The sheer idiocy of my formerly bearish stance on ARM Holdings (NASDAQ:ARMH) is becoming even more apparent to me as I finished listening to Intel's (NASDAQ:INTC) investor meeting webcast. While I argued that ARM would eventually see significant market segment share loss in the mobile computing space (a thesis that I still believe is intact), I did not realize that this was largely immaterial to the movement of ARM's share price. The smart move would have been to realize that until Intel showed evidence of meaningful market segment share growth, the Street would simply not believe in Intel's strategy (even if I and many others believe it), which meant that ARM would continue to trade at a premium valuation and that Intel would continue to trade at a bargain-basement valuation.
Unfortunately, Intel's new CEO signaled that - given the right deal - he would be willing to build chips for competing chip companies. Given that "competing chip companies" all build ARM royalty-bearing products, this was effectively an admission that Intel was open to building ARM chips that competed with Intel's own Intel Architecture (X86) based chips. While the reality of the situation is that Intel would probably set the price so high on the foundry perspective for a competitor so as to make it infeasible, the reality from a stock market perspective is that this is a massive validation of the strength of ARM and its partners.
While I do plan to write a series of articles going into more depth on Intel's strategy (it was really quite compelling), and while I certainly plan to remain very long the shares (at roughly 30% of my portfolio), it is clear that the "winner" from Intel's investor meeting, at least as fairly short/medium term share price movement is concerned, is ARM. The rationale, of course, is that if Intel builds ARM smartphones and tablets, this will eventually enable these chips to become good enough to move up into/replace the traditional segments of computing (it's not likely, but this is what investors will think) and "kill" X86. This, in turn, would leave investors to believe that Intel will eventually move its entire product stack to ARM which could drive a massive uplift in ARM royalties.
Now, don't mistake this for me thinking that this will be the case - it's not, and I suspect that the "willingness to build competitors' chips" was mostly in order to drive up Intel's stock price and to build a "better" image for Intel. Unfortunately for Intel and its shareholders, this backfired and now ARM is likely to see the vast majority of the gains from this event.
C'est la vie.
Additional disclosure: I may go long ARMH at any time.