A technological (r)evolution from fixed to mobile devices
Sales are swiftly moving from fixed to mobile devices
For years, several new products have been introduced in the Personal Computer industry, then dramatically changing this market. It started with the introduction of netbooks that were lighter and less powerful than desktop computers, enabling users to read their emails and browse the Internet on the go. More recently, tablets and smartphones were released and revolutionized respectively the computer and mobile phone industries. Considering development of the tablets market - led by Apple’s iPad – and its strong growth rate, tablets devices might be a quarter of the personal computer market in two or three years from now.
Forecast, Share of US consumer PC sales by form factor (1)
The smartphone market is also growing fast all around the world. So that in 2013 more than 50% of mobile phones sold would be smartphones (2). And with a growth rate of roughly 25% in the next five years, this trend will sustain expansion of this industry (3) even if the mobile phone market is roughly flat overall.
Evolution of smartphone market share in mobile phone shipments
All devices that were introduced those last years share the same mobility property, which is the major innovation this market has known in a while. In developed countries, where computer penetration rate is high, those new devices have a strong growth. And, as they are lighter, smaller and then cheaper than computers those devices are also spreading swiftly in emerging markets. At the same time, the computer industry is slowing and it even dropped by roughly 4% in 2011 (4). This explains why mobile devices sales overtook computers for the first time in 2011 (5). And it might continue as emerging markets customers mostly use mobile devices instead of fixed computers: it is a great opportunity to sustain this trend.
In 2011, mobile devices sales overtook computers sales
From high speed to low power consumption
In the computer industry, processor’s speed has been one of the most important criterions to measure performance of a device. And processors manufacturers have competed for years to develop the fastest processor. In this race, Intel managed to become the major manufacturer and almost the only one on the market. To keep ahead Intel frequently released new processors that were ever faster and developed a cheap range of processors to compete with low-cost entrants. But the key success factor was calculation speed. Moore - one of Intel’s founders – even introduced a law theorizing that processors were doubling their performance every 18 months.
Evolution of processor speed following the Moore’s law (6)
On the other hand, in the mobile phone industry the key issue is power. Actually as devices have to be as thin, light and small as possible, space is limited. In the same time, devices have to be self-powered so that users don’t have to recharge batteries too often. Then, in this environment, power-consumption is very important to save as much power as possible. And all electronic components embedded are supposed to fit specific configuration. For instance a desktop processor's power-consumption is 65-105W whereas a mobile device processor's is ten times smaller, between 0.65W and 13W (7).
New market, new competitors
As the market was moving to mobile devices, Intel early tried to introduce high-speed processors to keep ahead even in this developing market. But their high-speed and high power-consumption processors were not relevant in this market. By trying to duplicate its success achieved in computer processors, Intel has never managed to get a leading position in the mobile industry. In the same time new companies dedicated to this specific market managed to win strong market shares.
The mobile market, including smartphone and tablets, is now led by new companies that were not especially working in the computer industry. Except Apple which is also a computer manufacturer, Samsung, Nokia, RIM or HTC has never worked in the computer industry. And actually most of them are designing their own chipsets. For instance Apple designs its own A5 processor - manufactured by Samsung - that is embedded in its iPhone 4S and new iPad. Samsung also developed its own processor family Exynos that is powering its smartphones from Galaxy Player to Galaxy S III. And those two companies have now more than 50% of market shares, with respectively 31% (for Samsung) and 24% (for Apple) of smartphones shipped in Q1 2012 (8).
A few other competitors in this market are using processors that are manufactured by dedicated company. For instance RIM, LG or HTC are embedding Qualcomm’s processors on their devices. This manufacturer is only working in the mobile industry and has been the leader on this market for few years. Even if its market share decreased, in Q1 2012 it has roughly 44% of the market (9).
All these companies - from smartphone manufacturers that design their own processors, to those that embed Qualcomm’s processors - are most of the time based on ARM architecture. Actually ARM developed a power-efficient chipset that is now used by almost all processor manufacturers. Its business model is to license its architecture to the mobile industry that develops processors based on ARM’s applications processors. Founded in 1985 (10), ARM soared when smartphones were introduced on the mobile device market so that more than half of its current contracts were signed after 2008 (11).
Then the market is based on a major firm that started directly in the mobile industry and is now providing almost 90% of the application processors market (12). And most of processors manufacturers are mobile-focused. That means Intel is facing a tough competition as the computer and mobile markets are merging. Especially considering Apple and Samsung are going to lead the smartphones market in the coming years.
Intel tries to come-back in the race
To take part of the development of mobile devices that cannibalize computers, Intel worked on thinner and low power-consumption processors that were first embedded in the new range of ultrabook devices. These thinner and longer-powered laptop-like devices are supposed to compete with tablets (13) and make customers replace their old computers. They provide more powerful functions in a small computer. And powered by Intel’s processors they are supposed to make Intel enter the mobile devices market, that is expanding quickly and is supposed to be more than 40% of laptop market in 2015 (14).
At the same time, Intel developed processors for smartphones. These chipsets from the Atom family are consuming less power. And Orange - a European mobile network operator - released the first device powered by them in Q2 2012 (15). But for the time being few mobile devices are based on Intel’s processors, and because of the market organization this trend might be sustainable.
The last Intel’s move is an investment in its supplier ASML (16) that provides machines to manufacture processors. With this partnership, Intel wants to accelerate its development of new processors focused on power-consumption, as it is the key in the mobile devices industry.
If Intel’s current position is not final, this company has obviously missed the shift to mobile. This industry is now organized around few processors manufacturers, and Intel might have to work hard to try to increase its market share. After being the long-time leader in the computer industry it has to innovate and change its state of mind, moving from high speed to low power-consumption processors. The solution to enter a new disruptive market is often either to develop an ad-hoc company dedicated to this industry or to buy a firm already working on it. Considering the tremendous amount of cash Intel owns, the second solution might be the most relevant for Intel to enhance its position on the mobile processors market.
And it’s a key point as the computer industry is also moving fast to Cloud-computing (17). This new trend enables devices to be less powerful as all the softwares are run in huge data-centers which the devices are connected to through high-speed networks. Then even computers might not require Intel’s high-speed processors anymore. Those two strong trends are threatening Intel's business. And for the time being it tries to take care of its financial results by strengthening its position in servers’ processors, that is a high-margin market. But even mobile processors manufacturers are now providing chipsets dedicated to data-center, as the power-consumption is a key issue these huge warehouses full of computers have to deal with (18). Don't forget that the innovator's dilemma claims that new entrants always moved from low-end of the market to high-end of the market...
(1)Le Journal de la mobilité
(7)Comparison between Intel Core 2 Quad for Desktop and Intel Atom processors, Intel.com
(11)Roadshow Q2 2012, Slide 4, ARM.Com
(12)Roadshow Q2 2012, Slide 8, ARM.com