Intel Confronts Qualcomm in Vegas Standoff

By Ian King - Jan 3, 2012 12:01 PM GMT+0700

A looming clash between Intel Corp. (INTC) and Qualcomm Inc. (QCOM) will take center stage at the Consumer Electronics Show next week in Las Vegas, with both chipmakers seeking to control the future of mobile devices.

Qualcomm Chief Executive Officer Paul Jacobs will demonstrate notebook computers based on his company’s chips on Jan. 10, highlighting a push into an area dominated by Intel. Later that day, Intel CEO Paul Otellini will take the same stage to announce phones featuring his chips, renewing a decade-long push to get into a market that Qualcomm controls.

The popularity of smartphones and tablets has put the companies on a collision course. The market for mobile-phone chips will grow 40 percent to $29.9 billion by 2015, according to the Linley Group. With more consumers using handheld devices as their primary access to the Internet, Intel can’t afford to stay only in the realm of personal computers, said Jim McGregor, chief technology strategist for research firm In-Stat.

“For Intel, it’s a ‘we have to be there,’” he said. “Never bet against a computing device that fits in your pocket. I do more on my smartphone than any other device.”

For years, Intel processors failed to win orders in the mobile-phone market, mostly because they were too energy-hungry to work in a device that consumers expect to last days between charges. Qualcomm and other mobile-phone chipmakers, meanwhile, haven’t had much impact on Intel’s dominance of laptops because their products can’t run most computer software.

ARM Technology

The success of Apple Inc.’s iPad, which runs smartphone chips based on ARM Holdings Plc (ARM) designs, proved to consumers that phone processors could deliver enough performance for computing tasks. Microsoft Corp., the top software maker, also is putting pressure on Intel to adapt. After years of working exclusively with Intel’s x86 technology, a partnership known as “Wintel,” Microsoft’s pending Windows 8 operating system will also support ARM chips.

Qualcomm and other developers of smartphone components license their technology from ARM, an English company that doesn’t make its own chips. The change to Windows will give those manufacturers a new opening into the PC industry.

“Now we have the world’s largest software company saying they’re committed to this kind of platform for their flagship operating system,” Rob Chandhok, a senior vice president at San Diego-based Qualcomm, said in an interview.

PCs shifting to ARM chips could cost Intel $2.2 billion in sales by 2015, according to Daniel Amir, an analyst at Lazard Capital Markets in San Francisco.

Same Experience

Consumers expect their laptop computers to behave the same as their phones, Qualcomm’s Chandhok said. That means they turn on instantly and are always connected to the Internet. Because Qualcomm designed its chips from the ground up for that kind of use, they have an advantage, he said.

Intel says the reverse is true. Smartphones are becoming more like personal computers, giving an edge to Intel’s technology, said Bill Calder, a spokesman for the Santa Clara, California-based company.

“We believe we have an opportunity to play there, and we’ve been working hard on multiple fronts to make that a reality,” Calder said in an interview.

Intel’s experience with previous versions of Windows and its ability to support all existing software will make systems that use its chips more attractive, particularly for companies that need a secure environment, he said. That’s because existing security software may not be compatible with computers based on non-Intel chips.

Advanced Techniques

Its role as the world’s largest chipmaker, with the most advanced production factories, also will help Intel develop high-performance chips that use less battery power, Calder said.

Jen-Hsun Huang, CEO of Nvidia Corp. (NVDA), which is expanding into ARM-based processors for mobile devices, says it won’t matter if Intel can produce more efficient chips.

Too many electronics and software companies have shifted their efforts to ARM and other mobile technology, in part because Intel’s dominance of PCs made it hard to compete in that market, he said.

“The amount of innovation around ARM has reached critical mass,” Huang said. “If you’re a cell-phone maker or even a car company, you would absolutely choose ARM.”

Neither side will have an easy time pushing into the other’s turf, said In-Stat’s McGregor.

“It’s going to be as difficult for ARM to get into computing devices as it is for x86 to get into mobile devices,” he said.

Holding Their Ground

McGregor expects Windows 8 (MSFT) devices to debut first on Intel’s chips, rather than ARM versions. While Intel could get its processors into new smartphones, those deals probably won’t translate into significant orders in 2012, he said.

Qualcomm’s Chandhok said that even though there have been more test systems -- so-called development platforms -- for Windows 8 produced on Intel chips, his company will be providing ARM-based versions. Microsoft plans to begin selling both versions of the operating system at the same time, he said.

Catherine Brooker, a spokeswoman for Redmond, Washington- based Microsoft, said the company hasn’t shared details about when the software will be released.

In addition to announcing new contracts with phone manufacturers, Intel’s Otellini plans to showcase the company’s Ultrabook project during his speech. The company is encouraging PC makers to make lighter laptops that start more quickly and go longer between recharges, offering an experience closer to that delivered by Apple’s iPad and MacBook Air.

More to Lose?

Intel is counting on the effort to help maintain its leadership in the notebook market, said Lazard’s Amir.

“You need to be sure that you’re not losing the notebook,” said Amir, who has a “neutral” rating (INTC) on Intel.

Of the two sides, Intel probably has more to lose and less to gain, Amir said. Grabbing 10 percent of the market for mobile-phone chips wouldn’t be enough to add significant growth to Intel’s sales. Conversely, stronger competition in PCs, where it has more than 80 percent of the market, would hurt Intel’s high average selling prices, he said.

Intel’s processors can cost more than $4,000 each, with an average selling price of about $107, according to Mercury Research in Cave Creek, Arizona. That compares with an average selling price of less than $20 for the typical applications processor in a mobile phone.

Lazard’s Amir estimates that ARM-based processors will grab as much as a third of the market for mobile computers by 2015, up from 8 percent last year. The total market will grow to 340 million units in 2015 from 275 million in 2010, he predicts.

Faster Growth

The smartphone market has even bigger growth prospects. It will reach 1.1 billion units by 2015, up from 300 million last year, Amir said. In that period, Intel will increase its share from zero to 13 percent, he estimates.

While phones and PCs are currently separate markets, new software and hardware may blur those distinctions. In the future, consumers and companies will have a wider variety of choices that don’t fit the traditional definitions, In-Stat’s McGregor said. It’s up to the chip companies to evolve.

The winners will most probably be companies that produce packages of chips that deliver Internet connections, graphics and processing, he said. For now, Qualcomm is in the lead.

“They’re definitely in pole position,” McGregor said. “Intel even admits they are playing a little catch-up in some of the areas that they need to be competitive on.”

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net