Intel Wants to Eat TI's Lunch

Intel Corp. (Nasdaq: INTC) is looking to take a big slice out of Texas Instruments Inc.'s (NYSE: TXN) handset chip market share with its newly announced PXA800F cellular processor (see Intel Intros GSM/GPRS Chip).

The GSM/CPRS system-on-a-chip, which combines an XScale embedded processor core with baseband signal processing technology (co-developed with Analog Devices Inc.) and onboard Flash memory, is the first cellphone processor from Intel. The company originally started talking about launching such a chip when it announced its plans for 802.11 silicon back in June (see Intel Plots Home-Grown 802.11).

Intel spokesperson Mark Miller says the chip is sampling now and should be available in volume by the third quarter. He expects that phones using Intel silicon could be out by the end of the year. The chips will cost $35 each in quantities of 10,000.

Analysts reckon that Intel's move will have TI looking nervously over its shoulder. "Intel has certainly come up from behind with this chip," comments Seamus McAteer, principal analyst with the Zelos Group LLC. "And they have the industry contacts and manufacturing capabilities to make it work." (Intel already sells Flash memory to handset vendors.)

Markus Levy, senior analyst at the Microprocessor Report agrees that TI is now facing increased competition in the market with the entry of Intel and new products coming from STMicroelectronics NV (NYSE: STM). "Nobody stays at the top forever," he observes.

McAteer also thinks Intel's pricing is very competitive with TI's rival digital signal processor-based offerings. "The $35 price will come down if we're talking about orders of millions of chips, or even a hundred thousand," he says. "In the real world the price will probably be cut in half."

Intel's Miller says the company is aiming the chip at the $50 handset. This represents 40 to 50 percent of the total market, Miller says. "That's 200 million units conservatively," he says. "We certainly want to get our share of that."

Intel has not announced any customer deals yet. However, McAteer says that when the chipmaker does, this will be a good indicator of how successful its foray into this market is. "Who gets the Nokia deal? That's the real question," he says.

Miller says Intel has no plans to enter the CDMA chip market yet, seeking first to win share in the larger GSM/GPRS market: "We're going for the fat part of the bat."

Despite this, Intel's announcement spooked investors in CDMA chipmaker Qualcomm Inc. (Nasdaq: QCOM), and the company's shares fell after the news hit.

— Dan Jones, Senior Editor, Unstrung
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