Perils of playing in a $300bn market
Being a computer chipmaker is a rewarding yet perilous business. The semiconductor industry - the term given to the disparate collection of chipmakers - was worth over $300bn in 2011, according to research firm iSuppli, with the top dozen companies raking in over $170bn worth of revenue alone. The fast-moving pace of chip development, spurred on by rapid transitions to ever-small manufacturing processes, means that yearly research and development can run into billions of dollars for the larger players. Make a wrong move, misjudge the market, and noisome mistakes ravage the bottom line.
HEXUS readers are most familiar with the computer chips that power their PCs, laptops or servers. Intel holds a commanding position in this sector, accounting for over 80 per cent of chip sales. Based on an x86 architecture and with a readily-defined 'tick-tock' architecture roadmap, the firm can literally bank on revenue for years to come. Intel is acutely aware that the PC market's growth potential is limited. Industry research firm Gartner predicts that PC shipments, to which Intel is inextricably tied, will grow by 4.4 per cent this year, though better penetration of emerging markets will bolster the PC industry in 2013 and beyond.
The battle of the small chips
Juxtaposing against the relatively sluggish growth of PC shipments - or for x86-based chips - is the burgeoning smartphone and tablet markets. By their very mobile nature, smartphones and tablets use significantly smaller, more power-efficient chips than PCs or laptops, yet can replicate many of their hardware qualities, including full-HD video processing, basic multitasking, casual gaming, and general productivity. The huge performance jumps exhibited by newer iterations of these fundamentally lower-power chips is measured in hundreds of per cent, rather than the single-digit increases we've become accustomed to. Importantly, it's an area where Intel, while now present, certainly isn't the dominant player.
Pick up a modern smartphone and, whether you care or not, it will likely be powered by a processor from British-based ARM Holdings, which licenses its core know-how to various companies who tinker with the architecture - well, spend millions of dollars on R+D - to deliver a system-on-chip (SoC) solution to handset-makers. Qualcomm's Snapdragon, NVIDIA's Tegra 3, Texas Instruments' OMAP, and, of course, Apple's A5(X) are example of cutting-edge SOCs that blur the line between what's possible on a high-end smartphone - powered primarily by either Google's Android or Apple's iOS operating systems - and a low-end laptop. Intel, too, has jumped on the Android bandwagon with its x86-based, Medfield-powered Atom processor, augmented by PowerVR graphics.
So why should you care about who makes what? Sales of smartphones rocketed to 144m units in Q1 2012, representing a 45 per cent increase year-on-year, according to Gartner, with Android the OS of choice for 56 per cent of handsets.
Chipmakers vie for Android or Windows Phone
Most analysts agree that, moving forward, the smartphone OS market will be split between Android, iOS, and Windows Phone. By 2016, Android will be on over half the available smartphones, while iOS and Windows Phone will grab around 20 per cent of the market a-piece, leaving a few per cent for others, lead by BlackBerry. Apple is a law unto itself and is sure to keep tight control over both hardware and software. Smartphone chip designers that desire a healthy chunk of the market need to look at Android and Windows Phone. Qualcomm, NVIDIA, Samsung, TI and Intel will duke it out, but, right now, no company can genuinely claim and substantiate across-the-board performance leadership. Qualcomm is Microsoft's exclusive partner on Windows Phone, with dual-core Snapdragon S4 the choice for the '8 OS. Qualcomm, too, has a healthy presence for Android. NVIDIA has been making real progress in technology and design wins for its Tegra line, and Intel isn't going to go away anytime soon.
No clear winner yet
The race to be the prominent smartphone chipmarketr is just hotting up, truth be told, Unlike the x86 market where a dominant player, Intel, holds sway, ARM- and Intel-based smartphone chips provide the basis for intense competition for the foreseeable future. With little differentiation available with respect to the operating systems, chipmakers need to impress on hardware and power-efficiency levels. No clear winner is a good thing for the consumer, as companies push the envelope with ever-faster, clever designs.
But the likes of Qualcomm, NVIDIA and Intel also know that these low-power chips pave the way for a whole genre of new possibilities. Tegra, Snapdragon or Medfield can be scaled to fit into set-top boxes, smart TVs, fridges, health-monitoring devices, and much, much more. Intel is playing catch-up in a power-envelope sphere that it's not used to, NVIDIA is putting greater resources behind do-it-all chips, and Qualcomm's busy leveraging its unique combination of CPU, GPU and modem capabilities of the latest Snapdragon processors. Oh, and there's Apple.
Who is your money on in this hugely competitive small-chip market? Can you see a clear victor in, say, five years' time? And is Intel good enough to shape the market, much as it has done in the x86 space? We'd love to hear your thoughts.