Friday, June 24, 2011

What does ARM leverage into the PC arena? In turn, how exactly can the new 3D architecture help Intel – what is their game?

The Battle of Mobile Chips - Part 2:

Before the Tablet revolution happened, the products were well differentiated from one other like Servers, Personal computers, Laptops, Net books, Mobiles. Tablet computing has positioned itself between Mobiles and PC’s and has taken a large portion of growth away from PC’s and Laptops which are still growing but the growth has slowed down. ARM is the major player here since it was able to create chips for these tablets as they were closer to the requirements of mobiles than PC’s. Mobility, smaller size and most importantly low and efficient power usage matters highly in the mobile world and also in the Tablets world. ARM has been able to completely seize this market. Further in the server space, due to increasing virtualization and cloud computing usage, companies like Facebook and YouTube have become very big datacenters and the costs associated with these datacenters is very high. If the ARM chips are able to signify a reduction in power usage and therefore cut costs for the final corporate user, it will be in a pole position to capture a significant market share from Intel. ARM also brings the entire ecosystem it created to this market that in turn reinforces the brand and the importance of ARM to the final consumer. Finally, for device makers it would make sense to rely on one partner to supply chips for all their appliances to bring economies of scale and reduce costs. Apple would be a prime example here.

However, Intel is not stagnant. The 3D architecture chips created, will enable it to close the gap with ARM in terms of power consumption and performance, thereby ensuring that it guards its own flanks in the server market. If the consumers are able to get the work done by using Intel chips, the switching cost could be high for moving to an unproven chipmaker. It also gives a chance to Intel to enter the mobile market, particularly with Microsoft, its long time partner in the PC world, which has shown interest in the ARM SOC architecture but has still not made products based on it. Like mentioned for Apple, it gives Microsoft the ability to reduce costs if it can negotiate long term deals with Intel to supply chips for its entire line of products. Intel is vertically integrated in terms of production and it probably gives it a better leverage to adapt to the changes in different types of chip making and to demand fluctuations.

It is possible that both companies will reach equilibrium in terms of the market share in the combined mobile & pc worlds in a few years. If like the cereal industry, they are ready to complement each other and become an oligopoly, it will be profitable for both of them. If however, they make it a zero sum game and try to gain the entire market for themselves, there can be a price war which could lead to a perfect competition and a significant erosion of margins. Two players might also help some device makers to ensure there is competition.