Global Economics

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

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.

That's where Nvidia thinks it can help. The company on Feb. 10 began showing prospective buyers a prototype smartphone that uses a new cell-phone chip architecture it has designed called the APX 2500. The company says customers who use the applications processor and graphics chip package after it becomes available in late June will be able to promise wireless users up to 10 hours of high-definition video playback, 3D gaming and graphics, or 100 hours of music playback—all on a single battery charge. Nvidia executives say the company's engineers created breakthrough performance by cribbing from techniques developed during Nvidia's years as one of the leading graphics chipmakers powering high-end personal computers.

The chipmaker also is incorporating technologies it brought in-house with its purchase in late 2006 of PortalPlayer, a company that helped Apple create its earliest iPod hard drive-based digital music players. The new architecture manages power consumption better by shutting off juice to parts of the phone when they're not in use, while employing ultra-low power chipsets to further improve battery life.

Apple Not Waiting for Rivals to Catch Up

The chip platform initially has been optimized to work on Microsoft (MSFT) Windows Mobile devices and could appear in phones and other mobile devices by year's end, Nvidia CEO Jen-Hsun Huang says. "This is the dawn of the second personal computer revolution," Huang says. "The APX 2500, combined with Windows Mobile, will make the next generation of smartphones our most personal computers."

Surround-sound leader Dolby Laboratories (DLB), meantime, is betting it can help cell-phone makers improve crackly or echo-like user experiences with Dolby Mobile. The company recently purchased Coding Technologies, a leading provider of audio compression technologies for broadcast and mobile applications. With entertainment becoming a central theme of high-end phones, the company is betting it can make new inroads with four of the top five handset manufacturers.

Even as cellular rivals speed up their efforts, they'll have to deal with the fact that Apple appears to have little intention of waiting for them to catch up. Randall Stephenson, CEO of AT&T (T), which has an exclusive contract to sell the iPhone in the U.S., already has said Apple will unveil a new version this year capable of faster Web browsing and other multimedia functions.

And on Feb. 5, Apple quietly doubled the amount of memory in its first-generation iPhone, which operates on a slower cellular network than most rivals in the class. "The iPhone is not standing still," CEO Steve Jobs proclaimed at the Macworld conference in early January. He may be right, but rivals are hoping they can drastically slow it down.


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