Apple didn't take kindly to disparaging remarks made publicly last fall by a pair of Intel (INTC) executives about the iPhone and its chips, designed by ARM Holdings. The computer maker was so incensed, in fact, that Chief Executive Steve Jobs called Intel's Chief Executive Paul Otellini to complain, people familiar with the matter say.
The jabs stopped and Intel publicly backed off its comments. But the episode is a reminder of Intel's larger ambitions for handheld computers and mobile phones, and how those plans could put it at loggerheads with some longtime partners. Intel, the world's largest chipmaker, is readying new chips and a version of the open-source Linux operating system specially designed to run a new class of 'mobile Internet devices,' or MIDs. Consumers could use the devices to play high-definition video, make Internet-powered phone calls, or download directions and local business listings on the go. The effort could presage an attempt by Intel to land its products in pocket-size smartphones, a category where Apple (AAPL) has sold 17.4 million units.
At the same time, as Intel tries to tap into the burgeoning market for smartphone and handheld chips, estimated by iSuppli to be worth $3 billion this year, its mobile Internet devices could also compete with the iPhone for buyers. Intel's Linux effort also poses a threat to longtime collaborator Microsoft (MSFT), which is trying to land its Windows Mobile operating system in more handheld devices. Intel is stocking up on Linux talent, partly to aid the handheld effort. 'Intel is going to be entering solidly into Apple's space,' says Rob Enderle, president and principal analyst at the Enderle Group. 'It's going to make for an interesting next decade.' Apple declined to comment.
Partnering with device makers
The Linux software, called Moblin 2 and expected to be in software developers' hands by March, will run new portable computers Intel calls 'MIDs,' set to arrive around midyear, Intel told BusinessWeek. Companies including Lenovo (LNVGY), Hitachi, and BenQ already make MIDs using previous designs, and Intel plans to announce new partners in February at a mobile technology conference in Barcelona, Spain.
By providing a free version of Linux for mobile devices that run its chips, Intel is hoping to jump-start a new breed of handheld computers, a category it's been largely shut out of. Most smartphones"”including the iPhone and Palm's (PALM) new Pre, which garnered accolades at its Jan. 8 unveiling in Las Vegas"”run chips designed by ARM and licensed by manufacturers including Qualcomm (QCOM), Samsung, and Texas Instruments (TXN). On Jan. 19, Qualcomm paid $65 million to Advanced Micro Devices (AMD) for technology and engineers to enhance its smartphone chips' multimedia capabilities. 'Intel would like to promote the MID category at the expense of high-end smartphones,' says Gordon Haff, an analyst at market researcher Illuminata.
The fight over which companies will supply the chips and software for smaller and more powerful handheld computers such as MIDs comes as the PC recedes from the center of tech industry action. Worldwide PC sales are expected to drop more than 5% this year. Waning demand has slashed Intel's fourth-quarter profit by 90%, and whacked Microsoft's second-quarter earnings as well.
Mobile computing's category lines blur
Meantime, handhelds are taking on many of the functions of full-fledged computers. Market researcher Gartner (IT) forecasts the worldwide smartphone market will grow 32% in 2009, to 190.8 million units. 'The line between what's a smartphone, what's a mobile Internet device, what's an ultra mobile PC"”it's all going to disappear,' Dell (DELL) CEO Michael Dell said in an interview last year.