ARM vs Intel: The new war frontiers

by prakash

With Intel’s exit from smartphone processor market, the competitive zones are redefined with its rivalry with ARM. Is ARM’s domination the only reason for Intel’s exit? With no competing architecture, is ARM a monopoly in smartphone processor IP market? What are the new areas of competition between ARM and Intel? I will attempt to answer these questions in this post.

Intel’s exit

I read some news that Intel invested around $10 billion in its mobile processors endeavors.  Intel not only invested such huge capital but also digressed from its conventional business model to gather market share. For gaining traction in the low-cost smartphones, SoFIA project was started. In this project, Intel relied on partners, putting aside its vertically integrated business model. Intel partnered with 3rd party SoC design companies for designing SoC on the Atom CPU, and these SoCs would be manufactured in the 3rd party fabs.

It is no brainer to say that ARM is the major reason for Intel’s exit. Can there be some more reasons? In order to compensate for its late entry into smartphone market, Intel paid smartphone OEMs to use its SoCs, and focused on all segments from cost-sensitive volume market to premium segment. The text-book strategy to penetrate a market with dominant incumbent is to focus one customer segment and offer them a complete solution. Did Intel’s strategy match this? I don’t think so. Intel attempted to cater the needs of wide customer segments from high-end to low-end. The solution was not complete, as a competitive integrated modem was missing in some SoCs. I wish Intel would have followed the text-book strategy. It would have been a good experiment to test the credibility of such text-book theories in practice.

Anyways, this is a retrospective discussion for now. Intel also never got any good deal from major OEMs such as Apple, Samsung and Xiaomi. One of the reasons behind this is that all these OEMs have also backward integrated and started designing their own processors. So, x86 is not an option. These companies take architectural license from ARM, and then design the processor as per their needs, and manufacture the processor in fabs such as TSMC, Samsung, etc. The impact of OEMs’ backward integration to pure-play SoC design companies such as Qualcomm, Mediatek, merits a separate analysis. I will try to focus on this in my next post. Open-source systems boost innovation and adoption, as evident from the wide-spread adoption of entities such as Android, Raspberry Pi, Linux, etc. A closed system can never achieve the benefits of network effects, which dictates that value of an entity increases as more users adopt the entity. Intel can never achieve this, as x86 is proprietary.

Is ARM now a monopolistic power?

With the exit of Intel from smartphone market, ARM is the only company offering IPs for smartphone processors. Does this mean smartphone processor IP market is now a monopoly? Can ARM attract monopolistic rents? With my limited knowledge on microeconomics, I believe the smartphone processor IP market can be modelled as a monopoly, as only one company is active. ARM licenses its IPs to many companies that design processors based on those IPs. ARM makes revenue through licensing cost and royalty. What prevents ARM to dictate prices for smartphone processor IPs?

In my view, there are primarily 3 reasons.

  • Dwindling smartphone market: Smartphone penetration has almost reached saturation in developed market. Most sales happen for add-on or replacement phone. Now, developing nations such as India and China holds the next new billion potential customers. These markets are price sensitive, so driving price to cash-on to the monopolistic power by ARM will have negative impact on sales volume. Rising input cost will result in higher end-product price
  • Most SoCs are application-agnostic: ARM license processor IPs that can be used by the design companies to develop SoCs targeted for variety of applications. For example, the same SoC can be used for smartphone, gaming consoles and high-end computing applications. So, it is not possible only to rise licensing and royalty fees for smartphone processor IPs
  • Smartphone as a growth driver for adjacent or emerging market: The pervasive presence of smartphone has led to growth of many adjacent or emerging market. Smartphone acts as a communication medium between humans and machines/ devices. The rising IoT era is dependent on smartphone for connecting the tiny end-nodes with humans. Wearable devices such as blood pressure monitoring, etc. need to be compact, power-efficient and low-cost. So, most of these devices are headless and use the smartphone as a medium to communicate with human, using some software app.

The same is true for embedded computing market that includes applications for home-automation, industrial automation, medical, automobile, etc. A diverse range of these devices depends on smartphone. In home automation, a remote assistance product for elderly people uses the care-taker’s smartphone to send distress signals, in case the elderly people meets with an accident.

IoT is the next emerging market that will give a great boost to electronics / semiconductor industry, so the enablers or growth drivers of this market should be cost-effective to drive mass-scale adoption. ARM supplies low-cost processor IPs such as Cortex M series that are widely used for connected devices. A rise in smartphone processor IP, usually the high-end ones such as Cortex A15, A9, A53, etc., may decelerate the growth of smartphone market, in turns will restrict the growth of the adjacent markets

New war frontiers

With Intel’s exit from smartphone processor, the areas of competition between Intel and ARM have shifted grounds. Intel will be focusing more efforts on the emerging connected and IoT market. IoT is the next tech tsunami that will drive innovation, competition and market penetration, as smartphone has done so in the last decade. The challenge is that IoT is not a product, it is an ecosystem. Apart from the software offerings such as cloud management, APIs, data analytics, etc., at the hardware level it needs sensors or end-nodes, gateways, server or data center, and connectivity devices.

At the front-end or customer-facing end of IoT applications are connected things or sensors, that tracks or monitors some ambient conditions. These end-nodes or frugal devices will be scattered in all places from light bulbs, vehicles, building, elevators, industrial plants, oil refineries, and many more. The data collected from the ambient environment will be passed on to gateways that may do some processing on the data. The data is pushed from the gateways to servers, in which advanced data analytics can be done on petabytes of data. Cloud services plays a vital role in this chain from data collection, reception and analysis. Each of the hardware involved in the chain including sensors, gateways, and servers will be having some processing unit, memory and some I/Os depending on their usage.

Sales volume will be driven by end-nodes or sensors that will be needed in billions for collecting vital information from various surroundings. To drive mass adoption, these end-nodes should be low-cost; however, due to application-specificity and customer-specificity, the sales volume for individual SKUs will be less. COTS processors may not fulfill all the requirements of power, performance, price and space of the end-nodes. The focus will be on application-specific processor that is tuned to the needs of the specific industry. Companies building IoT products would be more interested in custom processors that are tuned to their requirements and budget. However, the problem is to fulfill the conflicting objectives of customization and low-cost. Any company solving this problem will crack the IoT market.

Now coming to the competition in the end-nodes business between ARM and Intel. Intel offers Quark SoC and micro-controllers that can be used for the end-nodes or connected things. In a recent blog after its restructuring, Intel made clear that it will work towards offering a complete ecosystem for IoT: frugal connected things, servers, networking and cloud services. However, one thing that I fail to understand yet is how Intel will control the cost structure of Quark or similar processors, without making business loss? With its vertically integrated business model, it is difficult to achieve cost-optimization. Further, off-the-shelf processors may not be ideal for many IoT applications.

In past, for capturing low-cost smartphone market, Intel sidelined its vertically-integrated business model and started the SoFIA project, in which it partnered with Chinese design companies for the SoC design and then get the SoC manufactured at pure-play foundries. The idea was to cost-control that is not possible with the high-margin Intel’s business model. Shall Intel pursue a similar program for low-cost processors targeted for the connected things? I believe, it is worth a try.

However, the second issue that may erupt with the above strategy is that COTS processors may not be an ideal choice for many IoT applications. ‘One processor fit all’ may not hold good for IoT market, as the applications are diverse in terms of usecase, power, performance, and I/Os. With proprietary x86, it is not possible to build customized SoCs. Should Intel start licensing x86 architecture? This is a difficult question to answer, for me at least. However, I strongly believe in the power of network effects, collaboration and coo-petition. All these cannot be possible with closed standards. AMD has already started licensing x86 server IPs. I am sure that Intel will have to deal with more competitors in the near future. What do you think on how Intel can address this issue?

On the other hand, ARM is steadily carving an IoT ecosystem. Already being used in billions of smartphones and embedded devices, ARM may have an edge over Intel in the IoT market currently. With IP licensing model, system designers can differentiate their products from those of competitors by designing processors according to their budget, form-factor and application requirements. This offers better control to companies to target niche segments of IoT. ARM has realized that mass-scale production by large SoC vendors will not bring radical innovation in IoT space, instead value-addition will be driven by small companies that focus on niche markets.

With ARMDesignStart program, ARM is lowering the entry barrier for custom SoC design and manufacturing on Cortex-M0 IP. This program offers low-cost access to Cortex-M0 IP along with design services (from Cadence, & Mentor Graphics) and physical IPs. This will promote further penetration of ARM IPs among start-ups, design enthusiasts, etc. Designers can start their development with limited fixed cost. After evaluation, they can go for full-scale production at nominal cost. This will enable low-cost products targeted to hundreds of niche IoT applications.

Further, ARM also aspires to capture market share in server space. Presence in server space will be enable a full-scale IoT value chain: end-devices (Cortex M series), gateways (Cortex A9, A15 etc. in vehicles, medical, & many more), servers (64 bit processors) and software (mbed, Cloud services).

Conclusion

Interesting times are coming ahead. Both companies, along with many others will compete to realize the billions of connected devices. I strongly believe most innovation will happen at small companies and start-ups, rather than in large companies. The strategy should be address the needs of these thousands of small companies by offering a base that is cost-effective and scalable.

I really look forward to your views, suggestions and improvement areas. I would like to emphasize that these are completely personal views with my limited knowledge. I do not work for any organization mentioned in this post. I also encourage you to take a look a look at my earlier blogs on ARM vs Intel.

ARM vs Intel – Not a tech war

ARM vs Intel – The way further

 

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