Intel (NASDAQ:INTC) and SoftBank's (OTC:SFTB.Y) ARM Holdings are often considered fierce rivals in the chipmaking industry. Intel's x86 chips dominate the PC and data center markets, but ARM's low-powered chip architectures -- used for designs by chipmakers like Qualcomm (NASDAQ:QCOM) and MediaTek -- have conquered the mobile market over the past decade.

That's why it was surprising when Intel recently announced a strategic partnership with ARM to manage Internet of Things (IoT) devices. Through the agreement, ARM's Pelion IoT management platform will use Intel's Secure Device Onboard specifications. This means that ARM will use common standards developed by Intel to manage IoT devices, network connections, and data transfers.

A grid of IoT devices projected from a man's finger.

Image source: Getty Images.

How this partnership helps Intel and ARM

Intel still dominates the PC and data center CPU markets, and sells IoT chips for various industries. Intel's IoT revenue rose 22% year over year during the second quarter, fueled by strong demand in the retail and industrial sectors, accounting for 5% of the company's top line.

However, most IoT device makers still use ARM's low-powered chip architectures. ARM doesn't manufacture any chips of its own, so it reduces the hardware fragmentation among its partners with IoT cloud services like Pelion and embedded operating systems like Mbed OS.

ARM chipmakers repeatedly tried to challenge Intel in the data center market, but they failed to dent the chipmaker's 99% market share there. Qualcomm's big push into the data center market with its Centriq chips, for example, flopped earlier this year.

With Intel dominating data centers and ARM controlling the IoT market, it makes sense for the two rivals to remove the barriers between their data center and IoT chips. This helps Intel funnel more data to its data center chips -- which accounted for nearly a third of its revenue last quarter -- and helps secure ARM's IoT chips with better security standards. Security analysts have long argued that IoT chips make "dumb" objects smarter, but they often leave networks wide open to cyberattacks.

A businessman using a secure tablet.

Image source: Getty Images.

ARM IoT Cloud Services chief Himagiri Mukkamala recently told Reuters that chipmakers will likely ship about 100 billion ARM-based IoT chips over the next four to five years -- which matches the total number of ARM chips shipped over the past 25 years. ARM also estimates that up to a trillion IoT devices could be installed worldwide over the next two decades.

Complementing Intel's and ARM's previous IoT partnerships

Intel and ARM both significantly expanded their IoT ecosystems with other big partnerships earlier this year.

In March, ARM partnered with NVIDIA to integrate the open-source NVDLA (NVIDIA Deep Learning Accelerator) architecture into ARM's Project Trillium machine learning platform. This partnership will make it easier for chipmakers to add deep learning capabilities to consumer electronics, mobile devices, and IoT devices.

In September, Intel partnered with Chinese tech giant Alibaba (NYSE:BABA) to jointly develop new technologies for the AI, IoT, and cloud markets. That partnership centers around the Joint Edge Computing Platform -- which merges Intel's technologies with Alibaba's Cloud IoT products -- and the Aspara Stack Industry Alliance, which promotes the Aspara Stack cloud service for running enterprise and security software on the same platform as the Alibaba Cloud.

A win-win deal for both companies

Intel and ARM are still competitors, but it's generally accepted that Intel won't conquer the IoT market as it did with PCs. Meanwhile, ARM-based data centers remain a niche market.

Therefore, cooperation between these rivals, complementing their existing partnerships with other tech companies, could expedite the expansion of the IoT market. If OEMs face fewer issues with conflicting standards and security flaws, they could develop more IoT devices -- which would drive faster long-term growth for both Intel and ARM.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.