Intel Set to Test ARM Resilience in Smartphones

After years of getting its guns and ammunition together, Intel Corp. (Nasdaq: INTC) is about to start shooting in the mobile handset market. Within weeks, the first set of smartphones sporting Intel processors will roll out, setting the stage for an explosive tussle for marketshare with devices using IP from ARM Ltd. (Nasdaq: ARMHY; London: ARM).

Intel has spent years preparing for this moment. Many in the component procurement business will be poring over its second-quarter results to see how well the products perform and whether the company can crack the hot but intensely competitive sector. ARM-licensed devices have dominated the segment, but with demand soaring in the mobile equipment space as the PC end is peaking, it is understandable why Intel is betting so much of its future on a successful debut.

Don't bet your entire retirement fund on Intel yet. The company has been trying for at least a decade to establish a beachhead in the communications market without much success. Recent acquisitions, including a business bought from Infineon Technologies AG (NYSE/Frankfurt: IFX), have positioned Intel for better performance this time around. Nevertheless, many electronics companies are hesitant to embrace Intel. They don't want to give it a monopoly similar to the one it has in the PC microprocessor sector.

However, this concern isn't grounded in reality. ARM isn't going to be dislodged easily (if at all) by Intel or any other competitor. Too many equipment makers have multiple generations of ARM-based products in the market already, and the design community focused on IP offered by the British company is huge and growing. Intel's offerings are untested in the sector. That fact, combined with industry wariness about fostering another monopoly, will make it unlikely for ARM to be edged out of the market.

Yet Intel remains one of the more formidable and fearsome players in the semiconductor market. Not only has it developed the IP for mobile processors, but it also can supply the hardware -- a combination that will give it tremendous appeal with purchasers. Potential customers can be assured they can negotiate supply with a single provider, rather than shopping for the IP at one provider and then engaging with foundries for production.

That's part of what makes Intel a forceful player in this market. During a conference call yesterday on the company's latest results, Paul Otellini, Intel's president and CEO, described the link between its manufacturing prowess and its ability to shape the market's future:

Our commitment to long-term research and development is paying off. We are beginning a year of major product and technology transitions that will have a very positive impact on our company and the industry. I'd like to highlight a few examples. We are ramping our 22-nanometer manufacturing process into high volume. This revolutionary technology uses our third-generation, high-k metal gate and the industry's first 3D Tri-Gate Transistors.
The move to Tri-Gate Transistors delivers roughly twice the improvement in transistor performance over conventional planar scaling when applied to low-power applications like smartphones and Ultrabooks. We combine our process technology, manufacturing and design to produce a highly leveraged business model that is becoming increasingly rare in our industry. That model allows us to do things others can't, like advancing our Atom roadmap at twice the rate of Moore's Law through 2014.
We're doing this at a time when the rest of the industry is struggling to ramp older technologies that lag our prior-generation, 32-nanometer process. Our research on 3D transistors began over 10 years ago, and advancements like this don't come easily. In fact, they're getting harder and harder to achieve, and our lead over the rest of the industry continues to grow, giving us product advantages in power, performance and cost.

Very few companies in the semiconductor market can offer such a compelling argument. In a separate blog, I will write more about the slate of products Intel is developing for handset, PC, and server OEMs. They can help us understand how this company has defended its position in the semiconductor market for so long and why ARM will eventually lose some of its marketshare in the wireless handset sector but will retain its leading position for a while.