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Third Time's A ChARM? Intel To Manufacture ARM Chips After Atom Failures In Mobile Devices

After a failure to gain significant market share in the mobile market with its x86-based Atom line of chips, Intel is ready to switch strategies and start building ARM chips for other companies. Intel announced at the Intel Developers Forum (IDF) that it has licensed the ARM architecture so it can build 10nm ARM chips for fabless semiconductor companies.

Intel’s (Tragic) History With ARM

Intel has a history with ARM. In fact, the company acquired the StrongARM division from Digital Equipment Corporation (DEC) in 1997, and later renamed it XScale. However, because of various internal conflicts of interest between the ARM and x86 divisions and bad management decisions, Intel failed to turn Xscale into a success. It ended up selling Xscale to Marvell in 2006 for $600 million after having invested billions of dollars. That was only one year before Apple launched the ARM-based iPhone.

Intel had decided to focus on its x86 chips, and if the company was going to go lower-end than even its budget Celeron chip line, it was going to use an x86-chip to do it: Atom. However, Atom was initially targeted at Mobile Internet Devices (MIDs), which were some sort of mini-tablets with higher power consumption than smartphones. MIDs weren’t the success Intel thought they would be.

Fortunately for the company, netbooks started growing fast around the same time. The netbooks kept the Atom line alive and even thriving for several years. At the same time, Intel realized that touchscreen smartphones were an even bigger opportunity, but it didn’t have an ARM division anymore, and Atom's power usage was too high for such a device. That’s how Intel began the multi-year project to reduce Atom’s power consumption with each new generation.

When the 1.6 GHz Atom came out, it had vastly higher performance than the typical 300-400MHz ARM11 chips that were being put inside touchscreen smartphones such as the iPhone at the time. Not only did it have four times more clock speed, it could also execute significantly more instructions per clock as well.

On the performance side, Atom would easily beat the highest-end ARM chip. However, by the time Intel managed to bring Atom’s power consumption in line with the high-end ARM chips, the ARM chips became highly competitive in performance. They were also already too entrenched in the market for Intel to move the needle in its favor.

Not only that, but Intel also had to spend billions of dollars every year subsidizing its Atom chips so they could compete in price, due to the higher cost of building x86 chips on a more advanced process node. In comparison, multiple ARM chip makers could offer low-priced ARM chips for similar performance and power consumption levels, while still turning a profit. Intel’s strategy was simply unsustainable.

Intel tried to switch strategies by starting to license out Atom designs to other chip makers in the same way that ARM licenses out its designs to other companies. Intel licensed Atom to Rockchip and Spreadtrum, but as Intel saw before, Atom was only competitive if it also benefited from Intel’s more advanced process technology. Rockchip and Spreadtrum Atoms would have been built on TSMC’s 28nm planar process, so they wouldn’t have been as competitive in performance and power consumption as similarly priced ARM chips.

Becoming An ARM Chip Manufacturer (And Its Perils)

Although companies like Samsung and TSMC have started eating away at Intel’s process technology advantage since they switched to FinFET technology and 14/16nm process nodes, Intel still possesses an advantage in manufacturing capabilities.

The company is now hoping that by becoming a manufacturer of chips for other companies, it can leverage that advantage to finally become a significant player in the smartphone market, even if not with its own chip designs. This way, Intel becomes not a competitor to Qualcomm, but a competitor to Samsung and TSMC’s foundry businesses.

On the face of it, this seems like a good strategy for Intel. The company has a leading manufacturing process and it’s the kind of business that makes billions of dollars every year for Samsung and TSMC. From that point of view, everything may just work out great for Intel, especially if it can capture Apple as a customer (so far it has gained LG as a customer, but LG doesn’t make too many chips of its own).

However, there are some downsides and pitfalls to this strategy, too.

First off, Moore’s Law seems to be fast approaching its death, as in the point beyond which transistors can’t be shrunk anymore. Intel will have to find some other way in which to significantly improve the manufacturing process every two years or so, or it won’t have much of a competitive advantage compared to other foundries. IBM, for instance, already seems to be ahead of Intel with its 7nm process technology, which uses Silicon-Germanium transistors and EUV lithography. That means it's not a given that Intel will continue to lead in process technology five years from now. Also, if Intel can’t keep its manufacturing prices low, it may find that customers will still flock to Samsung and TSMC.

Second, becoming an ARM chip manufacturer also represents a high risk for Intel’s x86 chip business. Intel has an x86 lock-in advantage in the Windows PC market right now, because Microsoft failed to make Windows RT a success. However, as Microsoft keeps promoting the Universal Windows Platform, and as the architecture-agnostic Chromebooks gain more market share, that lock-in may also disappear. Then, ARM chips can compete head-to-head against Intel in the notebook market, which wouldn’t be good news for Intel’s margins, as it would finally have some real competition in the PC market again.

Becoming an ARM chip manufacturer is probably not a bad strategy for Intel to try, especially since those foundries are already built for its own chips. However, much of the success of this business will depend on how attractive Intel’s offer to customers compares to those of competitors. For instance, just having a 10nm process six months or even one year early may not be enough if it costs customers twice as much. It will also depend on how well Intel can continue to protect its x86 business while making ARM chips that much more competitive.