Qualcomm On the Rise, Intel On the Decline

The latest quarterly earnings statement from Qualcomm (Nasdaq: QCOM) blew away most estimates. This resulted in the company's stock actually briefly surpassing the market valuation of long-time chip champion, Intel (Nasdaq: INTC). This is not a blip. There are reasons why investors should expect this to be the continuation of a long-term trend where Qualcomm outperforms Intel.

Qualcomm had such a good quarter because it is largest seller of semiconductors for mobile phones, including the iPhone 5 from Apple (Nasdaq: AAPL) and the latest offerings from Samsung like the Galaxy S III. It is also a big player in chips for tablets. The majority of the company's revenues comes from baseband chips, which connect phones to cellular networks. These chips are sold to firms like Apple and Samsung.

Mike Burton, an analyst at Brean Capital LLC, said “Qualcomm has absolutely been one of the prime beneficiaries in smartphones and tablets.” Meanwhile, Intel is a laggard in the market for mobile phone chips and is being hurt by the steady decline in demand for PCs. PC shipments are headed for their first annual decline in 11 years this year, according to research firm IHS iSuppli.

Qualcomm's chips are based on designs from Intel's adversary, U.K.-based Arm Holdings PLC ADR (Nasdaq: ARMH). Arm designs chips that use much less power than Intel chips while still being powerful. In fact, Bloomberg has reported that Apple is even considering dumping Intel's chips from use in its MAC computers in favor of Arm-designed chips.

Clear Sailing in 2013

More good news for Qualcomm shareholders is the fact that the company forecast continued strong demand for its chips in the current quarter. Qualcomm pointed to factors such as fast-growing demand for smartphones among emerging market consumers. Qualcomm's CEO Paul Jacobs told the Financial Times “Smartphones in China are really strong right now and cell phones are staples, not luxury items any more.”

Despite a bit of a slowdown in the sales growth rate in the third quarter, the future is bright for smartphones. Research firm NPD Display Search says that 567 million smartphones will be shipped this year and that number will surpass 1 billion in 2016.

Qualcomm is not sitting on its laurels either. It is aggressively expanding into the market for application processors. These are the chips that run programs in smartphones and tablets. For example, the company will be supplying its Snapdragon product to computer makers using the new version of the Windows operating system, Windows 8, from Microsoft (Nasdaq: MSFT). Snapdragon is also the sole supplier being used by every manufacturer of Windows smartphones.

The Years Ahead

This move into application processors is not surprising. Qualcomm was quick to enter the mobile phone market too. Its president Steve Mollenkopf told the Financial Times “We saw that mobile was going to be the key market to be in some time ago and we invested in key technologies much earlier than everybody else.” Particularly Intel, which is still talking about a golden age for PCs.

In the years ahead, if current trends continue, Qualcomm will be a more valuable company than Intel.

Look at the past decade. Intel's valuation peaked at $502 billion in 2000 during the internet bubble. Its shares have fallen about 15% this year alone and about 14% over the past 10 years. Meanwhile, shares of Qualcomm have jumped about 255% over the past decade and are up roughly 8% this year.

The next decade will likely show an ever growing gap between the two companies fortunes.

This article was originally published on the Motley Fool Blog Network. Be sure to read all of my articles for the Motley Foll at http://beta.fool.com/tdalmoe/.

The End of the PC Era?

The CEO of chip giant Intel (Nasdaq: INTC), Paul Otellini, recently stated that “there's a golden age ahead of us [Intel]”. He made this statement based on his belief that the age of “cannibalization” of PCs – consumers choosing tablets over laptops – would be replaced by age of “reverse cannibalization” as new Windows 8 laptops come out with touchscreens later this year. Windows is, of course, the new operating system soon to be brought out by Microsoft (Nasdaq: MSFT).

Intel and Microsoft are not the only companies hoping Windows 8 is a runaway success. Others in the PC world need it to be a success in order to turn their fortunes around.

Take Dell Computer (Nasdaq: DELL) for one. Its stock recently fell by a fifth in one day on the back of poor results. According to its chief financial officer, Brian Gladden, the PC market has turned into a low-growth ghetto. And this past week Hewlett Packard (NYSE: HPQ) took a $1.2 billion write-off on its decade-old acquisition, Compaq Computer. Its CEO, Meg Whitman came right out and said “We are betting heavily on Windows 8”.

These companies are facing a steep uphill climb against the competition - smartphones and tablet computers. Smartphone sales exceeded PC sales for the first time ever last year, with 427 million sold versus 353 million PCs sold. According to technology research firm Gartner, smartphone sales will be twice as big by 2013. Tablets, led by the iPad from Apple (Nasdaq: AAPL), looks like the next device which will capture a global mass market, with some in the industry predicting sales could rival those of PCs within three years.

As a whole, the number of “smart” devices sold annually will double between now and 2016, reaching 1.84 billion according to research firm IDC. In that period, traditional PCs are forecast to shrink from 36 percent to 25 percent of the total number of smartphones, tablets and PCs. Hardly a golden age.

Part of the decline is due to shifting consumer tastes. The emergence of web-based services has made software applications less relevant to consumers. For example, music lovers today are much more likely to turn to streaming service such as the iCloud where there favorite tunes are stored on Apple servers. The same can be said with regard to personal data too.

Intel and others are banking on consumer acceptance of hybrid PCs (which Apple thinks will never be viable) thanks to Windows 8. But these type of devices failed miserably in the past. Take Dell's Inspiron Duo which was launched to much hype in 2010. Consumers thought it was too heavy, the screen and battery life were poor and it did not even come close to the touchscreen experience of the iPad.

Windows 8, however, does seem to be the best offering from Microsoft since Windows 95. It will have an user interface, called Metro Style, that is based on colored tiles operated by touch and which is currently being used on Windows phones. Microsoft is also using a programming model that enables developers to create apps easily and computing architecture and operating system that will run tablets. The architecture is required for devices that run low-powered chips (which expands battery life) designed by the UK's Arm Holdings.

Microsoft's Windows 8 should give PC companies an opening to pull customers back into the PC universe. But that window may close rather quickly, leaving others like Samsung and Apple to further gain market share.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

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/.

Arm Holdings' Chip of the Future

While semiconductor company Intel dominated chip sales in the PC era, another company has taken over the mantle in the era of smartphones and tablet computers. Chips based on architecture designed by UK-based Arm Holdings (Nasdaq: ARMH) have become predominant in popular electronic devices like the iPhone and iPad.

Arm is not sitting on its laurels either. It is aggressively designing more semiconductors to be used in devices of the future. The company recently announced a significant development, an ultra-low-power chip that could pave the wave for an “internet of things”. Everyday items like refrigerators and clothing would have “online identities” that would give the complete history of the item to anyone with a smartphone to scan the information. Common items in our lives would all have the ability to communicate with each other using microprocessors from Arm's design. This would be useful in smart energy systems, for example.

The company said it had created the world's most efficient microprocessor design. The chips would be capable of fast processing as the chips in today's smartphones but using just a third of the power currently eaten by a typical, 8-bit microprocessor. The company's “Flycatcher” 32-bit design allows the chips to be just 1 millimeter square and be able to run off a tiny battery for very long periods of time. The chips would also have a very low power 'leakage'. This means that in the future these chips may be embedded in nearly everything we come across in everyday life.

Microcontrollers are a very fast growing source of revenue for Arm Holdings. Some one billion chips were shipped in the fourth quarter of 2011 alone that use Arm's architecture, up from 40% from a year earlier. It is expected the new microprocessors would sell for about 20-25 cents each.

Telecom equipment company Ericsson ADR (Nasdaq: ERIC) recently forecast that there would be roughly 50 billion connected devices by 2020, up from just 5 billion in 2010. And Arm chips are likely to be in most of them. So even though Arm receives a royalty of only 1%-2% on each chip, it adds up quickly. For those interested in that future with 50 billion connected future, there is interesting information on Ericsson's website about it and can be found here.

Already Arm has licensed its Cortex-M0+ processor design to semiconductor companies Freescale Semiconductor (NYSE: FSL) and NXP Semiconductors (Nasdaq: NXPI). NXP should be familiar to investors as a leader in NFC (near field communications) chip technology. So not only is it looking to cash in on the lucrative mobile device transaction sector, but also on the 'internet of things' in the years ahead.

Takeover candidate Freescale is a big believer in the technology. Its vice-president Geoff Lees said “It opens up all devices to the potential of being connected all the time. It allows us to provide connectivity everywhere.” There are many more chip companies likely to follow, licensing the design from Arm Holdings.

That is not to say that Arm is alone in designing ultra-low-power chips. Two U.S. semiconductor companies are also competing in this space – Atmel and Microchip Technology. Atmel offers 32-bit “Avr” products along with Arm-based chips while Microchip Technology builds a range of 32-bit “Pic” microcontrollers.

The “internet of things” is coming and as Tom Halfhill of the research firm Linley Group said, “The internet of things will change the world as we know it”. And for now, it looks like Arm Holdings chip designs will be at the forefront of this new technological age as it was the mobile phone and tablet computer age.

This article was originally written for the Motley Fool Blog Network. Please check out all of my daily posts for the Motley Fool at http://blogs.fool.com/tdalmoe/

Smartphone Usage Expands in Emerging Markets

There is a trend in the technology and telecommunications spaces that has gone almost completely unnoticed by U.S. investors. That trend is the rapid expansion of entry-level smartphone usage in emerging markets.

Low-cost semiconductor technology has pushed down the price of a basic smartphone to below $100 in emerging markets over the past year.

In emerging markets such as India, high prices have been the main reason there has not been widespread use of smartphones. High prices have slowed the adoption of smartphones such as Apple's (Nasdaq: AAPL) iPhone and phones using Google's (Nasdaq: GOOG) Android operating system in these markets.

The new microchip design changing the smartphone market in developing countries was developed by the British company, ARM Holdings ADR (Nasdaq: ARMH).

The company has another microchip, the Cortex A7 processor, in the works by 2013 that will further advance the use of low-cost smartphones. It will be one-fifth the size of those used in other smartphones and five times more efficient. Arm says it will enable entry level smartphones below $100 which will be equivalent to a high-end $500 smartphone in 2010.

This is an important breakthrough. The CEO of Arm, Warren East, said “The sub-$100 price point is when we can start to talk about connecting the next billion people to internet content and services over mobile devices.”

The base of smartphones costing less than $100 is already estimated to be about 200 million, with the majority of those phones have been bought in the past year.

Now research from the consulting firm Deloitte says adoption of these cheap smartphones is expected to be even more rapid. Deloitte forecasts take-up of these low-cost smartphones to more than double in 2012 to above 500 million!

This development will help Arm Holdings to maintain its dominance in the mobile phone and tablet market. Chips, using its designs, are already in on the most popular products like Apple's iPhone and iPad devices.

Needless to say, it will also raise demand for connected devices, applications and the spectrum needed to carry vast amounts of data in the emerging world.

Deloitte predicts, for instance, the number of applications available on smartphones to double in 2012 to more than 2 million as a result of the popularity of $100 smartphones in emerging nations.

It will also obviously help the manufacturers of these low-cost smartphones such as Nokia ADR (NYSE: NOK), which remains a leader in mobile phone sales in emerging markets. Nokia was expected to have sold over 400 million phones in 2011, of which more than 300 million were sold in emerging markets.

The worry here for Nokia and others is whether players like Korea's Samsung and Apple will come out with low-cost versions of their successful smartphones. These two companies have surpassed Nokia as the biggest global manufacturers of smartphones last year.

No doubt Apple and Samsung will do so – Samsung is already pushing $200 versions of its Galaxy smartphone in emerging markets.

So the window for Nokia to regain its dominant position in emerging markets may be a narrow one.

This artciel was originally written for the Motley Fool Blog Network. To read all of my daily article for the Motley Fool, please go http://blogs.fool.com/tdalmoe/