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One reason technology companies stumble – as Clayton Christiansen observes – is that their products' performance improves beyond what some customers demand. Cheaper, simpler, lower-performance products then become viable. New companies appear with cost structures suited to selling these low-margin products into markets that are – at first – too small to matter to the incumbents. By the time these markets are big, the new entrants are entrenched.
Consider Intel. Its chips have provided more computing speed per customer dollar with each passing year. Personal computer makers have lapped it up. It never got far in mobile phone processors, but why bother? Low cost and low power use are more important to phone makers than Intel's specialty – performance – and phone-chip margins are low. So mobile chips have always used ARM's architecture, not Intel's X86, and are made for phone makers in foundries run by Taiwan Semiconductor and Samsung. But now smartphones have led to tablets, and mobile computing is eating into the PC market.
Intel argues that while it is late to mobile, there is nothing keeping it out now. Until just a few months ago, all the manufacturers were at same phase of chip miniaturisation – 32 nanometres. Driven by heavy investment in the last few years, Intel is now planning to ship 22 nanometre chips in late 2013 and 14 nanometre chips in 2014, several years ahead of rivals. This, Intel argues, should translate to chips with a better combination of performance and power consumption. If the new chips do attract big customers, look out – when Intel grows, its gross margins expand, it generates heaps of cash, it invests more in manufacturing, and market dominance ensues.
Enticing customers away from ARM architecture and established vendor realtionships will require a much superior and competitively priced product. Intel, in other words, must keep investing heavily. The company's manufacturing prowess may win out in time, but investors will need patience as it spends its rivals into submission.