Intel Versus ARM and Apple: The Mortal Threat and Decision

Rob Enderle

Recognize that rumors surrounding Apple - because the company attracts speculation - come with false information, and because the company is extremely private, you have to take the rumors with a healthy dose of skepticism. However, today's rumor that Apple might move most, if not all, of its PC business to ARM is consistent with Apple strategy under Steve Jobs, who likes a lot of control and a lot of consistency.


Unlike the fight with AMD, which, after AMD gave up plug compatibility with Intel, could never have hurt Intel's survival, Apple's move to ARM could be more detrimental. If true, this leaves Intel with two paths: Negotiate Apple away from ARM or remove it as a threat. Of the two paths, the first is more likely because it represents the least risk to Intel, but neither path is ideal.


Let me explain.


The Source of Apple's ARM Lust


Having a single platform that is under Apple's design control and patents would make for a more unique and harder-to-copy result and one that was less complex than the ARM and x86 mix it has today. The Steve Jobs Apple is very focused on having maximum control and given that he, and likely most at Apple, feel that Google exploited his mentoring of Google to create a copy of the iPhone, Apple has a massive desire to protect its uniqueness.


This means that the company is very attracted to the ARM model, which provides the control and protection it so desires. Add the inherent advantage of ARM in terms of battery life and you get the reasons behind Apple's high affinity for ARM. In short, Apple likes very light products with great battery life that are well-differentiated and very hard to copy. ARM appears to give it more of that than Intel historically could, despite Intel's ability to build a relatively consistent product.


Path 1: Negotiate an Apple Deal


To pull Apple back from ARM, Intel would have to provide not only significant concessions in terms of price, because Apple would want ARM-like pricing, but also provide concessions in terms of control. This would be similar to what was done with Itanium, but it would involve granting the vendor far more control over the result than HP was granted in Itanium. The result, which was rumored earlier this week, would be more owned by Apple than Intel and Apple would expect Intel to keep the part that was uniquely Apple's away from Apple competitors. This would be problematic because it would likely present a number of cases where joint work could be considered the property of one or the other with disputed ownership. However, on the positive side, Intel has proven to be vastly better at keeping a secret and unlike Samsung, Apple's current partner, doesn't currently represent a competitor to Apple. Currently Apple is suing Samsung.


Intel's latest 3D or tri-gate part does appear to be competitive and would likely have performance advantages over ARM in tablet and laptop form factors, and tablets are rapidly becoming Apple's most profitable product. In addition, Intel's R&D budget is second to none in this space and given Intel's scale and power, the risk of it working against Apple alone could outweigh many of the ARM benefits.


But this deal would clearly make Intel a subordinate to Apple and reduce Intel's profits substantially. Intel would survive, but would be weakened operationally and financially, making the terms Apple would likely demand very hard to agree to. In other words, the cost of this deal would likely be beyond what current management is willing to pay.


Path 2: Move Aggressively Against Apple


The big risk to Intel from Apple going to ARM goes beyond Apple's business because, currently, Apple is seen as the leader in the consumer technology market. By "leader" I don't mean market share leader, though it clearly is that as well in at least two segments. I mean leader in the more traditional sense in that most of the other vendors appear to follow Apple's direction and have done so with iPhone and iPad clones of late. Where Apple goes right now the rest of the industry is likely to follow and if Intel can't hold Apple, it will have to move against the company in a way that would prevent other firms from following Apple's lead and ideally cripple Apple so that Intel's sales volume can be protected.


Intel has one of the strongest patent portfolios in the segment and, historically, has been very successful at using litigation as an offensive weapon. Unfortunately, Apple recruited one of Intel's last head attorneys and, currently, is more aggressive in this space than Intel is. In short, Apple is using Intel's play book and may be better at using it than Intel at the moment.


Intel, in the 90s under Dennis Carter, created a massive amount of focus on what was inside PCs and on Intel processors to a point where people called them out by name. This, too, is something Intel could do but it hasn't executed at this level in years. Even in the 90s, when Apple was making fun of Intel in ads (this is one of my favorites), Intel seemed reticent to take the battle back to Apple. And Apple, in marketing, not only doesn't have much restraint, it typically fields budgets that dwarf its competitors. This is a market that moves on perception and in a head-to-head fight, Apple would likely be better at creating an impression that Intel's technology was out of step than Intel would be able to do against Apple.


In short, to take Apple on successfully and remove it as the unofficial market leader, Intel would have to perform at levels, in at least two critical areas, that exceed what it has ever done, but Apple has equal or better skills and funding. This makes this path unpalatable as well, and while it gives Intel more control, it doesn't assure the firm's survival.


Wrapping Up


Apple's move to ARM could strike a blow against Intel and all of x86 that could eventually become terminal and it represents the greatest threat the x86 vendors have faced since the beginning of the PC. The choices that Intel has are ugly, but Intel can't afford to stand down against this threat because its own survival is on the line. Apple is likely to move to a common architecture and where Apple moves, the market will follow. Intel has to either stop the move or stop Apple's ability to pull the rest of the market. If it fails to do either, it risks losing its franchise.


By the way, conversely, if Intel were to switch Apple from ARM, it would represent a near-equal threat to ARM and when you put companies' survivals at risk, really interesting things happen. And to be sure, things are going to get interesting.

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