On Tuesday, Google's (NASDAQ: GOOG) Motorola unit launched the RAZR i, which made news for being powered by an Intel (NASDAQ: INTC) processor rather than the ARM Holdings (NASDAQ: ARMH)-based designs upon which most mobile devices run.
If you're new to the mobile-processor world, things pretty much work like this: Semiconductor companies, including Qualcomm (NASDAQ: QCOM), Samsung, Texas Instruments (NASDAQ: TXN), and NVIDIA (NASDAQ: NVDA), produce processors based upon design technologies licensed from ARM, and sell those to the gadget makers.
Virtually ever smartphone of note, like Apple's (NASDAQ: AAPL) new iPhone 5 and Samsung's Galaxy S III, runs on an ARM-based design.
Though there aren't any in-depth reviews of the RAZR i, news reports indicate that it is a pretty solid performer from a technical perspective.
So is Intel getting in with Motorola a big deal?
Intel Needs the Mobile Market
Before getting into all that, let's quickly examine why Intel needs the mobile market.
This is pretty simple -- it's all about growth. In the second quarter of this year, global PC industry unit shipments fell by 0.1%, according to IDC.
On the other hand, smartphone sales were up 42.1%, while tablet sales rose 66.2%.
Now let's think about what cozying up to Motorola/Google could mean for Intel.
Well, right off the bat, it's important to note that Motorola's global smartphone market share is tiny. It doesn't even make the top five. IDC puts China's ZTE in the number-five slot with 5.2% market share. So Motorola is below that, making it at most, less than a sixth the size of market leader Samsung, which has 32.6% market share.
So it's obvious that partnering with Motorola does not move the needle for now.
If the RAZR i had a bigger geographic release slate (it is not coming to the key US market) and offered some obvious advantage over the S III, then maybe we could jump up and down. But for now, there's just not much to get excited about.
In the future, assuming Intel and Google collaborate more closely on optimizing hardware/software combinations, Intel could gain a performance advantage over ARM-based designs from the likes of Qualcomm and NVIDIA. I recommend watching this issue closely, as it could make ARM a great short in the future.
But let's step back to the industry for a moment. While the smartphone market grew by 42% in Q2, some eighth grade math indicates that things are not all joyous.
Let's look at the two big smartphone players, Apple and Samsung, which combined have a 50% and rising share of the global smartphone market.
In Q2, their sales grew by a whopping 96% vs. 12% for the rest of the market, which includes declining powers like Nokia (NYSE: NOK), Research In Motion (NASDAQ: RIMM), HTC, and of course, Motorola itself.
And keep in mind, it was a slow quarter for Apple as consumers slowed iPhone purchases ahead of an anticipated iPhone 5 release in Q3.
Based upon the amazing initial reaction to the iPhone 5 and Samsung's ongoing momentum with the Galaxy line, the Apple/Samsung duopoly is getting stronger, not weaker.
This is a huge problem for Intel because this half of the market -- the growing half -- is off-limits. (See: Samsung and Apple Are Set to Continue Their Domination of the Global Smartphone Market.)
Many of Samsung's key mobile products like the aforementioned Galaxy S III, and the Galaxy Note II, run on Samsung's own Exynos processors. (Note:Some S III models run on Qualcomm Snapdragon processors.)
And Apple's iPhone and iPads run on chips it designs itself, which are then manufactured by Samsung.
We know that Samsung is going to use its own chips when it can in order to avoid handing profits to Intel.
As for Apple, it seems pretty darn good at squeezing amazing performance out of its own designs. AnandTech reported that the iPhone 5 completely whooped the competition on the SunSpider Web-browsing performance checkmark.
Now let's look at excerpts from iPhone 5 reviews.
TechCrunch's MG Siegler had this to say:
"Booting the iPhone 5 routinely took about 30 seconds less than the iPhone 4S. Loading heavier applications (like Path, which caches a lot of data), was about twice as fast. Every single game I tried was noticeably faster when compared side-by-side with the iPhone 4S. Larger games like GTA 3 and Infinity Blade both started significantly faster. And these games are not yet optimzed for the A6.
"Web pages also loaded faster, though in some cases, this was much more about the LTE aspect, no doubt. Saving a heavily-filtered photo within Camera+ took 20 seconds less time on the iPhone 5 versus the iPhone 4S. That was one of the biggest differences I timed.
"Even loading the Settings app was a lot faster with the 5."
Here's Engadget's Tim Stevens' take:
"Two times faster? Twice the graphics performance? Better battery life? Actually, yes. The iPhone 5 over-delivers on all those promises. Running the Geekbench test suite on the iPhone 4S gave us an average score of 634. The iPhone 5 netted an average of 1,628. That's more than twice as fast and, while you won't necessarily see such huge increases in day-to-day usage, apps do load noticeably quicker, HDR images are processed in half the time and tasks like video rendering in iMovie are equally expedient.
"SunSpider scores average at 924ms, which is more than twice as fast as the 2,200ms the iPhone 4S manages and still quite a bit quicker than the 1,400ms scored by the Galaxy S III and the 1,700ms managed by the HTC One X. More important than numbers, web pages load very quickly, snapping into view as fast as your data plan can shovel the bits into Safari and, once there, smoothly reacting to your gestures.
"Naturally, we'd be telling just half the story if we only talked performance. There's an important question that's left: What kind of battery life can you expect? Power is nothing without longevity and, shockingly, the iPhone 5 copes amazingly well. In a day of heavy usage with LTE, GPS, and WiFi all enabled, we managed 14 hours and 18 minutes before the phone succumbed to the elements."
Apple also gets great performance and battery life out of its iPad 2.
So to get Apple onboard, Intel has got to come up with something truly better than what it can cook up on its own, and there's no sign of that happening yet.
And don't forget, Apple is an incredibly combative company, and it likely won't take kindly to Intel cozying up to Google.
Now let's look at this issue from another perspective. Let's assume Intel does start getting more design wins. That would be destructive for the ARM-based community, but it's not necessarily a sure path to riches for Intel.
For one, the smartphone market, while growing quickly, is actually slowing in growth. And there is still no tablet market -- only an iPad market.
If you don't believe me on that front, please read these two articles: IDC's 1% Tablet Forecast Increase Masks a Huge Decrease in Expectations for Google Android and Why the Google Android Tablet Market Is Far Weaker Than It Seems.
And secondly, in PCs, Intel's only real rival was AMD (NYSE: AMD), which except for the Opteron-driven glory days in 2004-2005, hasn't been much of a competitor. Heck, AMD didn't get into Dell (NASDAQ: DELL) until 2006!
That's why Intel was able to score gross margins in excess of 60%.
Mobile, however, is a whole other story because it has to compete with Qualcomm, NVIDIA, and the rest of the gang for the slow-growing half of the market. (Remember, it's effectively locked out of the high-growth Samsung and Apple!)
So yeah, this Intel/Motorola thing, like, totally isn't a big deal.