The Reason ARM Holdings Plc (ARMH) Is Dominating Intel Corporation (INTC)

Page 1 of 2

Over the past decade, Intel Corporation (NASDAQ:INTC) – the largest processor manufacturer in the world – devolved from a top tech stock into a textbook example of a mature one. When excitement and momentum leave a tech company such as Intel, stagnation, stock buybacks and dividends usually follow.

Intel Corporation (NASDAQ:INTC)

Although a company can’t grow revenue and earnings at double digits forever, it has to stay flexible in the face of rapidly shifting tides of technology – it must adapt or die. The problem is that when publicly traded tech companies become large cap behemoths, they develop a myopic quarter-to-quarter view that distorts the danger of disruptive trends.

That’s exactly where Intel is today, and the leader of that disruptive trend is British chip company ARM Holdings plc (NASDAQ:ARMH) .




INTC data by YCharts

How did we get here?

Intel’s greatest failure over the past five years was completely missing the smartphone and tablet revolution, which started with Apple Inc. (NASDAQ:AAPL)’s seminal iPhone in 2007. Intel didn’t respond quickly enough to the market demand for lower-power chips which would prolong battery life on these devices.

Its initial response, the low-voltage Intel Atom, was targeted at netbooks, which Intel believed to be the natural successor to laptops. Unfortunately, Apple’s iPad in 2010 threw a curveball that added tablets into the equation. The Atom’s x86 architecture was always seen as a poor alternative to ARM processors, which still outperformed Intel’s chip in power consumption.

Investors should remember that ARM doesn’t manufacture chips – it only generates revenue from granting licenses to other companies. Companies pay ARM license fees to acquire intellectual property (IP) rights to develop its mobile chips – a factor that has contributed to ARM’s explosive growth over the past decade.

One bad decision in 2006

Intel’s current predicament stems from CEO Paul Otellini’s reluctance to accept ARM as a viable alternative processor to its aging x86 architecture – the same one that has evolved from Intel’s earliest chips in 1978.

Ironically, Intel once licensed ARM chips, which it sold as mobile and embedded XScale processors. Unfortunately, Otellini divested Intel’s ARM assets, which it sold to Marvell Technology for $600 million, one year prior to the release of the iPhone.

Otellini believed this would help Intel stay focused on creating quality x86 chips for its primary laptop, desktop and server markets.

What happened next was a revolution – ARM chips captured 90% of the smartphone processor market, as well as 10% of the mobile computing market – which includes laptops, netbooks and tablets.

The writing’s on the wall

Just as the major Wintel PC makers – Hewlett Packard and Dell – neglected the rise of Apple and Samsung until it was too late, Intel refused to believe that its grasp of the PC market, that it has so easily dominated in the 1990s, was slipping fast.

However, two recent developments have shaken Intel investors to the core.

First, Microsoft Corporation (NASDAQ:MSFT) is offering two versions of its Surface tablet – a Windows 8 version that runs on a higher-powered Intel processor, and a cheaper Windows RT version that uses an ARM processor. Microsoft has apparently declared their long-time ‘Wintel’ marriage an open one.

Second, Apple is rumored to be considering dropping Intel processors from its entire line of laptops and desktops in favor of ARM’s upcoming 64-bit chips. To many analysts, this was an inevitability, since ARM chips already power Apple’s iPhones and iPads.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!