New Chips Could Boost iPhone Rivals

At the Mobile World Congress, Nvidia and others are unveiling innovations designed to compete with Apple in the data services market

by Cliff Edwards

If the debut of Apple's iPhone last June wasn't enough of an eye-opener for cellular industry players, a Google (GOOG) memo recently made public should have done the trick: While the iPhone accounts for just 2% of high-end Web-browsing and media-playing handsets, or smartphones, sold worldwide, its users over the holidays accounted for a majority of incoming mobile traffic through Google's giant server network.

Now Apple (AAPL), which hasn't rented an inch of floor space at the wireless industry's four-day confab beginning Feb. 11 in Barcelona, Spain, is again transforming the agenda. Wireless companies throughout the industry will announce new alliances, hardware, and software in Barcelona as they try to topple Apple's outsize influence on lucrative consumer data services in the market.

"Smartphones historically have still been used primarily for making calls, but all that's changed with the iPhone," says Mike Rayfield, general manager for the mobile business unit of graphics chipmaker Nvidia (NVDA). "Now everyone is trying to make their phones more intuitive, engaging, and connected."

Device Complexity Limiting Web Growth

The most anticipated step in that direction will come on the software side. Chip licensing company ARM (ARMHY), in private meetings with journalists and analysts, will show off a prototype device based on Google's Android mobile computing platform that promises to create a new Internet-friendly standard, based on open-source software, for software on midrange phones.

Mobile is fast becoming the first and "most accessible screen" for Web access, according to research house Visiongain, but the complexity of many of the devices that can deliver on mobile broadband coverage is limiting growth. In Western Europe, about 25% of mobile subscribers use the Internet on their cell phones at least once a month—a figure that seems laughable when comparing Web usage among iPhone customers.

Incumbent players will need to develop fast expertise with Linux-based platforms to compete with Google. Linux's open standards and wide developer base could create a tidal wave of applications (BusinessWeek.com, 1/22/08), making it hard for Apple and its relatively closed iPhone ecosystem to keep up. But the clock is ticking since Apple plans to release its own developer's kit to the public within weeks.

Other major cell-phone makers in the Google-led Open Handset Alliance, including Samsung Electronics (SSNGY), Motorola (MOT), and LG Electronics, have been mum about their plans but are expected to show their own prototypes by the end of the year.

Chipmakers Want to Help Make a Difference

The challenges of creating more consumer-friendly devices also present new openings for Nvidia and other chip industry laggards who have been trying to break into the mobile market for years as a handful of stalwarts such as Texas Instruments (TXN) and Qualcomm (QCOM) vigorously defend their turf.

With Apple predicting it will sell 10 million iPhones by yearend, chipmakers such as Nvidia are hoping that rival cell-phone makers will quickly adopt cutting-edge technologies they're marketing. Handset makers "are dying for something to differentiate themselves, and it's coming down to the quality of the display and how well they can display 3D content," Rayfield says.