A year later it's more true than ever.
ARM does not make chips. It licenses a design to manufacturers, which tweak it and then order the chips from foundries. This runs completely counter to the Intel way of doing things, which is to design the chip in-house, make the chip in-house, then sell it to manufacturers through its sales force.
Intel announced last week that it is cutting revenue estimates, which some may have taken as a sign of slowing overall chip demand. It's not.
The problem remains ARM. Chips built around ARM designs power the iPad, they power the iPhone, and they power an increasing number of other devices. The designs are built around low-power constraints, something Intel has been moving toward but that the market has been moving toward faster. When Samsung recently announced a $3-4 billion expansion of its Austin, Texas foundry, it was to build chips for Apple (AAPL) based on ARM designs.
As I wrote a year ago, and have written since, the problem is not just the design. It's not just that the ARM design can be tweaked in ways that Intel's designs can't be. It's that, because ARM is just a design, people designing products can redesign the chip around their requirements before the chips are made, order just how many they want, from just whom they want, and getting better control of the final product with faster time to market.
From a purely financial point of view, ARM remains a pimple on Intel's butt. Its revenues have doubled since 2007, but they're still barely $500 million, about one-sixth Intel's bottom line for its most recent quarter.
But to investors it's momentum that matters. That's why investments in small companies need to be part of every portfolio. A small company growing fast can be more powerful to your own bottom line than a big company growing slowly. In the speed of both its top-line and bottom-line growth ARMH is doing better than INTC, and has been for some time.
Now you can argue that difference is already baked into the stock. ARMH trades at a PE above 50, INTC at a PE below 10. But that's been true for some time now, and in the last 5 years ARMH is up more than 200% while INTC is actually down something, meaning INTC holders are basically living on their dividends, now yielding 3.85%.
It's not a good place to be, and INTC bulls need to explain how things are going to change. Or they might change horses.