Intel vs. ARM: In the Smartphone Era (Part 1)

By Guest Author Nalini Kumar Muppala

Ms. Mitra recently raised some flags (and the beginnings of a lively reader discussion) by asking if Intel would buy ARM. There has been a lot of discussion lately in the technology press about the prospects of ARM being acquired and about the undeclared war between Intel and ARM. Over the next five parts, we will see why this potential acquisition is important and examine the possibility and impact of such a move.

According to InStat Research, the processor market for devices with Internet connectivity will see a CAGR of 22.3% through 2013. In 2013, half of those 750 million units are expected to go into smartphones. Smartphone unit sales are projected to grow from 200 million in 2008 to 500 million in 2013. It is not merely the projected growth that is impressive, but the fact that actual sales of smartphones have seen robust growth in recent quarters while the overall handset market is shrinking.

At the heart of the smartphone is a powerful application processor. The processing power of this part rivals the CPU power that was available on mainstream computers only a few years ago. Today, ARM enjoys a 100% share of the application processor slots in smartphones. In addition, a variety of communication, connectivity chips from ARM ecosystem partners are the driving force behind the versatility of smartphones.

ARM gets a percentage of the chip price as royalties. A smartphone uses at least four ARM processor-based chips, compared with one chip per basic phone. Thanks to the higher price of application processors, ARM currently makes six times more money per smartphone than it does for a basic phone.

As smartphone features gain wider acceptance and trickle down to less sophisticated phones — just as new features debut in luxury cars and trickle down to the rest as standard features — demand for such chips will increase tremendously. Although ARM ecosystem partners constantly elbow each other for slots in phones, ARM wins at the end of the day. Consumer migration to smartphones and the increasing sophistication of feature phones and basic phones bodes well for ARM.

ARM is to processor cores what Texas Instruments is to digital signal processors (DSPs). Both have built a highly vibrant ecosystem around their offerings. Unsurprisingly, both have the lion’s share of their respective markets.

ARM has come a long way since its humble beginnings to be such a dominant force. A billion ARM core-based chips were shipped by 2002; 5 billion by 2007; and 10 billion by 2008. ARM hopes to ship another 15 billion in four years. These processors also target several segments other than mobile phones. In its most recent quarter, ARM drew 64% of its revenue from the mobile market. Intel wants to have a piece of this growing pie; the company does not like its total absence from this burgeoning market. The lines are being drawn for giant Intel’s long battle against this small but nimble British firm.

In the next post we will delve into an analysis ARM’s strength of low-power consumption and the company’s ambitions for the netbook market.

This segment is part 1 in the series : Intel vs. ARM: In the Smartphone Era
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