ARM Turns Up Pressure on Intel as Even Cutlery Gets Smart
Comment of the Day

February 21 2013

Commentary by Eoin Treacy

ARM Turns Up Pressure on Intel as Even Cutlery Gets Smart

Thanks to a subscriber for this interesting article highlighting ARM's dominant position in mobile device chips and more recently embedded chips. Here is a section
Embedded processing is the building of computing capabilities and connectivity into devices and machinery that previously stood alone. Companies are rushing to turn vehicles into networks of sensors and minicomputers that can make sure drivers have access to their iTunes libraries or stop the vehicle if the brakes aren't hit early enough.

Everyday equipment like thermostats and electricity meters are being linked up to the Internet, requiring processors to analyze data and transmit or receive instructions. Even some forks now analyze how fast you eat, so you can slow down to lose weight or ease digestion.

Device makers and their chip suppliers are turning to ARM designs because its dominance in smartphones has drawn a flood of software developers and engineers to the technology, making it easier and cheaper to standardize.

“It has become ubiquitous and everyone wants to design off of it,” said Hans Mosesmann , an analyst at Raymond James & Associates Inc. “It's a monumental task to offset the tsunami that's happening. We're big fans of the non-smartphone part of their business.”

Cambridge, England-based ARM doesn't make semiconductors itself -- it sells processor designs and licenses fundamental chip technology to companies including Texas Instruments, Samsung Electronics Co. and Qualcomm Inc. ARM's annual sales , which reached $914.4 million in 2012, are a fraction of Intel's more than $50 billion in revenue.

Intel, meantime, is focusing on the automotive, retail and industrial-control markets, trying to bring a greater ability to analyze data locally and keep it secure, said Ton Steenman, who heads Intel's Intelligent Systems group.

Intel's chips and software are now in phone systems, PepsiCo Inc.'s smart vending machines that can vary sales pitches, entertainment systems in cars made by Bayerische Motoren Werke AG and Kia Motors Corp. , and in industrial tools such as automated farm machinery that can run at night, he said.

“We are not building solutions today that control a little valve and doesn't do much more than that,” said Steenman. “We are investing in the type of application where the richness of the data processing is a key attribute. That is where there is a lot more differentiated and sustainable value that can be created.”

While East said it took longer than he expected for non- phone-related sales to become the majority of ARM's revenue, he expects that percentage to keep rising as the surge in smartphone demand lures more software developers and hardware engineers to his company's technology.

Eoin Treacy's view The industrialisation of the internet represents a new frontier in the march of technological innovation and promises to create efficiencies and productivity gains that were not previously available. ARM Holdings currently has a significant edge in this sector which is reflected in its share price. (Also see Comment of the Day on November 6th).

As the sector develops, we can expect more diversity in the products offered and more companies entering the market. (Also see David's piece in Comment of the Day on November 26th).

ARM Holdings (0.54%) continues to hold a progression of higher reaction lows and while overextended relative to the 200-day MA, a sustained move below 880p would be required to signal more than a temporary pause.

Intel (4.46%) found support in the region of its 2011 lows near $19 from November and continues to range mostly above $20. A sustained move above the 200-day MA, currently near $22.75 will be required to confirm a return to medium-term demand dominance.

General Electric (3.27%) found support in the region of $20 from November and hit a new recovery high earlier this week. Some consolidation of recent gains appears likely but a sustained move below the 200-day MA, currently near $21, would be required to question recovery potential.

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