Chips Put Qualcomm, Intel on `Collision Course'

Qualcomm (QCOM) was the chipmaker of choice for some of the highest-profile tech gadgets unveiled the week of the Consumer Electronics Show—in Las Vegas and elsewhere. Not only do Qualcomm chips run the Google (GOOG) Nexus One smartphone introduced in Mountain View, Calif., on Jan. 5, but they're also under the hood of computers shown off at CES by Hewlett-Packard (HPQ). HP and Lenovo are working on smartbooks, scaled-down personal computers, based on Qualcomm's Snapdragon processor. By getting its chips into a broader range of consumer electronics, San Diego-based Qualcomm is poised to compete head-on with Intel (INTC), the world's No. 1 maker of semiconductors for computers. "Intel and Qualcomm are on a collision course," says Flint Pulskamp, an analyst at technology research firm IDC. Nowhere was that more clear than at CES, where for the first time a Qualcomm executive delivered a keynote speech. For years, Qualcomm has devised chips that help cell phones function as minicomputers, Qualcomm Chief Executive Paul Jacobs said in his Jan. 8 address. "Those chips are now going into the consumer electronics devices themselves," Jacobs said a day after Paul Otellini, his counterpart at Intel, touted his own company's foray into chips for mobile phones. In the first half of the year, Intel will start shipping Moorestown, a smartphone processor, Otellini said on Jan. 7. Qualcomm, the world's largest maker of chips for cell phones, expects its Snapdragon processor to be used in more than 40 devices from 17 manufacturers, a sign that the company is bridging the performance gap between chips that run cell phones and those needed for bigger, more demanding machines previously powered by Intel semiconductors. "Over the last two or three years the partners that we deal with are new," says Steve Mollenkopf, a Qualcomm executive vice-president and head of its CDMA unit, in an interview. "It used to be the phone guys. Now it's consumer electronics and phone guys." Qualcomm in Apple iPhone "this year"Google is using the Snapdragon chip in its Nexus One smartphone. In overall performance, Nexus One matches laptops of four years ago, says Andy Rubin, who heads Google's mobile effort. "The Qualcomm Snapdragon chipset represents some of the most advanced chip technology available today," says Erick Tseng, senior product manager at Google. "Its 1Ghz speed is one example of that." Computer maker Apple (AAPL), which uses Samsung chips in its iPhone, may begin using Qualcomm chips before long, say analysts, including Brian Modoff of Deutsche Bank. "The last smartphone holdout, Apple, will embrace [Qualcomm] this year," Modoff wrote in a Jan. 7 note. Apple spokeswoman Natalie Kerris didn't respond to a request for comment and Qualcomm's Pineda declined to comment. In 2009, Qualcomm's share of total global cell-phone semiconductor revenue rose to more than 29%, from 26% in 2008, according to IDC. Modoff expects further share gains for Qualcomm.In the first half of 2010, Qualcomm plans to introduce a faster Snapdragon, with a 1.5 Ghz clock speed, a measure of the pace at which it performs calculations and runs applications. That's slower than Intel's 1.8 Ghz Moorestown, though almost on a par with Intel's Atom for netbooks, whose clock speed of 1.6 Ghz makes it capable of handling 1.6 billion cycles per second. "Performance improvement is an increasing priority for Qualcomm," Luis Pineda, a marketing executive at Qualcomm's chip division, says in an interview. Other makers of cell-phone chips are trying to encroach on Intel's turf, too. Like Qualcomm, Marvell Technology (MRVL), Freescale Semiconductor, and Texas Instruments (TXN) also use chip technology developed by ARM Holdings of the U.K. All are pushing the new breed of computers known as smartbooks, which are comparable in design and features to Intel-based netbooks. By 2013, the number of smartbooks powered by ARM-based chips may rise to 69 million, exceeding for the first time the number of netbooks using chips from Intel and Advanced Micro Devices (AMD), which by then may rise to 54 million, according to IDC. Intel's Moorestown for cell phonesIntel says it's encouraged by manufacturer demand for its netbook chips. "We've heard a lot about ARM-based netbooks for more than a year, but today, it's very limited in what you can buy in the market," Intel spokesman Bill Calder says. "Atom is the processor of choice." On Jan. 4, Intel unveiled its next-generation Atom and said the chip will be used in more than 80 notebook designs from companies including Asus, Acer, and Dell (DELL). Intel is making inroads in cell-phone chips, too. Intel has said it's collaborating on mobile devices with Nokia (NOK), the world's largest maker of cell phones, and at CES, Intel showcased Moorestown in an LG phone. "ARM is the incumbent," Calder says. "We think we have a strong value proposition [with Moorestown]." Qualcomm and Intel are also likely to compete on price and software for devices, analysts say. On Jan. 7, Qualcomm said it's working with contract manufacturer Globalfoundries on advanced technology that would let it make smaller chips at less expense. "Qualcomm is becoming quite aggressive," Pulskamp says. "They have the stature and the technology to best compete in this game." To beef up its ability to compete in software, Intel last year acquired WindRiver, which helps device makers design software for non-PC machines. On Jan. 7, Intel announced an early test version of its Intel AppUp store, where netbook users can download such applications as games and social networking tools. The moves indicate that Intel is serious about getting into mobile devices and heading off any would-be threat from Qualcomm. "Intel has deep pockets," Pulskamp says. "You never underestimate Intel." For its part, Qualcomm plans to show that it has done anything but undervalue its rival. With reporting by Ian King in Las Vegas

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