This article is not a comparison of products as much as it is a comparison of differing business models that converge to depict an industry that is as innovative as it is collaborative. What is a semiconductor you ask? It is the main component of the CPU (central processing unit) of a computing or communications device made of silicon chips. In 2012 650 billion silicon chips were manufactured. Of these 27 billion contained a CPU. The CPU is the brain of the chip, and controls not just the operation of the chip, but also the operation of the product that chip goes into. My interest in semiconductors began in the 1990's when I was the CEO of Reid Technology Exchange, Inc.,I brokered Intel CPUs such as the Pentium and Celeron product line. You may be asking yourselves. What does that all mean? Did Reid Technology Exchange, Inc. sell Intel CPUs or buy them? All I am at liberty to reveal is that the group of companies I associated with were actually trying to commoditize and monetize silicon chips. And that episode in my career is the subject of future articles.
The semiconductor industry has undergone significant change since the 90's. AMD is no longer a concern to Intel. But an up and coming company from Cambridge, England known as ARM Holdings plc is. ARM maintained a 95% market share of semiconductors used in smartphones and tablets. Now this article will concentrate on semiconductors used in mobile devices not PCs. However, ARM is the world's leading semiconductor intellectual property provider. What that means is that ARM will actually sell its semiconductor design to its competitors and receive a payment known as a royalty payment. ARM's value added is that they are able to design CPU's and then sell the design to their competitor for a royalty payment. And it makes sense in a way. Instead of your competitors concentrating on R&D development for CPU's they can concentrate on manufacturing, marketing and branding their end product. While according to ARM they assume the highest cost such as research and development. So this arrangement could be defined as collaboration rather than competition.
According to an article in the July/August 2013 issue of Fast Company magazine entitled, "First Domination Then Infiltration. Subtitled: Intel's Roadmap for The Coming Mobile Wars. A gentleman named Mike Bell was made Corporate Vice President and General Manager of the New Devices Group for Intel Corporation. Michael A. Bell is corporate vice president and general manager of the New Devices Group for Intel Corporation. In his role, Bell leads a global team chartered with developing products and technologies that will enhance and extend Intel's product portfolio into new areas of computing, including wearable technology. Previously, Bell co-lead the Mobile and Communications Group with Hermann Eul, a worldwide organization focused on the development of hardware, software and connectivity ingredients for phones, tablets, Ultrabook™ and other mobile devices, and complete system solutions. Prior to joining Intel in 2010, Bell was part of the executive management team at Palm Inc. From 2007 to 2010 he served as senior vice president of product development. He was responsible for all aspects of product strategy, development and deployment, bringing the Palm PRE, the Palm PIXI and many more products to market. Prior to his time at Palm, Bell was vice president, CPU Software, Macintosh Hardware Division, at Apple Inc. Over the course of his career at Apple, spanning 1991 to 2007, he made significant contributions to the iMac, Apple TV and iPhone programs. Bell earned his bachelor's degree in mechanical engineering from the University of Pennsylvania in 1988.
Number of ARM run smartphones
shipped since 1990!
Mr. Bell has an impressive resume, and one would see that he is a true veteran of mobile communications/handsets as seen by his association with Palm early in his career.. Bell asserted that Intel's production capacity could simply overwhelm ARM and quickly penetrate the mobile semiconductor market, thus establishing Intel's dominance in minimal time. Intel's new 14 nanometer generation chip known as Atom will be there so called weapon of choice against ARM Holdings, plc designs.
In order to penetrate the smartphone market, Intel had embarked upon the establishment of strategic alliances with LG, and Motorola Mobility since 2010 to develop an actual smartphone to be launched in China. This endeavor turned out to be a complete failure.
But Otellini knew he needed to do more than make a few key hires. In August 2010, Intel
bought the wireless-solutions business from German chipmaker Infineon for $1.4 billion,
giving Intel a foothold in baseband processors (a component that manages the 3G radio
functions in a smartphone) and about 4,000 employees who know mobile devices.
Since becoming CEO in 2005, Otellini has stubbornly insisted that Intel could develop its own chips based on x86, the company's historic microprocessor design standard, instead
of licensing technology from the British company ARM Holdings, as most of his competitors have. So far his bet hasn't paid off. The company proclaimed that its Moorestown system-on-a-chip would be in smartphones in early 2011, but instead it is mostly used in robotics and netbooks. Ironically, Intel used to manufacture ARM processors for early smartphones and PDAs like the Palm Treo.
And that wasn't Intel's only questionable move in mobile. In 2010, Otellini decided to partner with Nokia to develop MeeGo, a Linux-based operating system. A year later Nokia (NYSE:NOK) ditched the project and opted to adopt Microsoft's (NASDAQ:MSFT) Windows Phone instead. Intel changed course and in September picked a new partner: Google (NASDAQ:GOOG). Intel software developers worked to make sure that Android could run on the company's chips without a glitch.
Pairing up with the world's fastest-growing operating system is a smart move for Otellini
(who has been on Google's board since 2004). But there's little question Intel has a lot of
catching up to do. "The perception is that they've over promised and under delivered," says
Raj Seth, an analyst with Cowen Group.
Meanwhile the rest of the industry has moved ahead. Processors designed using ARM
Holdings' technology now power 90% of smartphones. Qualcomm (NASDAQ:QCOM) leads the pack
with 51% market share. Otellini insists the MeeGo debacle put Intel behind schedule by just two months. And when it comes to chip-manufacturing. PCs still account for 66% of Intel's revenue, and while Otellini is making an aggressive push in mobile, he's also trying to breathe new life into Intel's computer business by promoting ultrabooks, the latest breed of lightweight, instant-on laptops(a.k.a. the PC version of a MacBook Air). But there's no doubt that mobile is where the real growth is. The market for mobile phone chips will grow 40%, to $29.9 billion, by 2015, according to the Linley Group, a research firm. Otellini has said that he expects to have Intel chips in 50% of the tablet market and 20% of smartphones by 2015. It's an ambitious goal, but not impossible. The company is big enough and rich enough to eventually convert customers to its camp as it did in 2005, getting Apple to use its Core Duo chip. "They're very well resourced," concedes Warren East, CEO of rival ARM Holdings (NASDAQ:ARMH), "and they have a bunch of clever people."
Intel relents, will make third-party ARM mobile chips in
In a surprise announcement that sent shockwaves throughout the technology industry, Intel said it will open kimono to arch-rival TSMC and begin making chips for third-parties, based on CPU blueprints from the British fabless semiconductor maker ARM Holdings, plc. Apple is among the licensees of ARM's technology for its own in-house chips which serve as the engine powering the iPhone, iPod and iPod devices. This is a huge development. Not only will Intel, the world's largest semiconductor company, now fabricate its own ARM-based 64-bit mobile chips starting next year, it will now undoubtedly compete for
the lucrative Apple business, especially given the iPhone maker has long been looking to take its chipmaking contract elsewhere. The ARM news is especially eyebrow-raising knowing Intel's Atom chipsets compete against ARM-based silicon like Qualcomm's Snapdragon, Nvidia's Tegra and even Apple's A7 and other chips.
PCs still account for 66% of Intel's revenue, and while Otellini is making an aggressive push in mobile, he's also trying to breathe new life into Intel's computer business by promoting ultrabooks, the latest breed of lightweight, instant-on laptops (a.k.a. the PC version of a MacBook Air). But there's no doubt that mobile is where the real growth is. The market for mobile phone chips will grow 40%, to $29.9 billion, by 2015, according to the Linley Group, a research firm. Otellini has said that he expects to have Intel chips in 50% of the tablet market and 20% of smartphones by 2015. It's an ambitious goal, but not impossible. The company is big enough and rich enough to eventually convert customers to its camp
-- as it did in 2005, getting Apple to use its Core Duo chip. "They're very well resourced," concedes Warren East, CEO of rival ARM Holdings (ARMH), "and they have a bunch of clever people." "This is a marathon, not a sprint," says Otellini. "Intel has enough momentum in our core business and enough assets that we're going to do this right. And we're going to win in the long run." If he's wrong, and Intel can't find its way into
smartphones soon, Otellini may find himself back in the spotlight -- for all the wrong reasons.
This article is from the February 27, 2012 issue of Fortune.
The Lenovo phone is a start, but it will only be available in China. And whether or not Intel's partnership with Motorola will yield any successful products remains to be seen. "It's the coming out party for Medfield," Mike Bell, general manager of Intel's newly formed mobile and communications group, told Fortune. "People kept asking us if Intel can play in this space and our message was yes, but until we show something it doesn't get driven home for people. "While Intel has been talking about moving into mobile, competing chipmakers like Qualcomm (QCOM) and Nvidia (NASDAQ:NVDA),which license technology from ARM Holdings (ARMH), have flooded the market with their products. Proving it can finally
give phone manufacturers an alternative to these products won't be easy.
Intel's new CEO, Brian Krzanich-a long time company insider-hails from the firm's manufacturing operations and has said that he wants to refocus Intel on its main strength: manufacturing. As part of this, Krzanich has talked about expanding Intel's foundry operations. Chip foundries are contract manufacturers of chips according to the design of a third-party. TSMC is a pure foundry-making only third-party designed chips; Samsung has a hybrid model-producing some branded chips of its own design and offering foundry services to third parties. Long-term Intel competitor, AMD, recently spun off its manufacturing operations into a foundry specialist named Global Foundries.
Intel's incursions into the mobile semiconductor space have been less than fruitful. Now Intel desires to enter wearable tech, tablets, and basically anything that moves. I could keep writing this piece, but I am going to stop at some point.
Intel is simply not the market leader in the production and marketing of mobile semiconductors used in smartphones. The Intel brand in my opinion will remain PC and server based for a long time before they can seriously enter the mobile space. They will now manufacture ARM cpu's and will openly collaborate with Apple in the development of biometric security features which are being incorporated into the latest smartphones. In addition, Intel chips will begin to enter into the tablet product line and will increase their presence in that product line over time.
The IT hardware industry begins with market leader domination, followed by competition and ends in collaboration in which profits and market share are distributed among competing industry leaders. The smartphone heralded the emergence of the mobile era IPads, tablets, and wearable tech. It is my opinion that Intel will enter the smartphone sector with a low end model to be sold in emerging markets at a deep discount.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.