During its peak no one ever thought Rome would fall. Similarly, in the world of technology, no one has thought the pairing of Windows and Intel could be challenged. For decades Microsoft has dominated the computer software space while Intel, with its X86 processor line, has dominated the chip side of high tech. This Wintel hegemony has been unassailable. It hasn’t been for lack of trying. IBM tried with OS2. Apple had some limited success once they brought out OSX. Motorola tried with the 6800 and 68000 chips. Sun tried with the SPARC processor and there was MIPS. These are just a few. HP, DEC and Fairchild had processors. IDT had the Winchip. Some survive today but only AMD, with its X86 clones, ever had much success as measured by volume shipped. Today things have changed. After WWI, the French built the Maginot Line. Everyone agreed it was unassailable. What France neglected was the rise of mobile warfare. Since the Germans couldn’t defeat the Maginot Line they went around it. The same is happening today in both the operating system area and in microprocessors. The attack on the Wintel hegemony is both real and potentially fatal. The outcome hasn’t been determined but the battle has started. Just like Germany flanked the Maginot Line, the Wintel alliance is being flanked. For Germany the enabler was mobile warfare and the development of the blitzkrieg strategy. Today the enabler is the smartphone together with iOS and Android.
In Q4 2010, according to IDC, there were more smartphones sold than PC’s. This is an important statistic. It means that the smartphone is set to become the dominant computing platform. Few smartphones run a Microsoft OS. Currently Microsoft’s share is at 7.5% which is down from 8.4% just a few months ago (see here). As far as the CPU, most smartphones use the ARM processor (see here). The tablet is more closely aligned to the smartphone than to the desktop. iOS and Android are the dominant operating systems. Microsoft won’t have a contender on the market till 2012. How about another shocker. Apple has surpassed Microsoft in both revenue and profit (Businessweek). No longer is Apple the little weakling hoping Microsoft won’t notice them. During the 90’s Microsoft was threatened by Netscape. Once Microsoft awoke to the threat it wasn’t a fair fight. The sheer size of Microsoft allowed them to give away Internet Explorer and destroy Netscape. Today the battle is different. Both Apple and Google have massive resources.
I’m a chip guy. I’ve been talking software. What about chips? Specifically, what about Intel? On the plus side Intel has vast wealth and controls the best semiconductor fabrication technology in the world. Intel continues to push R&D so, at least when it comes to semiconductor process technology, they can’t be accused of sitting still. They make the Atom processor line so they have an entrant in the low power, low cost processor market. Their problem is convergence at the chip level. Recall that I said convergence is much bigger than people think. Convergence is the dominant trend in the semiconductor business. More and more functionality is being integrated onto a single chip. Chip count is going down. Look inside a DVD player and you will see that there isn’t much there. Intel has made its money selling discrete microprocessors and selling them at high margins base on a near monopoly in the desktop CPU space. Back in 2009, Intel made the Atom core available through TSMC. However, the main core used today is ARM. The Apple A5 chip contains a dual-core ARM Cortex-A9 MPCore CPU and a dual-core PowerVR SGX543MP2 GPU. Samsung is the foundry for the chip although Apple may be moving to TSMC. LG is getting into the act and will be designing its own chip. The future is clear. Companies are buying IP and integrating it into one chip. This is a huge threat to Intel. With ARM becoming the dominant processor, Intel is losing its grip on the processor market. Even if Atom cores sell well the profits will be nothing like what Intel has seen in the past. None of this spells near term doom for Intel. They continue to mint money in the desktop and laptop space. Netbooks are dominated by Atom processors. Long term the outlook is different. Netbooks are being hurt by ARM based tablets. The smartphone is driving convergence. Soon it will be the smartphone, tablet and TV vs. the notebook and desktop. One rumor already has Apple moving from X86 to ARM for their laptops. This move seems premature to me but something that will eventually happen. In and of itself this wouldn’t threaten Intel. Apple isn’t their major client. However, imagine if the Android market were to progress in that fashion i.e. ARM based Android phones drive an ARM based Android tablet world which eventually drives a Chrome/Android notebook market. The force behind this? Convergence! Intel sees this and is pushing its own smartphone solution. For this reason the outcome isn’t certain. What is certain is that there will be a battle royal with Intel no longer having a monopoly.
If you are in the chip business there is something broader to be taken from this. Integration continues to increase. The system on a chip, SoC, is the dominant trend. That may seem obvious but I continue to see companies ignoring this trend. Analog companies fail to see that they will be integrated into an SoC. RF companies don’t see how they are being isolated as surrounding functionality gets integrated. Consider the GPS chip. The market for stand alone GPS chips continues to diminish as better and better solutions get integrated into chips like the Quallcomm MSM8660. Either you are a Quallcomm or Broadcom and doing the integration or you are being marginalized in the GPS marketplace. Expand this to the chip business in general. Sound chips (are you listening Wolfson), power sequencers, and others will be integrated. Consolidation is happening in semiconductors just like it happened to the automobile industry during the 1900’s.
paulplatt 