Intel’s dominance in the global microprocessor market is being threatened by the rapid rise of ARM Holdings. With its roots in embedded systems and low-end mobile phones, ARM is fast becoming the processor of choice in smartphones and tablets. In addition, a range of companies are now experimenting with ARM-based processors for larger computing devices, from netbooks to servers (e.g., see NVIDIA with Project Denver).
One of the reasons that ARM is gaining share in the processor market boils down to technology. ARM-based chips are more energy efficient than Intel’s. As noted by DataRespons, an “ARM-based system typically uses as little as 2 watts, whereas a fully optimized Intel Atom solution uses 5 or 6 watts.” Energy efficient processors are well suited for portable devices, where battery life is a primary concern. Energy efficiency is also becoming an important issue for non-portable devices, such as servers, because of rising energy costs and concerns about global warming.
Intel is acutely aware of this technological threat posed by ARM, and is aggressively working on developing more energy-efficient processors. Given Intel’s significant technological expertise, the company should be able to close the energy efficiency gap with ARM, if not in 2011 then certainly by 2012.
But what if the threat posed by ARM is not purely, or even primarily, technological? In other words, what if Intel is able to match or even beat ARM-based processors from a technical standpoint (e.g., energy efficiency and clock speed), but continues to lose market share to ARM in all key segments of computing?
Looking beyond technology, ARM Holdings has several other significant advantages that Intel has yet to publicly confront. Each of these other advantages stem from ARM’s unique business model. Unlike Intel, ARM does not manufacture processors and the integrated chips (e.g., system-on-a-chip). Instead, it licenses its processor technology to OEMs who then incorporate this technology into integrated chip designs. The chip designs are then often produced through a contract foundry (e.g., TSMC).
This unique business model gives ARM three significant advantages over Intel. First, with this model, “ARM offers [OEMs] a considerably cheaper total solution than [Intel] can at present…” (DataRespons). Second, this model enables OEMs to customize integrated chips that conform to different form factors. Customization is a major issue for OEMs trying to shave thickness and weight from the latest portable devices, such as smartphones and tablets. Third, this business model, and ARM in general, is less threatening to OEMs. ARM’s business model gives OEMs much more control over design and manufacturing. Moreover, ARM is not weighed down by the baggage that Intel carries as the only producer of x86 processors used in personal computers (PC), aside from AMD.
Intel’s slow response to ARM’s business model could be a significant blind spot. Or it could mean that Intel is unwilling to directly deal with the threat because any serious response would lead to a significant decline in the company’s revenues and profits. Consider that because of ARM’s unique business model, the company generated revenue and operating income in 2010 that was just 1.0% and 0.7%, respectively, of Intel’s. 
Intel is still the dominant producer of processors on a global basis, with “86.4% of the [netbook/laptop] market, 93% of the server and workstation market, and 72.1% of the desktop chip market.” The company has significant financial resources and technology expertise to confront competitive challengers. That said, if Intel wants to retain its command over the processor market into the future, as computing shifts away from PCs to connected devices and cloud computing, the company must quickly and decisively confront the significant business model challenge posed by ARM.
 According to Google Finance, ARM’s revenues and operating income in 2010 were $406.6m and $106.96m, respectively. Contrast this with Intel’s revenues and operating income over a similar period, which were $43.6b and $15.463b, respectively.