prginww wrote:

    Who wants to buy a PC with an ARM operating system? Nothing runs on it except mobile phone apps.

    ARM can not come close to the performance ceiling already well established by AMD and Intel. In fact ARM can not compete at all as it has no CPU-GPU hybrid cpu's.

    ARM's forte is cheap chips sipping less than 12 watts or so. Well guess what boys and girls; AMD can do that now with Direct x11 HD graphics on die. Intel can't.

    Seeing as how ARM doesn't actually sell anything but the right to use it's designs, it is unlikely that anyone would try to go up against AMD and Intel directly.

    nVidia is trying with Tegra III but hows that working out for them? Tegra is a failure.

  • Report this Comment On May 29, 2012, at 5:48 AM, prginww wrote:

    It is a case of open vs close and open always win.

    So how can a closed system promoted by intel wins.

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