To survive the PC’s decline, Intel just might adopt ARM

Remember how bad sales of chips were during the financial meltdown of 2008? Well, they were a lot worse this year, two years into the supposed recovery from the recession. Indeed, the number of CPUs sold in the last quarter were the worst in a decade, according to Mercury Research, a boutique research shop specializing in the chip industry. Year-over-year sales were down 9.3 percent in the third quarter, compared to an 8.8 percent drop in the last quarter of 2008 as the recession hit hard.

That stark fact goes a long way to explain what Intel and its much weaker rival, Advanced Micro Devices (AMD), are up to these days. Both are hedging their bets. Intel is pushing into mobile, where strong demand for smartphones and tablets has made ARM king; even Microsoft now offers an ARM-based tablet, the Surface RT. It appears Intel is even considering the unthinkable: manufacturing chips based on the ARM architecture.

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AMD, meanwhile, which recently reported an abysmal quarter, this week announced it plans to produce ARM-based chips for servers by 2014. AMD’s results were so bad that its stock tumbled 16 percent last week, and one Wall Street analyst called the company “uninvestable,” which is more or less saying it’s going to die.

That’s probably an exaggeration. AMD is on a run rate to produce 60 million to 80 million x86 CPUs this year, far fewer than Intel, but more than enough volume to keep the company afloat, says Dean McCarron, a principal analyst at Mercury.

Nonetheless, AMD is in desperate trouble, and Intel — which managed to miss the industry’s shift to mobile devices is scrambling. Both are struggling to stay relevant in the waning days of the PC-centric era.

AMD’s bet on ARM for servers ARM has had little presence in the server world; after all, the lack of 64-bit support in its x86 CPUs is a crippling downside for that market. But that’s changing. ARM this week introduced its first 64-bit Cortex-A50 processor design. Having 64-bit support enables a new range of hardware capabilities, including more memory. The new processors also boast virtualization support, error correction, security capabilities, and better floating point performance, says Ian Forsyth, a product manager at ARM.

AMD quickly followed up with its plans to license the core and offer it to customers in 2014. Calling it a “historic day” for the company, AMD CEO Rory Read said he hopes that the new chips will “disrupt the status quo” and “drive the industry to where it needs to go to inspire competition and to enable our customers to do more.”

That doesn’t mean AMD is moving away from x86 — it publicly discounted that possibility — but the adoption of ARM allows the company to offer another option to its customers. With business so slow, broadening its base is critical, says McCarron. After all, there is growing interest in ARM servers as an energy-efficient way to handle large numbers of Web requests such as in search or social networks. Dell and Hewlett-Packard already offer prototype ARM-based servers for testing to customers looking to deploy ARM servers to cut energy bills.

Intel wants to get inside your phone It’s no news that Intel is very late to the mobile processor game. But even Jim Turley, an analyst who is quite bearish on Intel’s prospects in that market, concedes that the chip giant brings potent advantages to the table. “Intel can build a crappy design really well,” he says.

“Crappy” (his word, not mine) aside, Intel’s fabrication foundries (or “fabs”) can build chips at a state-of-the-art 22 nanometers, and Intel is shoring its weak mobile software developer base, says Turley, a principal analyst at Silicon Insider. Intel, he says, is throwing money at developers in hopes they will produce software keyed to Intel mobile designs.

He characterizes the third-generation Medfield chips (aka Atom) chips released this year as “in the ballpark,” and says “the fourth generation will give ARM a run.” But the current generation of Atom CPUs has not gotten much traction in cellphones, and it doesn’t even support LTE, the rapidly growing 4G cellular technology.

During an interview with TechCrunch, Sumeet Syal, Intel’s director of product marketing, said 4G support is in the pipeline, noting Intel will be “shipping some LTE products later this year and ramping into 2013.”

Over the years, anyone who follows the chip world knows that Intel has frequently disparaged the ARM architecture. But recently, that language has softened considerably, says Mercury analyst McCarron. What’s more, he’s noticed a subtle shift in Intel’s positioning. During an analyst call earlier this year, for example, Intel noted that architecture and manufacturing are not necessarily linked.

What does that mean? “I believe that Intel is going to look for a foundry arrangement,” which means it could use its fabs to manufacture ARM chips in competition with traditional foundries like TSMC. To be sure, McCarron readily concedes he’s reading tea leaves on this one, and Intel has not said anything of the sort publicly.

Still, it’s clear that ARM is gaining traction outside of its traditional stronghold in mobile implementations by companies like Samsung (which makes Apple’s A5 and A6 ARM chips), Texas Instruments, and Qualcomm. Given the friction between Samsung and Apple, a shift to Intel by Apple is an intriguing possiblility — even if that means for ARM chips rather than x86 CPUs.

That won’t happen unless Intel can deliver the goods, which it can’t do right now. The alarming decline of the PC market gives Intel a huge incentive to get its act together, and considering the enormous resources and talent in that company, counting it out of mobile is foolish.

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