BusinessJun 7th 2008 edition


As once-distinct markets start to overlap, chipmakers come to blows

Illustration by David Simonds

FOR YEARS the chip industry had only one story: AMD's David pitted against Intel's Goliath, as the two Silicon Valley firms fought it out in the market for microprocessors that power PCs and servers. But a flurry of announcements this week shows that things are no longer so simple, and chipmakers that once ruled separate markets have started to come into conflict.

Intel has long dominated the market for PC and server chips, but there are two other big classes of processors: those for high-end graphics and for mobile phones. Most graphics chips are made by ATI Technologies (now part of AMD) and Nvidia; most mobile handsets are powered by processors based on technology from ARM Holdings, a British chip-design company.

These markets have been largely separate because different processors need to be good at different things: PC chips must be able to run ever more complex software; graphics chips have to be good at rapidly crunching data in parallel streams; and handset chips must balance performance with power consumption. But the borders between these markets are blurring as the PC matures and portable devices become more elaborate and capable.

To avoid getting stuck in a maturing market, Intel has branched out by developing Atom, a new family of low-power chips for “mobile internet devices” (MIDs, bigger than smartphones), “netbooks” (very small laptops) and “nettops” (cheap, stripped-down desktop PCs). Intel unveiled the first examples at a trade show in Taipei this week, and said that it is already having problems meeting demand. The firm also wants a bigger share of the profitable graphics-chip business. It intends to beef up the graphics abilities of its processors and will one day start selling specialised graphics chips.

AMD is taking similar steps. In 2006 it bought ATI for $5.4 billion in order to put advanced graphics into its microprocessor chips. This week the firm unveiled Puma, a new line of chips for small laptops, which includes technology from ATI for better graphics. Puma is supposed to revive AMD's fortunes after a series of mishaps. If Intel's Atom is a success, AMD is also expected to launch something similar.

With Intel and AMD encroaching on its territory, Nvidia, also based in Silicon Valley, is fighting back. It wants its increasingly sophisticated chips to be used not just to generate the graphics in video games, for instance, but also for other demanding tasks, such as decoding video or manipulating photos. It offers tools to make it easier to develop software for its chips. As for the new market in powerful portable devices, Nvidia intends to tackle it from both ends. It recently teamed up with Via, a Taiwanese chipmaker that specialises in low-power processors for laptops. And this week it announced a line of chips for MIDs called Tegra, which are based on technology from ARM and are supposed to be particularly good for watching videos and playing games.

Companies that use ARM's designs to make chips for mobile phones, such as Texas Instruments (TI), Qualcomm and Samsung, are not sitting still. As Intel and AMD move down into their market, they are trying to move up, by challenging Intel in the market for small laptops and MIDs.

Industry analysts say it is hard to predict how all this will turn out. A big question is whether MIDs, netbooks and nettops will be as successful as many predict, says Dean McCarron of Mercury Research, a market-research firm. And it is uncertain whether low-power PC chips or beefed up mobile-phone chips will be more successful in these new intermediate categories, says Nathan Brookwood of Insight64, a consultancy. PC chips can run lots of popular software, and are familiar to armies of programmers. Mobile-phone chips use less power—for the moment, at least.

As the battle unfolds, mergers may ensue. Already there are rumours that Nvidia could combine with either AMD or Via. With chipmakers trying to muscle in on each other's territory, competition in the industry is suddenly heating up.

This article appeared in the Business section of the print edition under the headline "Battlechips"

Reuse this contentThe Trust Project
The Economist today

Handpicked stories, in your inbox

A daily newsletter with the best of our journalism