What Does an ARM-Compatible Windows OS Mean for Intel?

Intel (NASDAQ:INTC) currently competes with AMD (NYSE:AMD) and Nvidia (NASDAQ:NVDA) in the microprocessor and graphics businesses respectively. Our price estimate for Intel stands at $27.76, a roughly 30% premium to market price.

The company has long dominated the PC processor market but has been unable to gain traction in the rapidly expanding smartphone and tablet markets. Can Microsoft’s move to introduce ARM-compatible Windows put the company on the right track in this space?

Microsoft Introducing ARM-Compatible Windows

Microsoft recently announced that it will be introducing an ARM-compatible version of its Windows operating system. Windows has always worked with x86 microprocessor architecture on which Intel and AMD’s chips are based, but the recent move improves Microsoft’s market position with tablet popularity gaining momentum and likely cannibalizing PC sales. The company risks loss of sales if it does not make a greater push into the tablet market, which is dominated by ARM-based processors.

Additionally, with Nvidia making moves in the PC market with its ARM-based CPUs, Windows will certainly want to promote its operating system on Nvidia’s chips as well. Windows has a huge market share in PCs, which could potentially give the company an advantage in negotiating leverage with OEMs.

What Does this Mean for Intel?

Intel has stated that Microsoft’s Windows works best with its chips and porting the operating system to a new architecture could be both complex and costly. ^[1] The company has also stated that it will be ready to compete with ARM processors in terms of power consumption by the time the Windows version for tablets is launched. ^[1]

So how does this affect Intel’s outlook?

Atom has had difficulty penetrating the tablet and smartphone markets and Intel’s dominance has been confined to PCs. Intel and Microsoft have grown together in the PC era and, if we take a positive view, a successful Windows launch for tablets could pave the way for both companies’ growth in the tablet space. If consumers associate Intel with Windows, the way they have for PCs, Atom could benefit.

But nothing comes easy. The market is crowded with established players like Nvidia launching a dual-core ARM-based processor for mobile devices. Android is gaining traction as the preferred operating system in the mobile arena. Windows Mobile’s share has been reduced to a very small figure and Microsoft will have to be a lot more careful with its tablet launch.

Of course, Microsoft’s move may also indicate a future for ARM in the PC industry as well. With Nvidia entering the PC processor business with its ARM architecture, the software support it receives from Microsoft could be a negative for Intel. However, this downside will likely be limited due to the challenges Nvidia will face in battling semiconductor giant Intel on its own turf.

Drag the trend line in the chart above to see the affect of various Atom market share scenarios on Intel’s stock value.

You can see the complete $27.76 Trefis price estimate for Intel here.

1. Intel: We’re Not Worried About Microsoft’s ARM Move, Business Insider, Jan 19 2011 [↩] [↩]