Friday, June 27, 2008

TI and Qualcomm in rare agreement

As part of its push to take over the mobile phone world, Intel has its sights set firmly on Qualcomm and TI. Despite their fierce rivalry for device market share — and a bitter fight over CDMA and W-CDMA patents — this is one place where (to a limited degree) the enemy of my enemy is my friend.

Bloomberg quotes Intel CEO Paul Otellini as recognizing the growth potential of mobile devices. Intel is trying to create a brand new segment distinct from smartphones — which it calls mobile Internet devices — where it hopes its Taiwanese OEM partners can enter without major competition from Nokia et al.

As Bloomberg reports:
“I'm skeptical -- that business is tough,” said analyst Bill Gorman at Pittsburgh-based PNC Institutional Investments, which owns 10.8 million Intel shares, according to data compiled by Bloomberg. “There is very difficult entrenched competition. Qualcomm continues to push state of the art; TI is going to remain a major player.”

Intel, the Santa Clara, California-based company whose products are the brains in more than 75 percent of the world's PCs, says only devices with chips based on those complex processors can run the Internet properly because the software at the backbone of the Web was written for computers.

Otellini predicts PC makers will buy Intel chips for new handheld computers, a market Texas Instruments and Qualcomm say their handset customers are exploring. Once he's won over mini- computer buyers with the new product, called Atom, Otellini plans to court phone makers as Intel creates less power-hungry models.
Somehow, I don’t quite see it. Even though Nokia and Intel are de facto cooperating on a Linux variant for these mobile internet devices, this is a frontal assault on Nokia’s 40+% market share for mobile phones based on ARM microprocessors.

Also, the claim that web browsers require an x86 processor to surf the web is silly. Communications bandwidth is going to be the limiting factor — unless you’re teaming up with Adobe to populate the mobile Internet with millions of compute-inefficient, Flash-infested web pages.

Next, there is the assumption that TI and Qualcomm will sit still. As the article notes, both are making more powerful cellphone processors — respectively with their OMAP and Snapdragon processor families. I suspect Otellini’s braggadocio will cause them to redouble their efforts.

If you're think you've heard this song before, you have. As the article notes, to enter the mobile phone market last time Intel spent $5 billion from 2000-2006 and only got about 10% of its money back. Thus far, Intel’s efforts to diversify away from the PC have been unsuccessful.

Given these obstacles — including the fierce opposition — I’d bet against Intel reaching $5 billion in mobile phone revenues by 2015. But I wouldn’t bet the house on it, and would only offer about 3:2 odds against Intel.

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