
ARM Disrupting Intel with its Business Model - mjfern
http://www.fernstrategy.com/2011/03/10/arm-disrupting-intel-with-its-business-model/
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kkowalczyk
This seems to me a case of mis-attribution of success.

The article says "Intel’s dominance in the global microprocessor market is
being threatened by the rapid rise of ARM Holdings.".

ARM Holdings might be "rising rapidly" today but it was founded in 1990.
They've been doing ARM processors with the exact same business model for the
past 20 years.

The reason they're successful today is simply because they have superior
technology in an area (power consumption) that is important for a quickly
growing mobile markets.

Arguably ARM was a better architecture than x86 from the beginning but it
didn't matter: after Windows/x86 got majority of the market share, the
switching cost for a different processor were too big and Intel was doing a
good job driving x86 in ways that mattered for that market (performance).

Only when a completely new market emerged (for PDAs, iPods and cell-phones)
that was free from requirement to support legacy code, ARM found it's place
because it delivered one thing much better than Intel with their existing line
of x86 processors: power consumption was dramatically lower. It also happens
that this was a core requirement for mobile devices.

We can't go back in time and see how ARM Holdings would hold up if they were
doing their own manufacturing as well, but in my opinion the business model
has a minor impact on their current success.

The most important thing is that they have a product that is superior to
competition.

~~~
mjfern
In the article, I discuss the importance of ARM's technological advantage over
Intel in the area of energy efficiency, especially for portable devices (see
paragraph 2). My key point is that even if Intel can match (or beat) ARM from
a technical standpoint (e.g., clock speed and energy efficiency), the company
may still get disrupted due to ARM's unique business model. ARM's business
model provides a benefit for OEM customers in the areas of cost,
customization, and supplier-customer relations.

I recognize that it's not just ARM's business model that poses a threat; the
threat stems from a combination of ARM's business model, its current technical
advantage (in energy efficiency), and trends in computing, with a shift away
from PCs (and the Wintel standard) to connected devices running Android and
iOS. To your point, the shift away from the Wintel standard has significantly
reduced the barriers (i.e., backward compatibility) to the adoption of the ARM
architecture for OEMs.

(Note, ARM's recent "rapid rise" in the processor market is illustrated, in
part, by the company's stock market performance, with a market cap that has
grown about 5x over the last two years.)

~~~
tygorius
I wonder if "disruptive" is really the right term here. As you point out,
Intel dominates in market applications such as servers, desktop PCs, and
netbooks -- and it's not at all clear to me that Intel's business there is
threatened in any way by ARM chips or business model.

Where ARM has succeeded is in new markets (phones and tablets) that both rely
on low-power operation and are relatively immune to legacy code or chip
architecture issues. As far as I'm aware, Intel's never been successful in
those spaces and even took the strategic step of dumping its ARM (Xscale)
operation.

My point being, if Intel's secure in established markets and uncompetitive in
newer markets, that's not a technological disruption in the classic
Christenson sense. It's merely the consequence of earlier strategic decisions
to not go after newer low-power application markets. Where would Intel be, for
example, if in the early days they had dumped the microprocessor business to
focus on their core business of memory chips?

edit: typo

~~~
mjfern
The risk for Intel (and x86) is that ARM-based processors appear to be moving
up-market into servers and datacenters, a sign of technology disruption.

\- Calxeda (formerly Smooth-stone) is developing servers based on ARM-based
technology. (<http://www.calxeda.com/>)

\- In November 2010 it was revealed that Dell is prototyping ARM-based
Cortex-A9 servers.

\- In January 2011, Nvidia announced Project Denver, with "plans to build
high-performance ARM based CPU cores, designed to support future products
ranging from personal computers and servers to workstations and
supercomputers."

\- Microsoft recently announced that Windows 8 will support both x86 and ARM
architectures.

\- In a February 2011 analysts presentation, Warren East, CEO of ARM Holdings,
suggested that ARM is seeking to expand into the PC and server market:
"There's a blurring between computers and smartphones, and ARM's success in
smartphones is helping us get into computing...Cortex A processors support
multiprocessing and that delivers the high level of performance required by
server applications."
([http://www.theregister.co.uk/2011/02/01/arm_holdings_q4_2010...](http://www.theregister.co.uk/2011/02/01/arm_holdings_q4_2010_numbers/)).

In October 2010, I posted a related article, "The End of x86?," that examines
the potential disruption of x86 by ARM using Christensen's disruptive
technology framework: <http://www.fernstrategy.com/2010/10/21/the-end-of-x86/>

~~~
tygorius
Hmm... Calxeda and Dell are at the prototype stage and haven't shipped yet. In
the Register article, ARM admits they have "0%" market share in PCs and
servers. So the data for ARM in those markets essentially boils down to "boy,
those markets would sure be profitable" and "just wait until 2020!"

There's a lot more to the server market than power savings. The Register
article also notes: "It is a pity that ARM is not moving the quad-core, 40-bit
Cortex-A15 to market faster and talking about either 64-bit kickers or how it
will manage virtualized 32-bit applications on multi-core ARM servers such
that no one cares that they are 32-bit applications."

As to Microsoft, I can remember Windows NT shipping for DEC Alpha, MIPS, and
Power PC. Just because Windows 8 will work on ARM-based netbooks doesn't
justify extrapolation to the PC and server markets. And even if Microsoft did
(theoretically) support ARM in those markets, well, they actually shipped NT
for Alpha, MIPS, and Power PC, and where are those architectures now?

My read of history is that if ARM ever became a real threat to Intel in PCs
and servers, the company would simply lower profit margins in those markets to
starve the competition. But hey, maybe this time things really will be
different.

------
nl
This analysis is pretty superficial.

Yes, ARM is ahead on low-power devices, and yes Intel can (and probably will)
catch up, especially as ARM moves towards more powerful processors (dual core,
etc). This article did acknowledge that at least, which most seem to miss.

It does go into a few of the advantages of the licencing model ("this model
enables OEMs to customize integrated chips that conform to different form
factors", etc), but it didn't discuss the disadvantages this model brings.

For example, Intel has a pretty significant lead in building chip foundries.
AMD hasn't been able to compete successfully at the high end because of that,
and the ARM licencing model doesn't generate the profits needed to go head-to-
head with Intel in foundry and high end research.

This is a real problem for ARM. To quote Ars:

 _First, there's simply no way that any ARM CPU vendor, NVIDIA included, will
even approach Intel's desktop and server x86 parts in terms of raw performance
any time in the next five years, and probably not in this decade. Intel will
retain its process leadership, and Xeon will retain the CPU performance crown.
Per-thread performance is a very, very hard problem to solve, and Intel is the
hands-down leader here. The ARM enthusiasm on this front among pundits and
analysts is way overblown—you don't just sprinkle magic out-of-order pixie
dust on a mobile phone CPU core and turn it into a Core i3, i5, or Xeon
competitor. People who expect to see a classic processor performance shoot-out
in which some multicore ARM chip spanks a Xeon are going to be disappointed
for the foreseeable future.

It's also the case that as ARM moves up the performance ladder, it will
necessarily start to drop in terms of power efficiency. Again, there is no
magic pixie dust here, and the impact of the ISA alone on power consumption in
processors that draw many tens of watts is negligible. A multicore ARM chip
and a multicore Xeon chip that give similar performance on compute-intensive
workloads will have similar power profiles; to believe otherwise is to believe
in magical little ARM performance elves._

[http://arstechnica.com/business/news/2011/02/nvidia-30-and-t...](http://arstechnica.com/business/news/2011/02/nvidia-30-and-
the-riscification-of-x86.ars) (read this whole article - it's very good).

That leaves the low-to-midrange to ARM. As has already been noted, Intel is
quickly becoming power-competitive there, and is very, very good at producing
chips cheaply.

I'm not saying ARM isn't an important competitor, but I am saying the whole
"ARM will eat Intel from below" narrative is naive. It's going to be a fierce
competition, and it's not at all clear that ARM's business model really is an
advantage at all.

Meanwhile, Intel can hedge it's bets and play at the licencing game, too. For
example, they have experimented with licencing Atom manufacture to TSMC (the
same ARM foundry mentioned in the article):
[http://www.pcworld.com/article/160496/intel_opens_up_the_ato...](http://www.pcworld.com/article/160496/intel_opens_up_the_atom_processor_to_tsmc.html)

------
zwieback
Might also be interesting to add that Intel had a very nice ARM platform
(XScale) which was sold to Marvell. They had the full ARM license deal, not
just the ability to put ARM cores on a micro like everyone else in the world.

So I would argue that Intel has a pretty good understanding of ARM strengths
and their business model, they just think that they can go the distance and
come up with something competitive. Even given the fantastic growth of ARM,
Intel is about 100 times bigger so it's probably more useful to compare Intel
to the processor manufacturers that use ARMs in mobile platforms.

~~~
Andys
There's a danger that Intel will continue to chase high profit sectors and
stagnate technically due to lack of competition there. The gap between what is
technically achievable and what we get today in x86 processors has been
widening for years and is not slowing down.

~~~
krakensden
That's a general problem with large companies, they often can't afford to
pivot and succeed in lower profit sectors, even if its clear that the high
profit sectors are going to stagnate and shrink over time.

~~~
zwieback
Exactly. What they typically do is acquire someone who can. In Intel's case
I'd doubt they would acquire ARM because they would probably have to continue
to license the technology to everyone else (I don't really know what I'm
talking about here). However, they could acquire someone who has the "low
power CPU technology" they would need to compete. If you think about who that
someone could be nobody really comes to mind. Maybe they could buy back
Marvell. Qualcomm, Samsung, TI are clearly out of the question.

~~~
krakensden
> However, they could acquire someone who has the "low power CPU technology"

The other possibility is that Atom will slowly become more competitive.
Weirdly, I think the most important thing for that would be a solid Android-
on-x86 story, so device manufacturers don't have to do so much custom GUI
work.

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rbanffy
I think the key point here is that Intel is one company while ARM is many. All
feed each other improving competing designs, proving technologies and
exploring their markets in ways a single company could not do with volumes
that dwarf (and have been consistently dwarfing) the PC market.

As humongous as it is, Intel simply can't compete against the combined power
of ARM plus its myriad of licensees. Eventually, from the diversity of the ARM
ecosystem would emerge a competitor for Intel's (and AMD's) x86 lineup. Once
set in motion, it was a matter of time.

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SriniK
Nice article. To add, I think the problem is with intel's strategy and their
technology than the cost.

Intel expected notebooks to be more dominant and their roadmap showed. As soon
as Kindle started taking off with ebooks, Apple realized they could do better
than Kindle with iPad.

By selling xscale unit to Marvell, Intel did a mistake.

Total OEM cost for netbook was in the range of 10-20 vs just the processor in
ipad is claimed to be $30 (after everyone taking their cut. Everyone includes
ARM-Samsung-Packaging compnies)

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pjscott
This is just a small point, but the article says that Intel will "close the
energy efficiency gap with ARM" in 2011-2012 with the release of the latest
Atom processor. What it overlooks is the fact that it won't be competing with
_current_ ARM chips. Nvidia and Samsung and TI aren't going to just sit there
waiting for Intel to catch up; they'll be improving their designs and moving
to smaller fabrication, just like Intel is doing.

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Andys
Real disruption won't come until ARM create (edit: design) a real general
purpose, mainstream 64-bit processor.

~~~
orijing
ARM holdings licenses. I think Nvidia may do what you're talking about.

~~~
ars
Isn't that what he mean? ARM would design, and license, a general purpose
processor.

~~~
orijing
Perhaps. He's changed his post since I replied.

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VladRussian
it is absolutely not clear that separation of "general architecture designer",
"specific chip design customizer" and "foundry" is a winning business model.
In my view Intel has been successful because they've owned all three pieces
and thus have ripped the benefits from, sorry for the profanity, the synergy.

Intel don't have competitive product in that specific market that ARM is so
successful. Once/if it gets it, will see then. I'm not saying that it will win
- it can go in any direction, but we'll be really able to compare Apples to
Apples then.

