PC Power in Your Handheld

Intel's new chips could help devices like the iPhone make the most of the Web

When the iPhone (AAPL) appeared last year, fans hailed it as the first handheld product to deliver a full Internet experience. While there was some truth to that claim, the iPhone is just the beginning. Equipped with more advanced semiconductors, handhelds—including the iPhone—may soon equal or surpass PCs as tools for work and play.

Smartphones and other handhelds have always had two big liabilities: cramped screens and limited keyboard capability. Less obvious, but just as troubling, is their general lack of the processing power needed to work well with important software such as Adobe's (ADBE) Flash technology, which powers many Web sites. (The iPhone can't run it at all.)

New chips from Intel (INTC) aim to bring PC-like processing power to handhelds while actually improving the life of the battery. A lot of pieces have to fall into place for this to happen—and there's a risk the results won't come up to expectations. We'll begin to see the possibilities in a few months, when the first new family of chips hits the market. But the big payoff is still a few years out.

Welcome to Moorestown

You might be surprised to discover Intel is leading this charge. In 2006 the company sold its communications-chip unit, which made processors for high-end smartphones. At the time, it was widely assumed Intel was getting out of the business. In fact, it was the beginning of a major strategic move. Intel's real goal was to replace the processors in smartphones—nearly all of which use technology from Britain's ARM Holdings (ARMHY)—with chips based on "Intel Architecture." (That's Intel's phrase for its PC processors, which nearly everyone outside the company refers to as "x86.")

The first of the new x86 chips for mobile devices, due in the second half of this year, won't appear in smartphones. Code-named Silverthorne, they will be used in micro-notebooks or tablet-type computers with 5-in. to 7-in. displays. Intel and Microsoft (MSFT) can't agree on what to call these products. Intel calls Linux-based units, such as the Eee PC from ASUSTek Computer in Taiwan, "mobile Internet devices" (MIDs). If the same basic hardware runs Windows, Microsoft calls the device an Ultra Mobile PC. Current MIDs use low-power versions of Intel's laptop chips. Silverthorne will allow smaller tablets with longer battery life.

Things will get much more interesting when Intel releases a revolutionary system called Moorestown within the next two years. Silverthorne works only as part of a three-chip set, but Moorestown will cram an x86 processor, a graphics adapter, and other key elements of a computer onto one fingernail-size chip. It will consume less than 1% of the electricity drawn by current lower-power laptop chips, and it will be small enough to fit into a phone handset. The iPhone is a likely candidate for Moorestown. So are BlackBerrys (RIMM), Windows Mobile smartphones, and perhaps phones from Nokia (NOK) and Sony Ericsson based on the Symbian operating system.

Beyond the iPhone

Whether or not these products live up to their potential will depend on the quality of the software. Here, Intel's back-to-the-future approach may be a big help. The x86 platform has been around for a quarter-century, and much existing code for Windows, Mac OS, and Linux will run on Moorestown with little or no modification. Two generations of programmers have grown up with the platform and know how to create applications consumers love.

Even if the basic programs work, however, it may be hard to tailor applications and Web sites for much smaller devices. Squashing Windows or desktop Linux onto a 5-in. or 7-in. screen is difficult enough. Imagine getting them to work on a smartphone with a 3-in. display and a thumb keyboard or dialpad.

If developers can pull it off and harness the tremendous processing power of the new x86 chips, today's iPhone may be remembered mainly as a harbinger of much better things.

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