To survive the PC's decline, Intel just might adopt ARM

Both AMD and Intel are finally looking at alternatives to the x86 design, but it's unclear if they can adapt fast enough

Remember how bad sales of chips were during the financial meltdown of 2008? Well, they were a lot worse this year, two years into the supposed recovery from the recession. Indeed, the number of CPUs sold in the last quarter were the worst in a decade, according to Mercury Research, a boutique research shop specializing in the chip industry. Year-over-year sales were down 9.3 percent in the third quarter, compared to an 8.8 percent drop in the last quarter of 2008 as the recession hit hard.

That stark fact goes a long way to explain what Intel and its much weaker rival, Advanced Micro Devices (AMD), are up to these days. Both are hedging their bets. Intel is pushing into mobile, where strong demand for smartphones and tablets has made ARM king; even Microsoft now offers an ARM-based tablet, the Surface RT. It appears Intel is even considering the unthinkable: manufacturing chips based on the ARM architecture.

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AMD, meanwhile, which recently reported an abysmal quarter, this week announced it plans to produce ARM-based chips for servers by 2014. AMD's results were so bad that its stock tumbled 16 percent last week, and one Wall Street analyst called the company "uninvestable," which is more or less saying it's going to die.

That's probably an exaggeration. AMD is on a run rate to produce 60 million to 80 million x86 CPUs this year, far fewer than Intel, but more than enough volume to keep the company afloat, says Dean McCarron, a principal analyst at Mercury.

Nonetheless, AMD is in desperate trouble, and Intel -- which managed to miss the industry's shift to mobile devices is scrambling. Both are struggling to stay relevant in the waning days of the PC-centric era.

AMD's bet on ARM for servers
ARM has had little presence in the server world; after all, the lack of 64-bit support in its x86 CPUs is a crippling downside for that market. But that's changing. ARM this week introduced its first 64-bit Cortex-A50 processor design. Having 64-bit support enables a new range of hardware capabilities, including more memory. The new processors also boast virtualization support, error correction, security capabilities, and better floating point performance, says Ian Forsyth, a product manager at ARM.

AMD quickly followed up with its plans to license the core and offer it to customers in 2014. Calling it a "historic day" for the company, AMD CEO Rory Read said he hopes that the new chips will "disrupt the status quo" and "drive the industry to where it needs to go to inspire competition and to enable our customers to do more."

That doesn't mean AMD is moving away from x86 -- it publicly discounted that possibility -- but the adoption of ARM allows the company to offer another option to its customers. With business so slow, broadening its base is critical, says McCarron. After all, there is growing interest in ARM servers as an energy-efficient way to handle large numbers of Web requests such as in search or social networks. Dell and Hewlett-Packard already offer prototype ARM-based servers for testing to customers looking to deploy ARM servers to cut energy bills.

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