Intel and Arm Holdings Jockey for Position

Semiconductor giant Intel (Nasdaq: INTC) recently forecast that its second quarter revenues would come in ahead of Wall Street expectations at $13.6 billion. The company's optimism is due to the fact that new products would be launched in this quarter which would feature its new processors, including Intel's first to appear in smartphones.

In effect, Intel is betting on a combination of good sales results this year from new markets (smartphones and tablets) for Intel along with the launch of the new Windows 8 operating system from Microsoft (Nasdaq: MSFT), creating excitement in the mature market of PCs where it dominates. But in both areas, Intel will be going head-to-head against chips designed by the UK firm, ARM Holdings PLC ADR (Nasdaq: ARMH). Intel chips have traditionally been faster than Arm chips but are power guzzlers when compared to battery-saving Arm processors.

Windows 8 will be the first operating system from Microsoft that will be compatible with Arm-designed processors. Microsoft expects that factor to help increase sales of Windows 8 markedly. Intel is coming out with its third generation of Core microprocessors, called Ivy Bridge, with which it intends to defend its territory from competitors who will be using manufacturing Arm-designed chips for PCs. Circuit widths in these Intel microprocessors are shrunk from 32 to 22 nanometers (billionths of a meter), offering improved performance.

But perhaps the most interesting part of this growing conflict between Intel and Arm will be to see how well Intel does in areas where Arm is currently dominant, like smartphones and tablet computers. Intel has launched a major advertising campaign aimed at promoting its Ultrabook concept of thin, light laptop computers (as opposed to Apple's MacBook Air) and has plans to supply chips for the tablet computer market soon.

Smartphones are developing into an even more competitive segment. Just this week, the first smartphone powered by Intel-designed Atom microprocessors went on sale. The Xolo X900, from little-known Lava, went on sale in India for $423. The new phone has a single-core 32 nanometer Atom processor now, but a double-core 22 nanometer Atom processor will replace it later this year.

That won't do much for Intel, but the good news is that major companies including Lenovo Group Ltd. ADR (OTC: LNVGY) and Motorola Mobility Holdings (NYSE: MMI) have plans to come out with Intel-based smartphones soon. However, the Lenovo Android phone – the K800 – will only be available in China, so Motorola will be the key partner for Intel's global hopes for its latest version of its Atom processor, Medfield. In January, Motorola did announce a multi-year, multi-device partnership with Intel for Atom-powered phones would kick off this summer.

Intel does have an opening against Arm-based chips, at least temporarily. Rivals like Qualcomm (Nasdaq: QCOM) generally rely on Asian foundries like Taiwan Semiconductor to manufacture their chips. Qualcomm did recently warn that it was having trouble getting enough 28 nanometer chips from its partners in Asia.

Over the long term, one key for success may lie in Intel's ability to shrink its chips further. According to analysts at the research firm ISI Group, sometime at the end of 2013 Intel should be manufacturing 14 nanometer microprocessors for smartphones, giving it a distinct advantage. It remains to be seen if this advantage pans out. After all, ARM will not be sitting by idly.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read all my daily article for the Motley Fool at http://blogs.fool.com/tdalmoe/.