With all respect to Apple and the iPad, perhaps no companies have done more to shake up the IT industry over the last year than Nvidia and ARM Holdings.
And thanks to the explosive growth in the mobile device market, the two chip makers are enjoying a fruitful partnership that threatens the both world largest microprocessor company and the dominant desktop-server architecture: Wintel.
Speaking at Nvidia Analyst Day 2011 last week, Nvidia CEO Jen-Hsun Haung offered his vision of high-performance Nvidia graphics pervading the IT ecosystem from the most powerful supercomputers to the smallest form factor mobile handheld PCs. Nvidia shares its ambitious, eventful roadmap -- as well as a heated rivalry with Intel -- with British design firm and suddenly close Nvidia partner ARM.
ARM's co-founder Dr. Herman Hauser last Fall made news by blasting Intel for following what he called "the wrong model" in the mobile phone space, and claiming that ARM's licensing business would bring about the end of the microprocessor industry -- and as a result, Intel's long-held dominance. Though that may have seemed far-fetched to some, at CES 2011 in January Nvidia's Tegra 2 mobile processor was featured in several tablets and smartphones from manufacturers including Motorola, LG and Samsung.
Meanwhile, Microsoft announced that its next Windows OS will support ARM-based processors manufactured by firms including Nvidia; and, finally, ARM and Nvidia offered plans to enter the server market with Project Denver. Both companies' ambitions, as a result, seemed more realizable and their shared enemy, Intel, seemed a bit more vulnerable.
Yet even as ARM's challenge to Intel in the microprocessor industry gained some credibility because of Microsoft, Intel at CES said it will offer support for Google's Android 3.0 OS along with several other operating systems in addition to the Windows platform. Not only did this represent an aggressive -- albeit reactive -- move by Intel to challenge ARM's 87 percent share of the mobile market, it appeared to represent a crack in the wall of the Wintel fortress, a rare bit of publically visible tension between two industry giants bound together in a long-term marriage.
"This is really about enabling a new class of hardware, new silicon partners for Windows and bringing the widest possible range of form factors to market," Microsoft CEO Steve Ballmer said in his CES opening keynote. "This is an important step for Microsoft because customers expect the full range of Windows functions in any device."
Meanwhile,Tudor Brown, president and co-founder of ARM, told CRN in an interview at CES that Microsoft's decision helps ARM and the software giant both. "Microsoft needs to move into the future, and the way to do that is through ARM," Brown said.
Brown said the real excitement is in the mobile devices market, but also pointed to Nvidia's Project Denver plans in the server space and said that while ARM isn't targeting servers for growth immediately, it sees servers as a potential opportunity down the road. In December, ARM revealed plans to begin offering processor designs for the server space in order to challenge Intel by 2014.
And manufacturers appear to be following suit. Dell, a long-time Intel partner that has recently shifted toward offering more servers based on designs from rival AMD, is rumored to be experimenting with chips based on ARM processors in its servers, according to a Dell spokesperson, but the architecture faces software issues that could stop it from being a viable alternative to x86 in the short term.
When asked at CES 2011 how ARM will differentiate its server processors from Intel's, Brown cited his company's claim to mobile fame: power-efficiency. "The problem is, these things are terribly inefficient from a power consumption point of view," he told CRN. "It's an astonishing amount of energy that's being used in data centers, and it's only going to grow. So the only solution is to make lower power consumption servers that are more energy efficient. I'm sure just as it did for PCs, Intel will bring out lower power products for this space. But it probably won't happen fast enough."
ARM's plan is clear -- use its current advantage in low-power architecture and its partnership with Nvidia to extend its dominance in the mobile space, while gradually getting into servers and the core business of Intel, which incidentally owes Nvidia $1.5 billion over the next five years due to a legal dispute.
Huang opened Nvidia's Analyst Day with a summation of his company's product strategy that similarly suggested the end goal was to capture traditional computing segments. Nvidia's x86 strategy is ARM, its CPU-GPU integration strategy is Tegra -- which competes with Intel's Sandy Bridge and AMD's Fusion integrated graphics platforms. For a graphics specialist, Huang's "framing" of the conversation in those terms almost suggests Nvidia sees its graphics business as a means to an end: to become known for its high-performance/parallel processing products.
Channel partners who resell x86 hardware -- and could therefore be threatened by dual market penetration from both mobile and graphics segments -- say they're fine with change and, despite Wintel's long held dominance, disruption in the PC market is less the exception than the rule anyway.
"Anytime there's a new opportunity to sell new products and competitive offerings, I think it's very exciting for the channel," said Todd Swank, vice president of marketing at Burnsville, Minn.-based system builder Nor-Tech. "Being around since '93, I never thought we'd see the day when Microsoft would have someone keeping them in check like Intel has with AMD, but now there's Android, Linux and others. I think competition is good. It's good that Microsoft and Intel have to deal with the same market forces system builders have to deal with. I think it’s a win-win for everybody -- except maybe Intel and Microsoft."
A system builder who partners with both Intel and Nvidia said not only is competition in this space good for channel partners and end users, but it's also becoming more of a reality -- precisely due to the joint emergence of mobile devices and graphics-intensive applications that Huang and Brown described.
"As home-based and mobile computing solutions, such as desktop PCs, notebooks, netbooks, cell phones, tablet PCs, and other devices, are more graphics intensive, the on-board graphics from x86 processors may not be able to support many of these graphics-heavy applications at [high] speeds," the partner, who requested anonymity, said. "Therefore, the Nvidia-ARM partnership will deliver new processor options for consumers, and give both channel resellers and end customers more products to choose from."
Beyond the change in the ecosystem, the partner said ARM and Nvidia's alliance shows that Windows and Intel are not invincible, even in the x86 world. "It also means that the Windows/Intel alliance is not an exclusive partnership, and that there is always room for additional players in the market," the system builder said. "At the end of the day, only the consumers can determine if a particular product will succeed in the marketplace or not."
Of course, there's always the possibility that Windows and Intel, who have withstood many challenges in the past, will continue to grow along with the rest of the industry, even as others carve out a space for themselves. "For endpoint devices, ARM/Windows 8 could be an interesting complement to Intel/Windows, depending upon the application usage and price points," said Michael Bowman, vice president and CIO of Computer Service Partners, a Raleigh, N.C.-based reseller. "However, I do not have a good feel if this would add to the total market or divide up the existing market."
But ARM enjoys the advantage of being able to divide up a certain amount of their businesses among other semiconductor firms because the company licenses its architecture to partners like Nvidia and Apple. This is why Dr. Hauser last year said the competition isn't really between Intel and ARM as much as it is between Intel and everyone else in the semiconductor business. Huang similarly pointed out that Nvidia's foundry business, through which it outsources the production of Nvidia products to manufacturers like Gigabyte and EVGA, makes it very different from other chip companies like Intel.
ARM's low-power mobile technology and Nvidia's high-performance mobile technology appear to offer similar growth opportunities to each company, as Huang at Analyst Day said Nvidia may consider entering the desktop PC market now that it's preparing a mobile chip with a 5x performance upgrade. Codenamed Kal-El, Nvidia's upcoming quad-core mobile chip will succeed its current Tegra 2 dual-core offering inside tablets in August and smartphones in December, according to Nvidia.
ARM also seems to think the mobile device ecosystem ties into traditional PC market segments. "The growth is coming from all of the connected devices, and that's supported by the cloud," Brown told CRN at CES." So these two things, PCs and mobile devices, do go hand in hand. And of course, Intel has total dominance in PCs and has total dominance [in] servers powering the cloud."
ARM, meanwhile, has a dominant position in the mobile device market and is now going into the server and PC markets. But Brown told CRN that it will be "a couple of years" before ARM-based server solutions start to emerge. While the British chip maker has made a lot of noise about the server and desktop markets, ARM has oddly downplayed the prospects of gaining any significant market share against Intel. It's a tricky position for ARM: arguing that the traditional x86 microprocessor industry is sort of doomed while moving into that space in order to challenge a firm that has beaten everyone else that's tried to do so in the past.
It's almost as if ARM's market expansion was not planned but stumbled upon as a result of its remarkable growth in the mobile device space. Earlier this year ARM reported impressive 2010 annual and fourth quarter earnings, including a 28 percent increase in quarterly revenue compared to the fourth quarter of 2009 and a 67 percent increase in profit year-over-year. Those numbers were bolstered by the release last September of ARM's "Eagle" Cortex-A15 core architecture, with support for 3D navigation, augmented reality, and high-speed broadband.
Not to be outdone, Intel at Mobile World Congress 2011 in February showcased its Medfield smartphone processors and claimed that its first mobile chips will crush ARM's designs. Speaking at the Goldman Sachs Technology and Internet Conference in San Francisco, Intel Chief Financial Officer Stacy Smith said the mobile market represent an opportunity for Intel and not a challenge to its commanding lead in the CPU market.
Smith added mobile devices will allow Intel to ship "billions" of processor units, instead of the hundreds of millions it currently ships. During Intel's fourth quarter earnings call CEO Paul Otellini said Intel's x86 architecture will power smartphones running Microsoft's Windows 8 platform.
Clearly, Intel isn't backing down from this fight But ARM and Nvidia clearly have a head start over Intel with mobile devices. Nvidia has already made its way onto a number of tablets and smartphones with its Tegra platform, while Intel is still working on its tablet-specific Atom processors. Meanwhile, ARM is scheduled to bring designs with built-in Verizon 4G LTE modems to manufacturers early next year, while Intel isn't expected to add LTE to chips until the fourth quarter of 2012.
Further underscoring the momentum of the mobile market overall, ARM's chief executive Warren East at MWC said ARM expects to increase its royalty revenues as more manufacturers adopt its multicore processors in their devices. "As they have more functionality, we are giving more value to our customers," East told Reuters. "And we expect to be paid more."
ARM also has 95 percent of the tablet market in particular, thanks to Apple's ARM-based A4 processors in the iPad, now upgraded to the Apple A5 chip inside Apple's new iPad 2. Therein lies a conflict of interest with Nvidia, whose Tegra tablet product, for all its success in winning mobile and tablet designs, is confined to a slew of offerings that together represent only a very marginal slice of the tablet pie.
Huang at Analyst Day was asked if there will be a market for Android tablets, where most Nvidia Tegra processors have appeared, given Apple's competitive pricing. The new iPad 2 starts at $499, significantly less than the current version of Samsung's Galaxy tablet, for instance. Interestingly enough, Nvidia's advantage against Apple in the tablet space, according to Huang, comes from Apple's lack of compatibility with Intel and Microsoft. Huang said iPad's compatibility with Wintel is "zero."
Apple represents quite the dilemma for Nvidia, both because of its commitment to ARM in the mobile space and its rejection of Nvidia and adoption of AMD in the notebook space. Huang last month said he believes that Apple's Macbook Air notebook design represents the future of PCs. "I think the Macbook Air is a good mental image of what a clamshell laptop will look like," Huang said. "They'll be thin because you won't need any heat pipes, the fan, and extra batteries to lug around."
The following week, Apple updated its 15 and 17-inch Macbooks with products from both of Nvidia's major rivals: Intel's Core i5 and i7 Sandy Bridge chips, paired with discrete AMD Radeon GPUs. Nvidia previously had its GeForce discrete graphics in the 13-inch version, but Apple has replaced Nvidia's GPUs with Intel's integrated graphics with 384 MB of shared memory.
According to analyst Chris Caso of Susquehanna Financial, Apple's update has pushed Nvidia technology out of the picture for the Mac platform -- a severe blow to Nvidia's business. "We think the magnitude of the revenue shift is on the order of $100 million in annual revenue," Caso wrote in a note to clients on Thursday. "Following this change, Nvidia's only remaining exposure to Apple will be on the MacBook Air -- and once that business moves to Sandy Bridge, Nvidia will have zero remaining exposure to Apple."
Huang's address at Analyst Day came just a few weeks after Apple's decision and appeared to contain a subtle dig at Apple and its iPad tablet, specifically with regard to its lack of multi-tasking compared to Tegra-powered devices. “I just can’t imagine a computer that doesn’t have multi-tasking,” Huang said. “The vast majority of your computing could be handled by one of these mobile devices.”
Where does this tangled web of 'coopetition' and increasingly interrelated form factors and market segments leave the system builder channel? There's a good deal of uncertainty out there, but Intel -- which recently modified and integrated its partner program into the Intel Technology Provider program, and will increase channel spending by 30 percent for 2011 -- has a bit more credibility with the channel than ARM or even Nvidia.
"We have to see how Nvidia and ARM come to market," Swank said. "ARM has never had a relationship with the system builder channel. They're a wild card, whose presence is more in the embedded space. Nvidia has been a friend of the channel for years, and bringing them together very exciting to the channel, but it raises questions. Will they bring motherboards and CPUs to market like Intel does?"
Swanks says he believes that Nvidia will most likely target top tier ODMs before brining any new chips to system builder partners in the channel. Meanwhile, the system builder who requested anonymity said the emergence of Nvidia and ARM in the server and CPU space will be beneficial for channel partners.
"Once these products are available, as long as there is a healthy eco-system supporting them, as the wide-range of CUDA based applications did for Tesla, channel partners would not be limited to offering only an Intel, AMD, or other proprietary CPU-based server or supercomputer solutions," the system builder said. "Nvidia’s ARM server solutions may help to accelerate the commoditization of supercomputers to more channel resellers and the SMB market, and help to lower the cost of a server or supercomputer."
Joshua Liberman, president of Net Sciences, an Albuquerque, N.M.-based system builder, said channel partners are open to seeing new players in the server market because they might push Intel, not because the prospect of ARM-based servers is especially appealing. "Any competition in the market for the dominant Intel is welcome, but I question whether ARM is going to develop into a real player in the server space," he said. "I would love to see Intel scared into a significant update of their underpowered Atom platform to allow us as integrators to consider using it more widely."
ARM and Nvidia may have plenty of work ahead of them in terms of building a channel presence to rival Intel's. But with momentum and market share in the fast-growing mobile device market, the hardest part may be behind them.