'Intel Inside' Needs Intel Outside

NEW YORK (TheStreet) -Intel (INTC) stock was hit hard Monday by a BloombergBusinessWeek report that Apple (AAPL) might use ARM-based chips (like those in the iPad) for future Macintoshes rather than Intel's x86 line.

As sageinvestors tweeted, "Concept of Apple not using Intel chips could be game changer."

Fact is, the game changed long ago. Intel just hasn't changed with it.

A decade ago, while working as a market analyst, I did some interviews that gave a hint of the problem. Intel was offering Chinese Original Equipment Manufacturers, or OEMs, chips and an "ecosystem" of software from which they could create products. Rivals like Broadcom (BRCM), by contrast, were offering chips, designs, and customers. With which company would you rather do business?

The late "Wintel" monopoly -- Microsoft Windows and Intel's x86 chipset -- was based on the idea that companies like Dell (DELL) and Hewlett-Packard (HPQ) would compete fiercely within a market defined by Microsoft's monopoly over operating system software and Intel's monopoly on chips with an instruction set that could run Windows, and was backward-compatible all the way to MS-DOS.

Neither company was prepared for what Apple did during the 2000s. More important, neither reacted to it. Intel was quite happy to get Apple's PC business, even as that became a smaller and smaller part of the whole account. The company did not adapt to the idea that OEMs might want to customize a basic design and separate that process from manufacturing, to gain more control over the final product and how it was used.

Intel's defenders continue to point out the technical superiority of the company's chips, compared with designs based on what ARM Holdings (ARMH) offers. But that's the point. ARM only sells designs. It doesn't make chips. By pushing its own designs, built in its own foundries, Intel lost the plot.

"Intel Inside" was a big name brand in the 1990s, as Intel got PC makers to mention the chipmaker in their ads by paying a portion of the cost. But Intel has a horrible record at making consumer products. Today it only makes things that go alongside a PC, like wireless display systems and expansion modules. It remains dependent on others to define and create its consumer markets.

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