Why Intel is Sinking in Mobile (w/ Microsoft)

Posted on: February 4, 2010
Posted in Mobile, Strategy

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A lot is made of Microsoft’s failures in the mobile market (and for good reason). Equally interesting – but discussed much less – is how the mobile computing revolution is disrupting Intel.

I previously discussed how processing chips designed for mobile and PCs are converging. This can be proven simply by looking at Apple’s new A4 processor, which seems destined to reside in this year’s refreshed iPhone, but will first surface in the iPad tablet.

Intel currently dominates PCs, supplying microprocessors to 80% of the market. However, in wireless / mobile, Intel has zero market share. In fact they exited the market in 2006, after realizing that supplier fragmentation and lack of wireless domain expertise had marginalized their traditional advantages (process technology, manufacturing scale, etc)

Mobile CPU architecture is instead dominated by a company named ARM, which licenses processors to 95% of cell phones worldwide. Despite ARM’s dominance, it’s fascinating to note they are a essentially a zero billion dollar business*, to use a term coined by Fred Wilson. This isn’t entirely true since ARM only licenses the core technology (other suppliers build chips based off ARM) but it’s an indication of how commoditization and “open” architecture increase competition and compress prices in horizontally integrated markets.

Though Intel has zero share in mobile today they want in badly. Their new line of Atom chips has been a success in netbooks, selling $1.4B in 2009, and they are shrinking it for smartphones. However – by failing to see that mobile computing would quickly converge with PCs – Intel missed a major inflection point in the evolution of the industry (again it’s Microsoft and Nokia who are publicly berated the most for this miss, while Intel is rarely mentioned).

Today, Intel knows that its mobile future rests on whether Atom (originally repurposed from Intel’s x86 / PC line) can penetrate handsets and other portable devices. This seems unlikely and here’s why: “breakthrough” tablet / mobile computers (the iPad) are based around a mobile architecture (not a Windows PC disguised as a tablet).

Furthermore, the emergence of Google’s Chrome OS will bring Google Apps and cloud computing to mainstream users in 2010. Netbooks based on Chrome will obviate the need for local storage and create a stronger divergence from PCs. The lack of Windows will make it more difficult for Intel to pressure suppliers to use its chips (this was often referred to as the “WinTel” alliance)

Intel’s leverage at Apple has already eroded. They made extremely aggressive efforts to penetrate the iPad with Atom and failed (think bundled pricing, roadmap alignment etc). Few people know Intel has a dedicated Apple sales team. This isn’t simply a “team” which rolls up to sales, but a group of ~40 people which walls itself off from the rest of Intel, and caters to Apple’s demands for total secrecy(!) No other OEM garners this level of attention from Intel (Dell, HP, etc.)

Despite this fact, and the de facto position that Intel has on iMac and Macbook, Intel failed to penetrate the iPhone and the iPad. In fact they have zero content on either device. To put this into context – the world’s largest semiconductor supplier came up with a goose egg on Apple’s mobile products, despite owning the Mac line and pouring incredible resources in to a chip architected specifically for the market.

Intel’s miss at Apple is endemic of their failure to see how mobile devices would forcefully disrupt desktop computing. Just as Microsoft, Nokia and others failed. New winners have emerged in hardware, software, and the same is happening in chips. It’s just a matter of time…

* ARM had 2009 revenue of $490M, making it a “zero billion dollar” business”. In contrast, Intel’s 2009 revenue was approximately $35B (70x greater). See Fred Wilson’s write-up on Craigslist / newspaper classifieds for full background.

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