Apple and Nokia ARM'd for netbook fight

The netbook world — or at least netbook speculation — continues to be a growth industry. One of the key questions is whether future netbooks will be more like laptops or like smartphones in their platform choices.

Towards that end, last month an industry expert predicted a shift from laptop (Intel Atom) to smartphone (ARM-licensees) processors:

ARM-based processors will take market share from Intel Corp.'s Atom in the netbook segment and hold 55 percent of the netbook market by 2012, according to Robert Castellano, president of The Information Network.
…
The movement is toward the original intention of a netbook—an inexpensive device for accessing the Internet, Castellano said.

A shift to ARM-based processors would benefit existing suppliers of smartphone CPUs like Qualcomm, Freescale and TI.

The key question about making a viable ARM netbook platform remains the software. Fortunately, there are a plethora of software choices used by smartphone makers, and a lot of investment and activity here.

Forbes Wednesday reported a rumor that HP is considering an Android-based netbook. (Android of course is a smartphone OS with a Linux kernel and its own GUI APIs). I wouldn’t be surprised if Dell copied this approach, certainly more plausible than the reports that Dell (the ultimate commodity IT company) will buy Palm (with its custom OS).

Nokia has been eying the netbook space with envy — the N97 is a little more phone and a little less laptop replacement have speculated that Nokia is considering offering a netbook, to the point that even Nokia admits the interest. ArsTechnica thinks it will be Linux powerered. However, given the lack of Linux applications, I find more plausible the speculation by The Register that the first netbook will be based on Symbian (like the N97).

And then there is Apple. Both its laptops and smartphones run OS X and its Safari web browser, so the question would appear to be which GUI and applications it thinks best for netbooks.

I strongly suspect that the Apple netbook (expected this summer) will be using the iPhone OS, because otherwise Apple risks cannibalizing its core laptop business.

However, it’s clear that there is an even better reason to predict this: the iPhone App Store. Apple controls the distribution of 3rd party software for the iPhone in a way it never has in its previous 30 year history, and also takes 30% of the action. Steve Jobs always got mad sharing profits with the middleman and now that sharing is over.

So in one swell foop Apple can put itself at the head of the migration from laptops to mobile devices, finish transitioning its developers from the desktop to the phone, change the software industry business model from bloatware upgrades to consumer fads, and switch from a business where it has 5% in North America to one where it has more like 30-50% (depending on your denominator).

Of course, there still are some important product details to be resolved, liked screen size, weight, battery life and keyboard. Something less than 2 lbs with a real keyboard would be huge for the US market, but I suspect that’s not what Steve has in mind.

But if this the wave of the future, what it does say for the rivals?

• Nokia has Ovi which has a solid infrastructure but not a lot of excitement. Still, more than any other firm they control their own destiny.
• HP (and others) would depend on the Google-run Android Marketplace which is gradually maturing but will never provide them a revenue stream
• RIM (creator of the BlackBerry thumb disease) has its new App World but is a long way from making laptop replacements.
• Other cellphone makers (Samsung, LG, Motorola) have neither app stores nor PC competencies. The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones. Neither camp has their app store or is good at software.
• The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones and even less in their own software and app stores.
• Many diversified Japanese CE companies (like Fujitsu, Panasonic, Sharp, Sony, Toshiba) are players in both spaces, and thus are well equipped to make portable devices but leave the app stores to the OS player or (especially in Japan) the operators.

Near term, it looks like Apple and Nokia are best situated to push ARM-enabled jumbo smartphones. Between notebooks, netbooks and PDAs, HP is a well situated challenger, but nearly all their portable devices use Windows, so going to Android (or some other choice) could be stretch.

Apple to make ARM chips for iPhone?

Forbes dissects the management change announced Tuesday at Apple’s iPhone division, concluding that Apple plans to make its own iPhone processor chips. It’s interesting speculation.

What we know for sure is that Tony Fadell — the founder of iPod engineering who Fortune calls “The man who made the iPod” — is stepping down as head of SVP for the iPod division. (Fadell replaced Nextie and Friend-of-Steve Jon Rubinstein. Update 10pm: Fadell is being paid $300K/year to stay around as a “special advisor.” I’d guess he either left before Apple was ready — legitimate “personal reasons” — or they want to pay to keep him from working for others.)

Fadell is being replaced by Mark Papermaster, VP for blade server development at IBM. Apparently IBM is suing to enforce a non-compete, and original speculation (before his appointment to head iPod/iPhone R&D) was that he was being hired to make OS X-based Xserve boxes.

Now that Papermaster’s new role is out, pundits point to his earlier role as a PowerPC microprocessor architect. Last June, CEO Steve Jobs said the ex-PA Semi engineers are making “system-on-chips for iPhones and iPods.”

Brian Caulfied of Forbes claims that the tea leaves all point in one direction: Papermaster’s CPU expertise, the purchase of PA Semi, its sourcing of ARM-based processors from cellphone rival Samsung, the availability of ARM reference designs and fabs to make them.

Caulfied has put 2+2 together, but right now it’s not clear if he has come up with 3 or 4 or 6. ZDNet wonders whether Apple wants Papermaster to run Freescale, which seems even more improbable. Still, PA Semi was purchased for some reason, and competing with Intel in laptop CPUs is not among them.

Once upon a time, I claimed that Apple’s iPod and iPhone were an example of open innovation: Apple sourcing outside rather than using its 1990s-era NIH.

It appears I was wrong: open innovation (sourcing outside components) was an entry strategy for the iPod and iPhone, but the goal was always vertical integration. With iTunes, iTunes Music Service, OS X on the iPhone and now the new mystery chip, Apple will be more vertically integrated than it ever was on the Apple II or Macintosh.

Steve Jobs has always had a proprietary view of the ecosystem: we’re creating the value, and we want to capture as much as possible. Although Jobs was forced out of Apple in 1985, this culture lived on for a decade afterward. I experienced it first hand helping HP make color inkjet printers that competed with Apple’s dot matrix printers.

When he Jobs returned to Apple in 1997, he killed Apple’s only authorized cloning experiment, and with it both killed two startup companies and also alienated a Fortune 500 multinational and key Apple supplier (Motorola).

As elsewhere, Jobs is swimming against the tide. In the PC business, IBM went away from vertical integration and made Bill Gates and Andy Grove rich while eventually failing as a PC maker. Many cell phone makers (like HTC and Motorola) are procuring their OS on the open market, but there are two important exceptions: RIM (with its BlackBerry) and Nokia (with its decision to purchase Symbian).

ARM'd to the teeth

Last month, Intel said it wants to own mobile phones the way it does PCs. The only obstacle along the way is dominant position of ARM-licensed CPUs in the mobile phone market.

In tomorrow’s Financial Times, the CEO of ARM “sounded a note of defiance”:

“Who is to say it will be Intel taking market share from ARM and not the other way?” said Mr East.

“Intel will probably always be able to make a microprocessor that runs faster, but ARM can do one that uses less power. We are still a long way ahead in that.”

As part of its counter-attack, ARM claims it can leverage the efficiency of the ARM chips to save power in server farms.

However, the FT article makes the words of the British CEO sound like bluster:

Mr East insists that ARM, whose chip designs power 98 per cent of the world’s mobile phones, has little to fear. However, the company’s heavy focus on the “Intel issue” at its recent analyst day in London is seen as a sign of growing concern.

“ARM is clearly paranoid about Intel,” said Robert Sanders, an analyst at Dresdner Kleinwort. “It is a very well resourced company and could easily catch up with ARM.” Mr Sanders said most mobile phone manufacturers, who had invested heavily in using ARM-based chips, were highly unlikely to switch to Intel’s products.

Intel has made some missteps before, including its last foray into mobile phones (that was jettisoned in the Marvel spinoff). But thinking that it can scare Intel (or convince the world that it would threaten Intel) seems like a losing strategy.