Microsoft skips over Intel for ARM tablet device

Microsoft is taking its biggest step away from a long-standing, lucrative alliance with Intel to team up with Britain's ARM in an attempt to take on Apple in the red-hot tablet and smartphone arena.

Microsoft, the second-largest US technology firm, plans to design a Windows operating system compatible with chips designed by ARM, an Intel rival and the dominant producer of chips for smartphones and tablet computers.

Chief executive (CEO) Steve Ballmer pitched the move in a typically enthusiastic opening address at the Consumer Electronics Show (CES) in Las Vegas, looking to convince investors his company could hold its dominance in a world moving away from PC-centric computing.

"Whatever device you use, now or in the future, Windows will be there," said Ballmer, stalking the stage in a packed, supportive auditorium. "Windows will be everywhere on every kind of device, without compromise."

Investors and analysts were not immediately convinced the software giant could maintain the dominance of Windows as Apple's iPad leads the exploding tablet market and Google's Android smartphone systems take off.

"The PC is not going to be the 95 per cent dominant solution five years from now," said IDC analyst Al Hilwa. "The trajectory of the iPad and all these Android devices is to take on multiple form factors."

The lack of a coherent strategy on tablets hobbled Microsoft's share price last year, and its shares continued to trade around the same level they did eight years ago.

"We've already seen that the personal computer has lost dominance as a computing platform," said Brendan Barnicle, an analyst at Pacific Crest Securities. "Microsoft has to deal with the fact that Apple is making these really compelling devices."

Microsoft's move is the latest major win for ARM, which is making huge strides in mobile computing. Yesterday the company also announced graphics chipmaker Nvidia would begin designing central microprocessors for computers based on ARM architecture.

Cornering the market

Microsoft's new approach marked a shift away from Intel, whose chips have held an hegemony on Windows operating systems on PCs, and suggested the breakdown of the fabled "Wintel" alliance, which set the standard in early computing.

"It's highly symbolic, the Wintel duopoly that was such a good partnership for so long is fraying at the edges a little bit," said Todd Lowenstein, a portfolio manager at HighMark Capital Management.

The software giant offered no time frame for the launch of the ARM-supported operating system version, but Windows unit chief Steven Sinofsky said Microsoft typically aimed for 24 to 36 months between major Windows versions, suggesting a launch date of between October 2011 and October 2012.

That means tablets capable of taking on Apple's iPad may be a year or more in coming, running the risk of leaving it too late to catch up, as well as betting on tablets being an enduring new market.

"It's still early in the adoption phase for tablets," said Lowenstein. "Prices will be coming down, there is a mass market opening up even more, and both Intel and Microsoft have the capability to catch up. Microsoft has made a business model out of second-mover advantage, using its scale to crush opponents."

Research firm Gartner expects worldwide smartphone sales to treble to 851 million units by 2014, whilst it sees tablets increasing seven-fold to more than 150 million units by 2013.

In comparison, PC sales are expected to increase at a much more sedate pace, close to 15 per cent this year, rising to 610 million units worldwide by 2014, according to Gartner. By that time, the analyst firm expects tablets to have displaced about 10 per cent of PC sales.

New chipsets for Windows

High-powered, low-battery chips made by ARM dominate the smartphone and tablet markets, and are featured on Apple's iPhone and iPad.

During Ballmer's presentation, he demonstrated a Windows desktop running off ARM-based chip architecture, including one powered by Qualcomm's popular Snapdragon processor and another by Texas Instrument's OMAP.

Also demonstrated was a desktop powered by Nvidia's Tegra.

Microsoft's operating software for mobile devices - Windows Phone 7 already supports ARM processors, but the new version of Windows would mark a shift in its core operating software for computing.

Samsung, Dell and Asustek have already announced tablets running Windows 7 standard OS will go on sale this year.

"They have to evolve the PC, they have to redefine the PC. And it looks like they kind of got the memo on this now," IDC analyst Hilwa said.