Why Intel needs smartphones more than they need Intel

The launch of the Orange San Diego, the first handset using an Intel Atom processor, marks a big milestone for the chipmaker: it's finally in the smartphone market. But does the market need Intel at all?

The launch of the Orange San Diego is a milestone for Intel. Image credit: Ben Woods/ZDNet

As ARM-designed and Qualcomm-manufactured chips have carved out a big lead in mobile, Intel has a fight on its hands to make its presence felt — much like Microsoft on the operating system side. Intel has its size and resources on its side, and the market isn't yet that old, so people shouldn't be too quick to write it off. Even so, the chipmaker will be looking to make up for lost time.

On a visit to London recently, Intel's mobile head Mike Bell was quick to emphasise how much effort the company is putting into its mobile push.

"The fact that we're building the cores, the chip and the process technology [means] we can set up a feedback loop to improve all of them, based upon knowing what's on the next step of the pipeline," he said at a press briefing.

Intel's scale and the reach of its other divisions gives Bell's smartphone unit a boost; for example, it can reuse code optimisations for Atom done by the desktop team.

"Software is an important part of the ecosystem and an important part of the developmental step," he said. "We have more software resources than most companies working on just mobile software. So we have every piece you need to produce a really great end-user solution."

Tough job

Even so, the smartphone team has got a tough job on its hands — but it's one Intel has to tackle, according to Carolina Milanesi, mobile analyst at Gartner.

This is certainly an attack strategy for Intel. The smartphone market is so large now that they need a piece of the pie.

– Carolina Milanesi, Gartner

"This is certainly an attack strategy for Intel. The smartphone market is so large now that they need a piece of the pie," she said.

But will consumers care whether their handset runs on an Intel chip? Bell conceded that aside from the tech-savvy, most people probably don't know which chip is inside their phone. It's likely, given the lack of advertising on this, that most probably don't care — making Intel's job even harder.

Bell hopes that customers will enjoy using an Intel-based handset so much that they will turn it over and see the Intel logo on the back. The risk is, of course, that it's only people having problems with laggy performance who bother to check out the processor.

Windows Phone?

It's a bit of a surprise that Intel is keeping to a strictly Android line for its smartphone strategy. Why not throw its weight behind Microsoft and its Windows Phone strategy? Microsoft would get another backer for its mobile OS, and Intel already has a strong relationship with the software giant on PCs.

Intel could be waiting to see how successful Windows Phone 8 is in pulling in fans, once it arrives. Right now, Microsoft's mobile OS accounts for only four percent of smartphone shipments, according to IDC's most recent Western European Mobile Phone report, and tracks at just around two percent globally.

And anyway, phone buyers want Android, according to Bell — an opinion borne out by the most recent mobile OS market share figures. Add to the mix the fact that Atom-based tablets will be using Windows, and Intel hasn't completely ruled out the Microsoft mobile OS for its phones in the future.

But before the arrival of the next Windows versions, Intel still has to make an impact in the smartphone market, regardless of platform.

According to a Gartner report in February, worldwide smartphone sales — not shipments — reached 472 million units in 2011, and this is only set to continue increasing throughout 2012. Intel will also be acutely aware that smartphone shipments, along with PC shipments, are seeing huge growth in countries such as China.

Emerging markets

While it may be difficult to form crucial relationships with key manufacturers overnight, one area that Intel may have more success in is emerging markets. Milanesi agrees, and thinks it's the right time for it too.

"Intel is late to the party, but the timing is actually pretty good, if you think of the opportunity in the emerging-market replacement cycle," Milanesi said. "Users in emerging markets will be looking to replace their first smartphones from next year, and when doing so, will be looking for higher specifications and performance"

Intel has its size and resources on its side, and the market isn't yet that old, so people shouldn't be too quick to write it off.

Atom-based smartphones could appeal to the low-to-mid range in Europe and the US too, but need to overcome the way consumers typically choose a handset. The specs of the San Diego that went on sale in the UK last week are in the mid-to-high range, and a particularly nice feature is the inclusion of a micro HDMI output. But at £199, it doesn't scream top end, it screams value.

Buyers have been educated to yearn for the newest handset or the one with the highest number of cores, and right now, that's quad-core. Regardless of performance, to the man in the street, phones powered by Intel's single-core chip are going to be less desirable, and therefore lower in the food chain.

The blame for this may lie with marketing rather than performance — at least, if you believe Bell's claims that Intel's benchmark figures for its single-core Atom chip bear favourable comparison with dual-core and quad-core processors. By getting the chip into the right handsets, though, it could overcome this.

"If played right — partnering with the right vendors — Intel could play a big role. Granted, they first need to prove that they can make a difference," Milanesi noted.

Finding the right partner

Bell echoed the need to ally with the right partner. Orange made the grade; but the chipmaker doesn't intend to allow any old OEM to put its chips in phones. It will need to strike some key deals to break into the high-end handset market, and the arrival of smartphones based on multi-core processors later in the year will perhaps help with this.

"If progressive carriers like Orange come to us and say, 'Hey, we'd love to ship that with our own brand', then we'll work with them," Bell said. "But frankly, we're going to be kind of picky about that."

"Orange has some specific approaches we like, that are in keeping with Intel's philosophy on this space, [but] we wouldn't do this with just anybody," he added.

So what's next? Well, Motorola and Lenovo have got Intel- powered Android smartphones on the way, thought not much is being said about that right now. One thing is for sure though, Intel isn't about to shut up shop if it doesn't crack the market immediately. It has a pretty healthy balance sheet (PDF) and the determination to play the long game in a still-maturing market.

There's plenty of cash on the table: and after all, Intel needs the smartphone market more than the smartphone market needs it.

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