ARM Surges After Microsoft Accord Signals It May Replace Intel in Tablets

ARM Holdings Plc rose the most in almost two years in London trading after announcing a licensing deal with Microsoft Corp. that may give its technology a shot at replacing Intel Corp.’s chips in new Windows tablet computers.

ARM, whose chip designs are already in Apple Inc.’s iPad, will expand the use of its technology in Microsoft devices, the Cambridge, England-based company said today in a statement. ARM shares rose 12 percent to 353.3 pence, the biggest jump since October 2008.

While ARM and Microsoft have worked together since 1997, the new deal lets Microsoft build a customized ARM processor, said Sarah Friar, an analyst at Goldman Sachs Group Inc. in San Francisco. That sets the stage for Microsoft’s computer partners to offer new kinds of tablet devices that may be more capable of rivaling the iPad. Until now, Windows tablets have struggled to find customers, capturing less than 2 percent of the personal- computer market.

Microsoft, based in Redmond, Washington, said the ARM deal will apply to a “broad range” of areas, without disclosing terms of the agreement. Microsoft declined to comment beyond the statement. Tom Beermann, a spokesman for Santa Clara, California-based Intel, declined to comment.

‘Momentum of ARM’

“This announcement speaks to the momentum of ARM and our position in the industry,” Antonio Viana, executive vice president of sales and business development for ARM, said in an e-mail. “This creates a bountiful choice of hardware and software suppliers.”

Apple’s iPad is doing well in part because it turns on instantly and has a long battery life, Friar said. Microsoft can more easily match that with an ARM chip than an Intel one, she said. Its latest PC operating system, Windows 7, doesn’t work with ARM chips -- though its mobile and embedded operating systems do. Microsoft is adapting its embedded version of Windows, currently used in machines like cash registers, to work on tablets.

Apple, based in Cupertino, California, sold 3.27 million iPads last quarter, outselling all other types of tablet computers. The device debuted April 3.

More than 80 percent of the world’s PCs run Microsoft operating systems on Intel processors. Both companies have been unable to parlay that dominance into success in mobile devices.

To remedy that, Intel has produced a scaled-down version of its PC chip called Atom. It is working to get the processor into mobile devices that use Google’s Android software and Intel’s own operating system, called Meego.

Intel shares fell 9 cents to $21.69 at 4 p.m. New York time on the Nasdaq Stock Market. Microsoft declined 3 cents to $25.81.

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Jonathan Browning in London jbrowning9@bloomberg.net

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