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ARM gets attention as Intel plays catch-up

The rise of British chip design firm ARM is attracting attention, with analysts claiming that chip giant Intel is under increasing pressure to develop better low-power x86 equivalents to ARM's licensed offerings - and a recent acquisition by Intel suggests they're on the money.

An article in the Wall Street Journal yesterday highlighted ARM, which originally started as an off-shoot of Chris Curry's Acorn Computers and was responsible for the development of the original Acorn Risc Machine processor thanks to a design by engineer Sophie Wilson. The outfit has been lauded as a company that's 'changing the world' - and nobody's more aware of that than incumbent chip giant Intel.

Intel produces the majority of processors for desktops, laptops, and servers - but, despite recent moves into new markets, is very much a bit player in the embedded and smartphone market. ARM, by contrast, hadn't made a desktop- or server-centric CPU design for years, instead concentrating on low-power mobile-friendly chip designs that account for most smartphones available on the market today - until it announced the Cortex-A15 'Eagle' design.

It's not just the chip design methodology that differentiates Intel and ARM, however. The latter doesn't actually produce any hardware, licensing chip designs to third parties like Nvidia, Samsung, and Qualcomm, who tweak the design and produce their own, custom hardware.

That's something which Intel has not traditionally offered. With Intel's method of doing things, if you want an Intel chip there's only one place to buy it: from Intel itself. If you want a customised Intel chip, you need to go begging cap-in-hand to Intel and hope they consider the prospective income worth the hassle of doing a custom manufacturing run.

It's a big difference in flexibility, but also in margins: while Intel's profit margin was a healthy 65 per cent last year, ARM's sits at around 94 per cent - and all without the risks of having inventory that can stale and fabrication plants to run.

It's not all about the margins, however. ARM's sale of chip design licences means that it doesn't command the same revenue as Intel. While its costs are lower, royalties of around 3p per chip built using its design mean that its revenue last year was around £391 million - which contrasts markedly with Intel's £27 billion bumper year.

Despite the big difference in size, Intel clearly thinks it has a thing or two to learn from ARM. As well as a commitment to produce low-power Atom-based Xeon chips for eco-friendly servers by 2012, the company has today announced the acquisition of system-on-chip specialist Silicon Hive in order to boost its SoC offerings.

System-on-chip designs are design solutions that pack as much functionality as possible onto a single chip, integrating CPU, GPU, memory controller, audio, camera and video interfaces, and networking capabilities into a single piece of hardware. SoC designs like Nvidia's Tegra 2 or Samsung's Exynos range are where the majority of licensed ARM CPU designs end up - and it's a format which is incredibly popular in the embedded and mobile computing industry.

With the acquisition of Silicon Hive for an undisclosed sum, Intel is further boosting its expertise in this area - and bringing its mobile and embedded offering a step closer to that of ARM licensees.

That, of course, is where the two companies differ: while ARM leads the way in smartphone chip designs now, Intel's incredible size means that it can, should it so choose, simply buy companies until it can truly offer something which can compete with ARM.

Which of the two companies will come out of this David vs. Goliath story the victor is something that we here at thinq_ wouldn't dream of guessing. If you have ARM or Intel shares, however, it's probably best not to do any panic selling just yet.