PC market is characterized by high-speed processors which come with a disadvantage of releasing high heat and high power consumption. This industry is worth multibillion dollars and Microsoft (MS) is the market leader in the OS with around 80% of PC’s running on Windows. Since, MS OS only supported the Intel processors; Intel was having a big advantage in the form of network externality from MS. Intel, thus, developed the core capabilities required to support the PC market. To satisfy the Moore’s law of doubling the number of transistors, Intel focused their R&D on the PC industry, enjoying the above average returns being in the monopolistic position with only AMD, holding the smaller market portion. Note that PC industry had bigger margins and user base than mobile industry until recently, making it attractive for Intel. On the other hand, the mobile industry looked like a non profitable venture because mobile market was characterized by a low margin industry, requiring just enough processing speed to support simple tasks. Thus it was ignored by Intel since it required a differ set of capabilities to support the needs of mobile industry.
For ARM, the design of their ecosystem allowed them to develop synergies with the Mobile and PDA manufacturers, as ARM only designs the chips and sells its licenses to the companies like Intel, Freescale etc., which manufacture the processors based on either their own designs or ARM’s designs. This helped ARM to maintain a sustainable growth in the low margin industry, and further helped them develop their operational capabilities for so long. Because of the core capabilities of ARM which lied in the area of increasing the processing power with special attention to heat release and battery consumption, ARM designs became the industry norms and were accepted by Apple and Google. Software and hardware were designed specifically for ARM designed chips, enabling ARM to capture 75% of the mobile and PDA market share creating a significant network externality and complementarities for ARM. On the learning curve, Intel has just entered this market but ARM knows the industry and its needs, time to market, cost of ownership and other parameters which Intel is yet to learn. Intel has to convince market leaders like Apple, Google and Blackberry to leave their long-term ties with ARM and start fresh with Intel which is possible but not until they promise a significant benefit to its collaborators. Change means cost to these companies as they have to design new softwares on new platform, implying a very high switching cost. Another point to note here is that Apple owns a portion in ARM, which can have its implications, making it more difficult for Intel to have that breakthrough in this market.
One point of view of this whole situation can be that Intel and ARM started from two extreme ends of the industry, one end as high processing power(Intel – PC) and other being low power consuming(ARM – PDA). Two factors played a role here, internal growth of each Intel and ARM meaning advancement of technology making both players move towards each other on the scale, and External factor, industry trend, which started moving towards higher processing power, smaller sizes and low power consumption. ARM here had an advantage, and thus it is safe to say that the whole industry was moving towards ARM, because of the demand, which was only satisfied by the rare designs of ARM, acting as the “lever” for ARM.