Microsoft Challenges Apple -- Intel Wins

NEW YORK ( TheStreet) -- In reaction to Apple's ( AAPL) stunning new dominance of the "PC market" with the iPad tablet, Microsoft ( MSFT) has a cunning plan. It's going to blur the lines.

What Windows 8, the coming version of its operating system, is all about is having one OS that runs on a desktop, a laptop, a tablet or a phone. With its Metro interface, designed for touchscreens, the idea is to challenge Apple's citadel directly from the Microsoft castle.

Guess who the winner is most likely to be? Intel ( INTC).


Intel's latest chip, dubbed Ivy Bridge, is aimed at mobile and gaming markets. It uses much less power and handles graphics much better than earlier designs.

Most analysts are comparing it favorably to what long-time rival AMD ( AMD) offers, but I suspect Intel has a bigger goal here.

The fact that "fab-less" companies -- firms that design but don't make their own chips -- like Nvidia ( NVDA) and (now) AMD have been eating Intel's lunch for years must hurt. The fab-less win by getting closer to customers, by designing around their needs, and by making custom runs for specific products, rather than by expecting product makers to design around their latest-and-greatest.

Their greatest success has been among Chinese OEMs, for whom they deliver complete designs, with sell-through guaranteed, rather than just chips and software.

But what if there were just one OEM to please?

The Apple iPad presently uses a Samsung-made chip based on ARM technology. The design is built around power efficiency, and the heart of the new iPad is its snazzier graphics, perfect for gaming.

For Apple, the problem with that is that Samsung is a direct competitor. The two companies face off all the time, not only in stores but also in court. Samsung has risen in power thanks to its embrace of Google Android, and Apple hates Android with a passion.

Meanwhile, Intel is interested in becoming a foundry for Apple and Intel is already producing the central processor for Apple's desktop Macintosh line.

Consider why Apple moved to Intel for its PC chips in the first place. It's because Intel has its own foundries, it is the dominant supplier, it can deliver in quantity. That relationship has been developing now for most of a decade.

The blurring of lines between laptop and tablet can work both ways. Just as Microsoft is offering a Windows for tablets, so Apple might want to offer an iPad for laptops. But the unifying theme in this case wouldn't just be software, but hardware -- the same chip running in each.

Since Intel doesn't compete with Apple in products, and since it's already supplying chips for Apple desktops, it makes a lot more sense for Apple to move toward Intel chips for its iPhones and iPads than to continue getting them from its Korean rival.

This won't happen overnight. Intel will have to prove itself first.

My guess is Ivy Bridge is Intel's first crack at winning that contract. If today's strong reviews are followed by strong sell-through and high reliability, the way will be clear for Intel to develop a version of its new technology that runs, not just on the iPad, but on the Macintosh as well.

The blurring that Microsoft began with Windows 8 could well result in the replacement of WinTel with ApTel.
Dana Blankenhorn holds no positions in any of the securities mentioned in this article.