ARM and Intel in a battle of the chip-makers

published 12 January 2012

Intel's announcement that Motorola Mobility and Lenovo have signed agreements with the technology developer to ship its low-power processor later in the year has clearly got ARM Holding investors worried.

Chip-maker ARM, which currently has a 90% market share, finished Wednesday down 2.6% at 588.5p, although has regained some ground today.

Commenting on the news, stock broker Socit General said: "This is the first time Intel has design wins with credible mobile makers.

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"Intel has a major credible partner in smartphones and tablets meaning that the consistent positive news flow that has helped ARM is likely ending.

"If Intel is able to build important alliances such as this one, we believe it is unlikely that ARM can continue to trade at 45 times adjusted [its 2012 earnings]."

The Intel-powered Lenovo K800 smartphone will be sold only in China, at least initially. China's smartphone market has 100m users and is growing rapidly, Intel President and Chief Executive Officer, Paul Otellini, told an audience on Monday at the Computer Electronics Show in Las Vegas.

ARM investors are also likely to be concerned that Motorola Mobility, which is about to be bought by Google, has agreed a strategic partnership with Intel, a move which could mean that Intel gains a a strong footing with Google's Android platform.

Motorola expects to have its Intel-powered devices in testing by the major mobile phone network carriers this summer, with commercial release due shortly after that.

The Lex Column in the Financial Times commented that near-term, ARM investors "may have no more to fear than Intel has to gain" because "the real hurdles are gaining significant market share and making money".

Even if Intel is able to gain a 25% market share, generating $2bn in mobile chips, but this pales in comparison to ARM's $55bn sales in the financial year ended 31 December.

Intel's major problem with gaining market share in the mobile devices market has been the power consumption of its chips, which has not been as good as that of rivals using ARM's intellectual property; heavy power consumption reduces battery life.

Liu Jun, president of Lenovo's mobile internet and digital home division, claimed the K800's battery life is comparable to smartphones in its class.

ARM's share price was up 0.85% to 593.5p by 13:33.