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Arm-Based PCs Aren't All Bad News for Intel

Motley Fool - Sun Oct 29, 2023

Up until a few years ago, PCs almost exclusively ran on x86-based chips from Intel(NASDAQ: INTC) or AMD, not Arm-based chips using Arm Holdings' (NASDAQ: ARM) technology. In 2020, Apple officially made the switch from Intel CPUs to its own home-grown Arm-based chips for its Mac computers. It wasn't an easy thing to do. Apple had to come up with an emulation layer, called Rosetta 2, that allows software designed for Intel-based Macs to run on the new Arm-based Macs.

Microsoft has tried multiple times to bring its Windows operating system to Arm-based systems. The first attempt, Windows RT, was a disaster. The OS wasn't compatible with any Windows software designed for standard Windows, but it looked exactly the same as the current version of Windows. This made for a confusing and frustrating experience for those unfortunate enough to have bought a device running Windows RT.

Microsoft is now trying again with Arm versions of Windows 10 and Windows 11. Qualcomm has released a few Arm-based chips which are used in devices running the Arm version of Windows. This time around, Microsoft has included an emulation layer that allows standard Windows apps to run on Arm-based systems. It's not perfect – software drivers for some hardware won't work, and some PC games can't be played at all. But it's a huge step forward compared to Windows RT.

Doubling down on Arm

Qualcomm recently announced Snapdragon X Elite, a new platform for PCs that delivers huge performance gains over previous generations. The company claims that its new chips handily beat competing chips from Intel and use less power in the process. The first PCs featuring the new chips are expected in mid-2024.

Rumors have also been swirling that both Nvidia and AMD plan to jump into the Arm-based PC chip market as well. Nvidia supplied the processor for Microsoft's ill-fated Surface RT device, and it's released server chips using Arm technology. AMD has toyed with Arm-based chips in the past. Both companies are certainly capable of launching solid Arm-based chips that can run Windows.

This presents a problem for Intel. The company dominates the market for PC CPUs, partly because Windows has historically only worked with chips based on its x86 instruction set. In a world where Windows works perfectly fine on Arm-based chips, Intel will almost certainly lose some market share. Arm-based chips tend to be extremely power efficient, making them a good choice for laptops that need extreme battery life.

There's an upside for Intel

While Intel's PC chip business is likely to face increased competition as the ecosystem around Windows for Arm matures, the company's foundry business can benefit. Intel struck a deal with Arm Holdings earlier this year to co-optimize Arm's chip design for Intel's upcoming Intel 18A manufacturing process. Intel expects its Intel 18A process to lead the industry when it crosses the finish line in late 2024, and it integrates innovative technologies including backside power delivery and a new transistor design.

Any chip designer building an Arm-based chip in 2025 and beyond will need to seriously consider using Intel for manufacturing. If Intel does indeed reclaim its manufacturing edge over Taiwan Semiconductor, its manufacturing technology could deliver a competitive advantage to those using it.

While Intel's PC chip business may lose some of its dominance to Arm-based chips, some of them may be rolling off Intel's production lines. There's also no reason why Intel can't design its own Arm-based chips, although there's been no indication from the company that such a move is in the cards.

The coming age of capable Arm-based PCs isn't all bad news for Intel. Through Intel's manufacturing deal with Arm, the company can benefit from Arm's success. Even if Intel loses a considerable share of the PC market, the company's foundry business can thrive as demand for Arm-based PC chips soars.

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.

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