Why ARM chips are a threat to Intel and AMD’s PC dominance

Intel (INTC) and AMD (AMD) are staring down a new competitor in the PC market: Arm (ARM).

The UK-based chip designer is making a fresh push into the space through Qualcomm ( QCOM ) and its Snapdragon X Elite and X Plus Arm-based chips, which are being rolled out in laptops from companies ranging from ASUS and Acer to Dell, HP , and Lenovo in the coming weeks.

Arm is already the go-to platform for Apple ( AAPL ) and its M-series chips for its Mac line of laptops and desktops, but it has had a closer relationship with Microsoft’s ( MSFT ) Windows platform. There was 2012’s Surface RT, which couldn’t run certain apps, as well as 2022’s Surface Pro 9, which suffered from similar compatibility issues.

But Microsoft, Arm, and Qualcomm say they’ve worked out the kinks — and that handheld PCs will be as reliable as Intel and AMD-based offerings. The proof? Microsoft has switched to ARM-based Qualcomm chips to power its new Surface Pro tablets and Surface Laptop, rather than Intel or AMD processors.

Those Surface devices are part of Microsoft’s new Copilot + PC standard, which are essentially high-end laptops that can run native artificial intelligence apps, which makes the fact that Microsoft used Arm-based Qualcomm chips all the more interesting.

ARM CEO Rene Haas speaks at the COMPUTEX forum in Taipei, Taiwan June 3, 2024. REUTERS/Ann Wang

ARM CEO Rene Haas speaks at the COMPUTEX forum in Taipei, Taiwan June 3, 2024. REUTERS/Ann Wang (Reuters/Reuters)

“The Microsoft Build moment, with Microsoft basically coming out and announcing or confirming that the Snapdragon X Elite and Qualcomm-based handset-based devices will be the first to come together. [Microsoft’s] The Copilot+ standards have been a major breakthrough,” explained Daniel Newman, CEO of The Futurum Group.

“It was just a bit of a sea change that we haven’t seen in the industry for a long time,” he said.

The Qualcomm chip is meant to be part of Microsoft’s big Copilot + PC AI push, which will see more AI apps generated on Windows laptops and desktops. But AI-generated apps are still in their early stages, meaning power and general performance are still the top marketing tools for PCs running on Qualcomm chips.

And the company looks to deliver some big performance and battery life gains compared to Intel and AMD processors, not to mention Apple’s M3 chips. Microsoft says Qualcomm’s X Elite chip delivers up to 51% faster CPU performance when using the same power as competing chips and matches the peak performance of competing CPUs while using 65% less power. And that, at least initially, will be a major selling point for military-powered PCs.

“One of the key things that Qualcomm has done essentially is to make and deliver on the promise of Mac-like battery performance, if not better,” said TECHnalysis Research president and principal analyst Bob O’ Donnell with Yahoo Finance. “That was a big deal for all the Apple M-based Macs, and that, ironically, was a big challenge for Intel and AMD.”

But Arm doesn’t expect Qualcomm to be able to take on Intel and AMD on its own, though. According to Reuters, Arm CEO Rene Haas says other manufacturers will be rolling out Arm chips in the future. In addition, he believes that Arm will control 50% of the market for Windows PCs in the next five years.

But Intel and AMD are not accepting this existential threat. The two companies introduced their own responses to Qualcomm Arm-based chips during their respective keynotes at Computex 2024 in Taipei, Taiwan, this week.

On Intel’s side, that comes in the form of new Lunar Lake chips, which the company says will begin shipping in PCs in the third quarter of 2024. According to Intel, the Lunar Lake line uses 40% less power than the current Intel. Core Ultra line, offers 50% better graphics performance, and has a 4x faster neural processing unit (NPU).

Moreover, Intel CEO Pat Gelsinger said during his Computex keynote that Lunar Lake already outperforms the Snapdragon X Elite CPU, GPU, and NPU in internal testing.

AMD is also returning with its own line of Ryzen AI 300 processors for Windows Copilot+ PCs, along with improved CPUs, GPUs, and NPUs. Importantly, AMD says its NPU is capable of performance of up to 50 TOPS, or trillion operations per second, more than Intel or Qualcomm chips. TOPS is a popular measurement for running AI applications.

Intel and AMD will have to ensure that their chips can not only take on Arm and Qualcomm but also beat them in terms of overall performance and prices. That’s especially important for Intel, which still makes most of its revenue through chip sales to third-party vendors through its Client Computing Group.

In Q1 this year, the Client Computing Group brought in $7.5 billion of Intel’s $12.7 billion in total revenue. That’s about 59% of the company’s total quarterly revenue. Meanwhile, AMD’s own client segment accounted for $1.3 billion of total revenue of $5.5 billion in the first quarter.

Microsoft says the first Copilot+ PCs will go on sale on June 18, which means we’re still a few days away from seeing how well Qualcomm’s Arm-based processors perform in the market. But if the company can deliver on its promises, it could pose an existential threat to Intel and AMD’s chip businesses.

We will find out soon enough.

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Email Daniel Howley at dowley@yahoofinance.com. Follow him on Twitter at @Daniel Howley.

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