Opinion: Intel is Underestimating ARM

We haven't seen much more than saber rattling and scatter shooting so far and it appears that both sides are still preparing their first targeted shot at the other side, while prepping their defenses against a likely retaliatory move. Intel leaked some strategic information during the most recent earnings call. Still, I am wondering if Intel is taking the ARM threat seriously enough?

I would be lying if I said that I am not disappointed that a much more dramatic confrontation between ARM and Intel has not taken place yet. It's a battle between two incredibly strong and established ecosystems that will draw blood on both sides and has the potential to be drawn out over years. The benefit goes to the consumer, who will see unprecedented innovation in the product segments Intel and ARM will be fighting over. One of the reasons why this fight has not been very visible yet is because it is unlikely that the companies will be going into battle without a proper plan. Both are guarding their crown jewels and are positioning their strongest assets on the field.

If we were to compare ARM's and Intel's key assets, you'd be dealing with a long list of accomplishments and capabilities, but I believe that the fight will come down to ARM's vendor ecosystem as well as Intel's manufacturing capabilities. The big question on Intel's side has always been, "How will they deal with an armada of ARM vendors, a vast array of tailored processors, which not include powerful vendors such as Qualcomm, Samsung and Texas Instruments, but especially Nvidia (which is just waiting to throw another can of whoopass into Intel's face)?" In the end, ARM has the luxury that its vendors will go to battle, not ARM itself.

On the other side, Intel is one of the very few remaining independent chip manufacturers. It has, by far, the most advanced production process and immense capability to produce and adjust the production of microchips. Based on revenue, Samsung is the only other semiconductor company that may be able to afford $5 billion fabs down the road - and upgrade them every two years to accommodate a new shrink. How will ARM vendors compete with Intel?

We are still waiting for an answer about ARM production capability and flexibility, but Intel has given some answers about its strategy.

CEO Paul Otellini just confirmed once more that there will be cell phone chips from Intel next year. He acknowledged that there are many ARM vendors and his idea is to counter that competition by offering multiple flavors of Intel processors. "Just like there's no one ARM, there's no one version of Atom going into these devices," he told an analyst over the phone. "Intel has tailored Atom for low-end PCs, it's now tailoring it for tablets. We're tailoring different versions of it for handsets and cell phones, and other versions for embedded and automotive implementations."

While this is a clear scenario on how Intel intends to compete initially, the hope is that the cell phone processor will move upmarket and move closer to what Intel is really good at, while it is moving away from the generally lower performance of ARM processors. In other words, Intel believes that achieving higher performance will be more difficult for ARM vendors than lower power consumption for Intel.

"As the need for computing performance goes up, both the Intel architecture and the ARM architectures face the same fundamental physics problems, which is more performance requires more transistors. So at the end of the day, to deliver multi-core performance, better graphics performance in a battery-constrained environment is going to be a function of the transistors more than the micro-architecture," Otellini explained. Translation: Intel's capability to design processors and put them into an advanced production process will decide the battle.

There have also been some notes that AMD may be moving into the ARM market, which could make a lot of sense for the green team. However, it was interesting to hear that Intel believes that it can sell its products for higher prices because of a certain perception value, which includes "more performance," "features, "reliability", and "high quality levels," according to CFO Stacy Smith. In the particular example from the earnings call, Smith mentioned a $20 to $30 price advantage for a processor kit for a low-end target market.

Smith went on to say that those values would allow Intel to "shine" in the ARM market as well. He got carried away a bit, in my personal opinion, when he compared AMD with ARM and described Intel's advantages as the main weapons against the new rival: "It's going to be the same issue with ARM," he said. "All of those advantages will be even more so against ARM. […] As Paul [Otellini] said, at the end, it all comes down to we're solving these problems of physics two years ahead of the rest of the industry, that gives us a cause-to-performance a future advantage that become very difficult for people to match."

The problem, of course, is that some of Intel's advantages only work in the PC market, not in the smartphone and tablet market, where Intel is the new kid on the block. Performance of Intel processors has not been proven in the smartphone/tablet market yet, and reliability has not been proven and features have not been proven either. Then there are issues about power consumption and the right balance between power consumption and performance. Intel is the unknown factor in this game and would be a risk for a smartphone designer, not ARM. Plus, there have not been Intel products that have been especially compelling in this space, even if Intel has been talking about the development of smartphone chips since the release of the first Atom processor more than three years ago. Intel will need a processor to back up its claims to create a foundation for future opportunity in the smartphone/tablet space. I cannot help but say that the current claims are not really convincing.

Even if we assume that an Intel processor is faster than a certain ARM processor from a certain vendor, ARM will remain a moving target with quite a bit of design capability at several large players out there. Intel has tremendous design resources at hand, but it would be naïve to believe that the ARM armada can easily be beaten on the perception of performance, reliability and quality in a different market. I am wondering: Could Intel be underestimating ARM, or were Otellini's and Smith's claims simply part of an evolving marketing phrase?