Qualcomm on 'Collision Course' with Intel

Behind the hoopla over the debut of Google's (GOOG) Nexus One is a quiet triumph for Qualcomm. (QCOM) That the San Diego company's chips are powering the smartphone is a sign of its continuing success in the mobile phone market. It's also a sign that Intel should watch its back.

Qualcomm is already the world's largest maker of cell-phone chips. But it's upping its dominance of that market just as Intel is making a foray into mobile phones. Later this year, Intel plans to release a smartphone processor called Moorestown, part of its Atom line of chips.

Even as Intel (INTC) tries to catch up in the mobile phone market, Qualcomm is attacking on other fronts. While Intel has been busy serving traditional PC markets, Qualcomm has begun targeting the many new smaller computers now tempting consumers, including smartbooks and netbooks. Qualcomm's chips are under the hood of new machines from Hewlett-Packard (HPQ) and Lenovo (LNVY). "Intel and Qualcomm are on a collision course," says Flint Pulskamp, an analyst at research firm IDC.

Both companies are looking to regain momentum after revenue declines during the recession. Qualcomm's revenues dropped 7% for the fiscal year ending in September, to $10.4 billion, while Intel's revenues are expected to slide 8% for 2009, to $34.7 billion, according to consensus estimates from Bloomberg.

Intel spokesman Bill Calder says the company sees robust demand for its Atom chips, which are designed for use in scaled-down computers and mobile devices. "We've shipped well in excess of 40 million Atom chips in netbooks and have over 80 design wins from every major [equipment maker]," he says.

Qualcomm's big bet is on Snapdragon, the chip in the Nexus One. The company predicts that the chip eventually will be used in more than 40 devices made by 17 manufacturers. "Over the last two or three years, the partners that we deal with are new," says Steve Mollenkopf, a Qualcomm executive vice-president. "It used to be the phone guys. Now it's consumer electronics and phone guys."

In the first half of the year, Qualcomm plans to introduce faster versions of Snapdragon, almost closing the performance gap with some Intel processors. Analysts think that Apple, which now uses Samsung chips in its iPhone, may also begin using Qualcomm chips in some devices. "The last smartphone holdout, Apple, will embrace [Qualcomm] this year," wrote Brian Modoff of Deutsche Bank in a Jan. 7 report.

Bolstering Qualcomm's assault on the chip market is the growing acceptance of the ARM technology in many of its chips. Created by ARM Holdings (ARMH) in Britain, the technology is used in chips primarily powering cell phones and, more recently, smartbooks, which are a bit smaller than netbooks. The number of smartbooks powered by ARM chips is expected to exceed the number of netbooks using chips from Intel and Advanced Micro Devices (AMD) by 2013, according to IDC. Marvell Technology (MRVL), Nvidia, Freescale Semiconductor, (FJL) and Texas Instruments also use chip technology developed by ARM.

Intel says it's confident that demand for its chips will remain buoyant. "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," says Calder.

Intel, of course, has tremendous resources, including boatloads of cash that it has used in the past to leave rivals like AMD behind. On Jan. 4, the company unveiled its next-generation Atom processor and said it will be used in notebook designs from companies including Asus, Acer, and Dell (DELL). Intel has high hopes for cell-phone chips, too.

It is collaborating on mobile devices with Nokia (NOK), the world's largest maker of cell phones, and in early January showcased Moorestown chips in a phone by South Korea's LG. "Intel has deep pockets," Pulskamp says. "You never underestimate Intel."

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