Intel Facing a Formidable Foe in ARM

I pointed out on March 10, 2009 in Seeking Alpha that ARM (ARMH) processors, not Intel’s (INTC) Atom, will benefit from the current technology-economic cycle. I noted that while Intel’s Atom dominates the market in 2009, a movement is underway that will enable the ARM processor to gain a 55% market share in 2012, according to our analysis in a report “Intel Versus ARM in Mobile Devices and Netbooks/Smartbooks: Insight Into Critical Issues and Market Analyses.”

The term Smartbook now makes it easy for us analysts to differentiate between the two. Below is our forecast of the market:

Netbook/Smartbook Market Forecast

Millions of Units	2007	2008	2009	2010	2011	2012
Netbook	0.4	11.4	22.1	31.1	39.7	43.2
Smartbook	0	0	1.4	7.8	22.3	52.9
Total	0.4	11.4	23.5	38.9	62.0	96.1

Source: The Information Network

Already, Lenovo, Nokia (NOK), Foxconn, Sony Ericsson, and Sharp are planning smartbooks. ARM runs under the Linux operating system. Linux is free, whereas Microsoft (MSFT) charges a licensing fee up to $35 on each netbook.

I also noted in a release of March 9 that subsidized netbooks will start appearing.

“Along with the growing competition among software service providers, we will see a new infrastructure taking hold, modeled after Hewlett-Packard (HP) (cheap printer, expensive ink) and the mobile service providers (cheap cellphone, expensive monthly wireless charge). This subsidized bundle model will grow the ARM netbook to greater market shares.”

We were correct and AT&T (t) seemed to think it was a good idea. The wireless provider started offering subsidized netbooks for as little as $49.99 in two markets, Atlanta and Philadelphia.

Netbooks are showing 3G connectivity rates ten times that of notebooks. Kindle 2 from Amazon (AMZN) is basically a mobile phone platform. The processor is a Freescale Semiconductor (FSL) i.MX31 with an ARM11 core, and the 3G communication module uses a chipset from Qualcomm (QCOM). Sales of netbooks bundled with 3G services in the Taiwan market reached 15,000 units in August, accounting for 50% of total retail sales.

A smartbook is just a smartphone with bigger dimensions. Now Intel wants to enter the mobile internet device (MID) market with its Atom in addition to netbooks. Cores will be made by silicon foundry TSMC (TSM) using system on a chip (SOC) technology. Remember back in January 2009 we noted on Seeking Alpha that Intel was losing money on every Atom made?! Intel has continued to refute our statements, but they have never given any statistics, always pointing to the growth of unit shipments of Atoms, but never profit margins or money.

Anyway, ARM owns the MID space. They own 95% of the mobile phone market and 85% of the smartphone market in unit shipments. ARM processors are being manufactured in the best semiconductor facilities. Companies that are currently or formerly ARM licensees include Alcatel (ALU), Atmel (ATML), Broadcom (BRCM), Cirrus Logic (CRUS), Digital Equipment Corporation, Freescale, Intel (through DEC), LG Group, Marvell Technology Group (MRVL), NEC, NVIDIA (NVDA), NXP (previously Philips), Oki, Qualcomm , Samsung, Sharp, ST Microelectronics (STM), Symbios Logic, Texas Instruments (TXN), VLSI Technology, Yamaha and ZiiLABS. And oh yes, TSMC.

Intel is flush with cash, and business in the enterprise and desktop sectors is not moving as fast as it’s policy of introducing new processors. Intel does a great job in the PC CPU market with its plethora of chips and platforms, but they aren’t the best for all CPU applications, particularly MIDs. They continue to spend money outside the U.S. They are spending at least $2.5 billion on a new fab in China, built a fab in Singapore with Micron Technology (MU), and spend another $3.5 billion to build a fab in Israel a few years ago. And of course they are paying TSMC in Taiwan to make the Atom cores. Better they should acquire new and different technology by buying a company rather than making a sheer frontal attack on ARM that will only give them minimal share in the MID market. And keep all that money in the good ole USA, where we need it. I don’t know what IT company gives them market and management advice, but I don’t agree with it and my analyses back me up.

Comments

[paul.ottelini:]

What a bunch of lies. I listened to the conference call, and Intel is definitely making a very nice profit from Atom processors. And they have clearly stated that. Intel cannot make false statements since they can get in trouble with the SEC. So I would not doubt any of the statements they make. Unfortunately these useless blogs allowed by Yahoo on their site could make all types of ridiculous statements full of lies and SEC will not do anything about them. Well, this comment to your lies asks investors to do some analysis themselves and go listen to the conference call by Intel and decide for themselves. Again, Intel makes plenty of money from Atom, and that's a fact.

Oct 02 01:31 AM

[Kris Tuttle:]

You are probably right about ARM but for the wrong reasons.

Oct 02 10:19 AM

[CGP:]

Interesting to see what MSFT will use to power Courier and what AAPL will use for their tablet.

Atom currently falls short in netbooks in that you still have to wait for the machine to boot-up. ARM devices are basically instant on and I believe have lower power consumption, hence their prevalence in smartphones. Also note that WebOS was designed to run on mobile devices w/ARM processors, can/will this be said of Atom or its' descendants?

Oct 02 11:29 AM

[Pedro Lupin:]

The reference to Linux on smartbook versus Windows is meaningless since you can run Linux on a netbook too. Actually, that would favor the netbook model since you can run whatever you like, Windows, Linux...

The problem of the booting time in netbooks exist because basically the standby power consumption of the atom is not low enough to allow a "smartphone like" behavior, in which basically the device stays on all the time. ARM devices they also boot (for instance when you turn on your phone), but they offer really low power consumption when idle, so you can leave it in standby when not using it.

Oct 02 11:57 AM

[FatherofTeens:]

The smartbook form factor is too big to replace the smartphone as a primary phone, which leaves its best use case in the mobile computing segment. And here an ARM based device doesn't have a chance. Why? As anyone with teenagers will know, a killer app is iTunes (for iPod) with 73% market share (tinyurl.com/y8mr45t). The iPod needs a Mac or PC to feed its database. iTunes doesn't run on Linux. While the MID/smartbook is positioned as a secondary device, not a PC replacement, if it will ever reach the numbers that will be more than a rounding error for Intel, it will indeed need to morph into a primary device. And without support for iTunes, that's not going to happen. At least until someone comes along and unseats Apple as the market share leader or Apple makes iTunes a web service. (Don't bother talking about Win emulation on Linux, please.) Apple will save Intel.

Oct 02 12:30 PM

[Robert Cast...:]

Hey Paul, SHOW ME THE FACTS. You seem to be in the know, as you said "that's a fact" I've been asking that from Intel for 9 months.


On Oct 02 01:31 AM paul.ottelini wrote:

> What a bunch of lies. I listened to the conference call, and Intel
> is definitely making a very nice profit from Atom processors. And
> they have clearly stated that. Intel cannot make false statements
> since they can get in trouble with the SEC. So I would not doubt
> any of the statements they make. Unfortunately these useless blogs
> allowed by Yahoo on their site could make all types of ridiculous
> statements full of lies and SEC will not do anything about them.
> Well, this comment to your lies asks investors to do some analysis
> themselves and go listen to the conference call by Intel and decide
> for themselves. Again, Intel makes plenty of money from Atom, and
> that's a fact.

Oct 02 03:36 PM

[Robert Cast...:]

Hi Kris,

Then please tell me what the RIGHT REASONS are.


On Oct 02 10:19 AM Kris Tuttle wrote:

> You are probably right about ARM but for the wrong reasons.

Oct 02 03:37 PM

[jack.harvard:]

Mr Ottelini, why you waste your time here? You should go to Financial Times or WSJ to talk about your arguments.

Oct 06 04:00 AM

[jack.harvard:]

Mr Ottelini, or is it really you, should you go to FT or WSJ instead to voice your arguments?

Oct 06 04:02 AM

[einstein p ...:]

INTC should buy ARMH --- Yes it's self-serving, wishful thinking but I've tried logic and, after the last year, any alternative that works will suffice.

Oct 26 08:23 PM

[Will Ray, Jr.:]

I will check into this argument. I have a Semiconductor M&A group and these bias posts are as credible as the biased research coming out of seasoned analyst. I just want the data, I can create my own biased opinion and conclusion. I still say sales rules when technology is not 5 times better. Intel needs to just sell. ARM is not tested they just have won the low hanging fruit contest. Intel could unseat this growth without having a better product. Lack of demand will crush any company only focused on mobile handheld IC. I am not convinced the user will stay with small devices if a killer app comes out that runs on the PC. We are approaching a saturated market in mobile handheld, and these companies are giving them away while trying to charge users excessive connection fees which are plummeting. Look at the empirical data. Battery power and processing power are still a huge issues for mobile handhelds, Palm has the best platform if you really want to put technology head to head and Apple knows it. Palm doesn't know how to evangelize their company. Besides, I am not creating a doc and wrecking my vision on that little ass keyboard and screen for anyone.

Nov 02 07:47 PM