Why Arm chips pose 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 via Qualcomm (QCOM) and its Arm-based Snapdragon X Elite and X Plus chips, which are rolling 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’s had a rockier 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 similar compatibility problems.

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

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

ARM CEO Rene Haas makes a speech at COMPUTEX forum in Taipei, Taiwan June 3, 2024. REUTERS/Ann Wang · Reuters / Reuters

“The Microsoft Build moment, with Microsoft basically coming out and sort of anointing or declaring that the Snapdragon X Elite and the Qualcomm-based, Arm-based devices were the first to meet [Microsoft’s] Copilot+ standards, was a big inflection,” explained Daniel Newman, CEO of The Futurum Group.

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

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

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

“One of the key things that Qualcomm has done is essentially made the promise and delivered on giving Mac-like, if not better, battery performance,” TECHnalysis Research president and chief analyst Bob O’Donnell told Yahoo Finance. “That’s been a huge deal for all the Apple M-based Macs, and that’s been a real challenge, frankly, for Intel and AMD.”

But Arm isn’t just hoping Qualcomm can take on Intel and AMD on its own, though. According to Reuters, Arm CEO Rene Haas says other other manufacturers will be rolling out Arm chips in the future. What’s more, he believes Arm will control 50% of the market for Windows PCs in the next five years.

But Intel and AMD aren’t taking this existential threat lying down. The companies both rolled out their own answers to the Arm-based Qualcomm chips during their respective keynotes at Computex 2024 in Taipei, Taiwan, this week.

On the Intel front, that comes in the form of a new Lunar Lake chip, 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 features an up to 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’s CPU, GPU, and NPU in internal testing.

AMD is also firing back with its own Ryzen AI 300 line of processors for Windows Copilot+ PCs, complete with improved CPUs, GPUs, and NPUs. Importantly, AMD says its NPU is capable of performance of up to 50 TOPS, or trillions of operations per second, more than Intel’s or Qualcomm’s chips. TOPS are a common measurement for running AI applications.

Intel and AMD will need to ensure their chips are not only able to take on Arm and Qualcomm but also beat them in terms of overall performance and price. That’s especially important for Intel, which still makes the bulk of its revenue through chip sales to third-party vendors via 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 roughly 59% of the company’s total quarterly revenue. AMD’s own client segment, meanwhile, made up $1.3 billion of its total $5.5 billion in revenue in its first quarter.

Microsoft says the first Copilot+ PCs will go on sale June 18, meaning 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’ll find out soon enough.

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

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