Rise of the Machines
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ANALYSIS - Chipmakers battle over next wave of mobile devices
SAN FRANCISCO |
SAN FRANCISCO (Reuters) - As tablets and e-readers vie to dominate the next generation of mobile Internet devices, another battle is raging in the chip market between Intel Corp, Qualcomm Inc, Nvidia Corp and Marvell Technology Group Ltd.
Intel's x86-based Atom chip now rules the netbook market, the one bright spot in the global personal computer industry last year. But analysts expect netbook growth to slow, while so-called smartbooks, tablets and electronic readers begin to rise.
Qualcomm, Nvidia and Marvell -- along with privately held Freescale Semiconductor -- are seeking to lay early claims on these new devices, which use processor chips based on the ARM architecture used in smartphones.
While not as powerful as Atom, ARM chips can provide enough performance to do tasks such as websurf and stream video. And with hours of battery life, they are perfect for the next generation of hyperconnected, ultramobile devices that seek to fill the gap between smartphones and laptops, analysts say.
"Low power is the key -- this is what keeps processors from INTC (Intel) at bay in mobile applications," Cowen & Co analyst Raj Seth wrote in a research note.
Qualcomm and its Snapdragon chip seemed to be everywhere at the Consumer Electronics Show in Las Vegas last week. Lenovo Group Ltd (0992.HK) launched its first smartbooks based on the chip and Hewlett-Packard Co (HPQ.N) demonstrated a Snapdragon-powered device. Nvidia used CES, the world's biggest gadget fest, to unveil its new Tegra 2 processor and show off a crush of prototype tablets and smartbooks.
Wedbush Morgan analyst Patrick Wang said the technology displays from Qualcomm and Nvidia were impressive, but noted they were not necessarily a threat to Intel's stock.
The wild card, he and other analysts said, was Microsoft Corp. If the world's biggest software maker decided to make its Windows PC operating system work on ARM tablets and smartbooks, it would seriously spur sales and alter the playing field. Tablets and smartbooks now run on Linux and other operating systems unfamiliar to the average consumer.
"That's a game-changer," Wang said of the Microsoft potential. "It all comes down to the user. All they care about is whether it runs something they're familiar with."
Qualcomm's shares have already moved on positive sentiment about Snapdragon, rising nearly 6 percent last week.
But Wang said expectations may be too high for Nvidia. The company has said it expects quarterly revenue from Tegra processors to reach $100 million by the end of next year. Nvidia shares were essentially flat last week and Marvell shares rose 1.5 percent.
THE NEXT BATTLE
RBC Capital Markets analyst Mark Sue thinks his 2010 estimates for Qualcomm may prove conservative given the opportunity for Snapdragon in smartphones, tablets and e-readers.
"With investors unsure which smartphone will emerge as the winner in the longer term, Qualcomm as the de facto 3G and 4G chipset supplier may see its stock multiple expand," said Sue.
"We expect healthy smartphone units, e-readers, and low-cost netbooks, tablet PCs, and mobile TV devices to collectively add to mobile device units. While early and difficult to quantify with precision, add it all up and our CY10 estimates may prove to be conservative."
Roth Capital Partners analyst Arnab Chanda said Qualcomm and Nvidia have different motives in the market for smartbooks, which are generally smaller than netbooks.
Qualcomm is looking to expand its addressable market in the mobile space, while Nvidia has much more at stake, given the expected decline of its chipset business.
"Nvidia has been talking about this being a significant revenue generator. Qualcomm is refusing to put a number on it and for good reason, they don't know how the market is going to take off," Chanda said.
Marvell, meanwhile, was at the center of the e-reader wave at CES. Its new Armada processor was used in devices from newcomers such as Plastic Logic, Skiff, the Entourage Edge and Spring Design's Alex reader, which are all looking to challenge Amazon.com Inc's Kindle.
UBS analyst Uche Orji highlighted the company's processor technology and said in a note that Marvell is poised to take a "meaningful portion of the e-reader market."
But for all the innovation on display at CES, there was still the big unknown over what Apple Inc's highly anticipated tablet, and which suppliers the consumer electronics powerhouse would use. Many analysts expect the Apple tablet to use a processor from PA Semi, which Apple bought in 2008.
Oppenheimer & Co analyst Yair Reiner called Apple the "elephant in the room."
"CES was haunted by the suspicion that the biggest consumer product of 2010 would appear at a different time and place: Apple's possible iSlate event in late January," he said.
"We continue to believe that the iSlate, rather than anything shown at CES, will be the market-changing product of 2010," he added.
(Reporting by Gabriel Madway; Additional reporting by Sinead Carew and Franklin Paul; Editing by Tiffany Wu and Richard Chang)
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