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."
