SoftBank Capital and Yahoo Japan said they had created an unusual $20 million fund to help U.S. startups break into the Japanese market, while also upping a presence in the U.S.

The partnership between Japan’s largest Internet company — which is also a joint venture with Yahoo — and the venture arm of the giant SoftBank Corp. will invest in companies from early-stage funding to later-stage expansion and focus on mobile applications, social media, e-commerce, online advertising, gaming and cloud computing.

The new funds for that are being put into SoftBank Capital’s $100 million Technology Fund ’10. As part of the deal, Toshiaki Chiku will become head of U.S. operations in Manhattan. SoftBank Capital also recently announced a $250 million PrinceVille Fund, aimed at growth-stage startups in Asia.

Among the firm’s recent exits: Bluefin Labs went to Twitter, Buddy Media to Salesforce.com, Huffington Post to AOL, Hyperpublic to Groupon and OMGPOP to Zynga.

Now, it will be focusing even more on helping U.S. startups in Asia.

“Japan can be challenging for many U.S. companies, and given our scale and affiliation with SoftBank Corp., we’re in a great position to help them grow and succeed,” said Chiku in a statement.

SoftBank Capital and Yahoo Japan used performance display advertising company Criteo as an example of a successful investment, in which it also helped the company enter the Asian market (although, technically, Criteo is HQed in France).

As if you needed another indicator about how much the old Wintel world of PCs has flipped in the last couple of years, take a look at the earnings results of the British chip designer ARM, which just reported quarterly earnings this morning.

Sales rose by 29 percent year on year to north of 170 million pounds (or $260 million), which was better than expected. Earnings on a per-share basis were five pence versus the expected four pence, amounting to a beat of a penny per share. Its shares are rising by 9 percent both in the U.K. and on the Nasdaq in the U.S.

ARM, you’ll recall, is the company behind the designs that go into building the chips that land in most smartphones and tablets. Rather than make the chips, ARM licenses its blueprints to companies like Qualcomm, Broadcom and Nvidia, which then make their own chips. And since phones and tablets are growing a lot faster than traditional PCs (come to think of it, PCs actually aren’t growing at all), ARM is looking a lot healthier than traditional chip companies like Intel and Advanced Micro Devices. Here’s a pretty good indicator: Royalty payments for processors rose in the quarter by 33 percent versus a processor industry that’s up about 2 percent.

ARM is quickly turning out to be the company to watch in the chip space. Chips sporting ARM designs are everywhere these days, and there has been a lot of chatter of late about them heading into the data center.

Hewlett-Packard offers ARM processors as an option on its radical new server design, called Project Moonshot. Dell offers ARM-based servers, too, and there are even more plans for ARM chips in servers. I talked with CEO Warren East about this last year. (East is retiring this summer, by the way, and Simon Segars will be ARM’s new CEO, starting in July.)

The basic argument that ARM makes coming in is that its chips are good at managing power consumption, in part because they were designed from the beginning for mobile applications. And power consumption continues to be a huge problem, especially in data centers where thousands of servers are crowded together in one place.

Intel, the king of the chip world, has responded and created its own line of low-power chips called Atom. And as we learned from Mike Bell, head of Intel’s mobile chip business at D: Dive Into Mobile last week, it has gotten off to a slow start but is starting to get a little traction in mobile.

Another version of Atom, announced the week before last, will also defend Intel’s interests in the server space. But keep an eye on this, because there’s eventually going to be a rumble.

Today is the day HP will formally unveil a product upon which a lot of its hopes for transformation and a return to health have been placed. It’s called Project Moonshot, and HP has been talking about it for about 18 months.

Basically, it’s a server, a very small server that consumes very little energy. During a conversation earlier this year, Dave Donatelli, HP’s executive VP and head of its enterprise, showed me one. Smaller than a typical hardcover book, it consumes 89 percent less energy to operate, and takes up 94 percent less space than a typical server. And, when packed into a large rack with many more servers like it, the amount of computing power that can be harnessed in one relatively small place is pretty impressive.

It’s also highly customizable, in a nearly endless series of mix-and-match combinations: It supports Intel’s Atom line of small and light microprocessors, as well as new up-and-coming server chips based on designs from the British firm ARM. It can also support graphics processing units from companies like Nvidia, as well as standard hard drives or flash-memory based solid-state storage.

HP’s argument to the marketplace is that Moonshot is unique. In a world where companies maintain data centers either for their own operations or as a means of reselling cloud computing capacity, HP’s hope is that the appeal of lower operating costs over time — energy consumption is a big one — will appeal to customers looking to swap out older machines.

And by at least one simple metric, it is. HP’s rivals, including Dell, IBM and Oracle, have nothing quite like it. That doesn’t mean they couldn’t. It is increasingly popular — companies like Google and Facebook do a lot of this — for a company to assemble their own servers from off-the-shelf components. Indeed, chipmaker Intel will be discussing new reference designs — essentially a basic blueprint — for what it calls “micro servers,” based on new versions of its Atom processors, later this week.

The message of Moonshot is also larger. It’s a signal from CEO Meg Whitman that HP can still launch important, innovative products that are different from anything else on the market. That’s a key message, given the tremendous difficulty the company has found itself in over the last few years. Indeed, just last week, Chairman Ray Lane stepped down from that role, and two other directors resigned in response to a proxy campaign by shareholders unhappy with the botched 2011 acquisition of the British software firm Autonomy.

A successful product launch will help shift the HP narrative away from recurring boardroom and executive office dramas, toward the day-to-day business of being the world’s largest technology company. And that’s just as important as the product itself. The sight of HP experiencing a win in a key market segment will go a long way toward making it look as though the longed-for turnaround — one that seemed unthinkable only months ago — is really getting under way.

Image copyright Oleksiy Mark

This is rocking the industry. Dell is being taken private — closing a curtain to start the dirty work of restructuring. HP, Microsoft and Intel are all trading well off their peaks when the Dow has recently hit an all-time high. IBM looks like the sole winner, jettisoning its PC business years ago to China-based Lenovo. Well, it’s a good thing all of these companies also play a big part in the $55 billion server market¹ — that’s not going away anytime soon, right? The worst days are over, and hopefully their collective market caps will recover? Not so fast …

Modern Web services, such as Google, Apple and Facebook, are pushing the limits of data center scaling to unprecedented levels as they deal with an exponential growth in user traffic. They are playing a massive game of Tetris as they grapple with deploying and operating data centers with tens of thousands of servers versus hundreds. They are all on the bleeding edge of trying to contain costs while cramming as much capacity into a physical building as possible. The result is a complete architectural rethink of data center designs, and the incumbent server vendors are struggling to stay relevant in this new reality.

The new data center designs use only commodity “vanity-free” components procured directly from the original design manufacturers (ODM) — the current incumbent’s suppliers. For easy serviceability, components are Velcro-ed together, versus mounted in a box. All bells and whistles are stripped off, and the hardware is purpose-built for a specific application and therefore carefully tuned. As compute-utilization rates skyrocket from virtualization and parallel processing, the CPUs are running harder and hotter, and therefore the new expense bottleneck is all about power and cooling.

Take, for instance, Facebook’s Open Compute initiative, which lays out a blueprint for an energy-efficient hyper-scale data center that is 38 percent more energy efficient and 24 percent less expensive than current data centers. Locating in cold climates and next to super-cheap hydro power has become de rigueur. Power distribution, cooling and building layouts have been redesigned from the ground up to maximize mechanical performance and electrical efficiency of the data center. And unfortunately for Intel, the relentless march of Moore’s law no longer affords them differentiation, as customer needs have shifted from performance to power efficiency, an area where they lag rival ARM processors.

The evolution of the modern hyper-scale data center reflects the hyper-scale needs of the applications that run on them. Modern Web 2.0 (and increasingly SaaS) applications need to handle thousands of user requests per second, processing terabytes of information in real time across hundreds of customers. They are by necessity massively parallel, and work in concert to service a user request. This is the modern equivalent of a giant supercomputer — except cobbled together from commodity server components and interconnect fabrics. It’s a profound software and hardware architectural shift that is taking us from a world where data centers consisted of a small number of independent high-performance branded servers to a brave new world where the giant data center building is the server.

Meanwhile, on the enterprise front, the corporate data center is becoming increasingly sedate as on-prem applications give way to their SaaS counterparts. The new data center architectures, born of necessity from the giant Web service providers, have the potential to massively drive down the cost of providing software as a service, the new winner in enterprise applications. As such, the cloud service providers (CSPs), such as Amazon and Rackspace, are adopting these “scale-out” architectures.

So, fast-forward: SaaS will win the enterprise market. Face it — it’s just so much better, and now infinitely cheaper than any of the alternatives. And modern SaaS applications will be delivered through hyper-scale data centers that do not have branded servers from Dell, HP or IBM, but rather highly optimized, scale-out white-box servers made by Asian ODMs. In addition, the operators of these massive data centers will be experts in servicing their creations — monitoring, fixing and rapidly swapping out their expected-to-fail components. Therefore, there will no longer be a need for the recurring revenue, high-margin service and maintenance contracts that have been a mainstay of the OEM server industry.

I wonder if Lenovo is in the market for a server business, too.

________________________

I would like to thank my partner, Ramu Arunachalam, for his research, analysis and material contributions to this blog.

Scott Weiss is a partner at Andreessen Horowitz and the former co-founder and CEO of IronPort Systems, which was acquired by Cisco in 2007. Follow him on his blog or on Twitter.

The latest market data from research firm Gartner found worldwide server sales declined by 0.2 percent, even as revenue from sales of those servers increased by more than 5 percent. For the full year though, sales increased by 1.5 percent on a unit basis, while revenue declined slightly.

Budget worries caused many companies to hold back on replacing older x86 machines, Gartner said, especially in the enterprise and in some mid-tier data centers. That no doubt factored into some worries around Intel’s outlook when it reported Q4 earnings last month. The only ones really buying were big players like Google, Facebook and China’s Baidu. Sales of RISC-based machines running Unix, as well as specialized hardware like Hewlett-Packard’s Itanium servers, were also weak.

IBM made the most on a revenue basis, clocking in sales worth north of $5 billion, while HP sold the most on a unit basis, with a little less than 664,000 units.

On a regional basis, North America saw unit shipments grow 5.5 percent, followed by Asia/Pacific at 3.4 percent, and Latin America, which was essentially flat.

Europe, on the other hand, declined substantially, and that’s where a lot of the pain was. As sovereign debt and economic concerns continued to take much of the oxygen out of the room in those countries, server sales declined by more than 10 percent on a unit basis, Gartner said. Most companies there saw their unit sales decline except for Japan’s Fujitsu and Cisco Systems. In Cisco’s case, its unit sales grew by nearly 20 percent, but that was off a low base relative to the other vendors. By comparison, Cisco sold about 14,000 servers in the region, versus HP which sold nearly 248,000.

Looking ahead to the rest of 2013, Gartner said to expect modest growth, offset a little by a boost in the use of virtualization, which allows one physical machine to run as if it’s many virtual machines. Virtualization logically tends to eat into the overall volume of machines needed. Simply put, where you once needed two or four or eight servers, it’s pretty likely you can now, given the improvement in processing power plus virtualization, replace them with one or two or three.

Here’s the worldwide breakdown for the top five vendors in the quarter, revenue first.

The company’s conference call with analysts is about to begin. Expect some questions from the gallery that test Intel’s assumptions about the state of the PC and server markets and its assumptions about its intentions in the mobile business. And while Intel execs on the call probably won’t say much about any of this, there will be some pressing questions about the state of the search — such as it is — for the next CEO who will take over after current CEO Paul Otellini leaves later this year.

Earlier:
2:11 pm: Joining the conference call in progress. CFO Stacy Smith is reading from his prepared remarks, looking back on the year.

Smith: Spending as percent of revenue was 34 percent. Fourth quarter revenue finished in line with expectations. Worldwide inventory levels reduced as customers reduced their inventory of older PCs.

2:13 pm: Smith: In 2013 we’re expecting revenue growth in the low single digits. Expecting $18.9 billion in spending.

2:14 pm: Smith: As a result of the significant progress we’ve made, I’m optimistic about our long-term prospects. In 2013 we will rev our next-generation tablet chip, Bay Trail for Windows and Android.

Smith: We will start production on the 14-nanometer process this year. This will put us significantly ahead of the competition.

2:16 pm: Moving on to the Q&A session with analysts.

Question from Deutsche Bank: It seems like your Capex and Opex are outgrowing revenues. It looks like investors are dubious about when they’ll see returns on investments. What are the mile markers?

CEO Paul Otellini: You’re seeing our first investments for the 450-millimeter transition for later this decade. (Bigger silicon wafers.) That is more of an extraordinary event that isn’t related to volume in 2014-16. Other than that, it’s about the same as last year. As we finish up the use of the 14-nanometer processes and move to 10-nanometer process, we’re going to need those factories. Regardless of what you think the size of the market is, the fabs (factories) are the most important assets we have.

Smith answering another question on Capex. It’s for building to the peak of 14-nanometer, and starting the early bits of 10-nanometer. Its really for the peak of 2014 and 15. With regard to equipment, the facility-related spend is coming back and it’s for equipment.

2:21 pm: Question on guidance for 2013 revenue, can you walk through underlying assumptions?

Smith: We expect data center group to return to double-digit growth. Cloud data centers and portions of the market like storage and networking. And then for core PC market, we have pretty modest expectations in units. We think growth comes from the devices that sit in the middle. Plus we start to participate in the tablet market.

Is the spending for 450-mm wafers ongoing?

Smith: What changed is, the industry consortium set expectations for the shift, we want to start the construction of a development facility. I expect there’s some spending related, but we won’t get into real capital spending on it until the back half of this decade.

Q: The 10-nanometer spending, does that assume EUV or immersion lithography?

Smith: I’ll save that for the technologists. We’re close to the vest with those details.

2:24 pm: Question: There are some reports about Intel manufacturing some chips for Cisco Systems. Trying to drill down on Intel becoming a specialized foundry, which builds chips under contract.

Otellini: We are very interested in being a selective foundry for certain customers. We don’t expect to be a general purpose foundry. We would not take business that would strengthen a competitor. We have done some announcements in programmable logic, and those companies need a company like Intel to help them. We have been building that capability and we’re now going into production.

Smith: To the extent that we engage with these customers, we want to get paid for it.

Questions about ARM.

Otellini: We’ve looked at the A15, and we’re comfortable that we can maintain a performance lead.

2:27 pm: Another question on the foundry business. Have you earmarked any money for it?

Smith: Other than the three small customers you have heard of, the foundry business is not driving our Capex spending.

Question on PC market guidance. You seem to be guiding them down and making a big bet on 2014. How much do you need to take of tablet share, or how much needs to be eaten by your convertible PCs to make that bet worthwhile?

Smith: I’d take issue with the characterization of PCs guiding down a ton. For the company I said low single digits, data center up in double digits, and you still end up with client (PC) growth in that. The lines are blurring and we are expecting some unit growth. When we get into the back half of the year it’s a fairly reasonable assumption. We expect normal growth, just across a wider range of devices.

2:32 pm: Question on Q4, seems PC client units were down 4 percent. Was this mainly an inventory drain?

Smith: We think there was an inventory drain in the worldwide supply chain for PCs in the first quarter. Our channel checks suggest older Windows 7 systems were burned off in the quarter. When we look at inventory levels, we think it’s a healthy level of inventory. Plus we reduced our own inventory levels.

Q: Any particular dynamic at work regarding average selling prices in the data center group?

Otellini: The big drive was Romley. That helped drive the overall richness. On PCs, we saw strength in the core product line, and more weakness than we thought in the lower end of the market.

Question on potential for hybrids. We’re seeing small tablets. 10-inch tablets are not selling as well. Does that give you an opportunity?

Otellini: Yes. Phones are getting bigger. And the shift to tablets from 10 to seven inches, and that is what you’re going to see. The market will bifurcate between 4- and 6-inch and then 5- and 7-inch products. They only get thinner as Haswell and Broadwell come online.

Question on cash balance. What is the level of cash. Will you have to raise debt again?

Smith: We would certainly look opportunistically as we have been. We generated $6 billion of cash flow from operations, so we’re generating plenty of cash to run the business, to pay the dividend and protect the dividend. I’m comfortable with the cash we have now, and I could live with a little less as well.

Question on an update acquisition of Infineon wireless. Where are you with 4G LTE and an integrated Atom chip? Progress with handsets?

Otellini: Infineon is well on its way to LTE. Dual data and voice mode. First phones early next year. Very competitive solution. The Infineon team is known not for being first to market, but very good, and cost effective. In terms of integrated solutions, expect higher levels of integration next year.

Smith: I’m struck by how hungry the customers (phone makers) are to work with us on this.

2:40 pm: Question on price elasticity in the PC market. Wondering how price drops drive unit growth.

Otellini: I don’t think there’s much elasticity in the classic form factors. What we saw earlier was similar elasticity in desktop in 80s and 90s. It dropped until it reached a point where there was a minimum margin left for all the players.

People will buy based upon their need in those price points. Difficult to see them go from $299 to $99. What we’re likely to see is people willing to spend a little more for a more capable product. We’ve seen it in the Apple model. There is a model of paying for innovation.

2:42 pm: Do you have a view on EUV (Extreme Ultraviolet Lithography)?

Smith: Not prepared to talk about it.

Question: You’re expecting a better than seasonal 2H13.

Smith: That is consistent with our view. The consensus GDP estimates, there is a consistent strengthening of GDP later this year. Haswell gains traction, touch gains traction. We become more represented across Windows tablet and Android across 2013, and that gives us a better than seasonal second half of the year.

Question on regional performance.

Otellini: In China, there were some tablets that impacted some low-end PC sales. Brazil saw some inflation and that affected some PCs sales. China had a regime change, and that affected some sales. China is still outgrowing any large economy in the world. We have been pleasantly surprised by the data center growth in China.

Question on gross margins. They were a little better. Can you share with us your utilization rates in Q4 and what you expect the trajectory to be in Q1 and beyond?

Smith: We came in with gross margins a little better than we expected in Q4. We brought the loadings down in the factories a bit. We redirected some equipment, and brought inventories down by $600 million. We think gross margins are roughly flat. We see continued improvement in excess capacity, and increases in startup costs. Add in some other puts and takes it’s about flat. When we get to Q2 we see further reduction in excess capacity charges, but that is when we will peak in terms of startup costs. So I think Gross margin in Q2 will be flat to down. But we think gross margins later in the year to be closer to low 60s because we’ve guided to 60 percent for the year. Our costs come down over the back half of the year.

2:52 pm: That’s it. Thanks for tuning in! See you in 90 days!

For one thing, there are questions about CEO succession. Current CEO Paul Otellini (pictured) surprised everyone in November when he announced plans to retire well before it was expected. All the smart money is being placed on an internal successor being named, though Intel’s board of directors will give at least some consideration to outsiders. Here’s a pretty thorough list.

Management issues aside, Intel has a more fundamental question to struggle with: The personal computer industry, to which Intel has long been the primary arms merchant, is contracting. Data from both Gartner and IDC showed a market that shrank in 2012 by more than 3 percent — or about 13 million units. And there’s little sign of that changing.

The damage to the PC industry is being wrought by tablets and smartphones, markets where Intel has yet to penetrate with chips of its own in any meaningful way. At the International CES, Intel showed off its Lexington and Bay Trail generations of mobile chips. Impressive as they may be — one attraction is to bring the x86 instruction set that is a fundamental underpinning of mainstream PCs to tablets and phones — the chips won’t be inside any devices on store shelves until late this year.

It didn’t impress analysts at Piper Jaffray, who wrote in a research note to clients, wrapping up their impressions of CES, that the base of customers the new chips will attract is “not likely large enough to move the needle for the company,” and that “we continue to be concerned about the rate of cannibalization from tablets. We believe it is unlikely that 2013 sees any renewed interest in PCs.”

Meanwhile, Intel has one business that is largely safe from a meaningful competitive threat: Servers. Yes, it’s safe for now, but not entirely. Server chips using technology licensed from ARM — the British chip-design firm whose technology is found in most all of those non-Intel mobile devices — are on the way and, if nothing else, looking like an interesting option for the not-so-distant future.

The uncertainty has certainly weighed on Intel’s shares, which fell by more than 8 percent in 2012 but have since recovered. The shares were up more than 1 percent today in trading on the Nasdaq to $22.41 by midday in New York.

So what does the Street expect today? Per-share earnings of 45 cents on revenue of $13.53 billion. However, there are whispered numbers making the rounds, suggesting that Intel may fall short. That would be rare, as Intel typically beats the Street, even in tough quarters. But then, this isn’t just any tough quarter.

Stop me if you’ve heard this one before.

Intel has dominated the high-end, performance-oriented desktop space for years, producing some of the most powerful chips on the market.

Problem is, desktops are so last decade. The age of mobile computing was ushered in on the backs of millions of pallets of laptops, netbooks, smartphones and tablets. And the chips that Intel has classically produced just don’t do low-power, low-consumption like those of some of its competitors. CEO Paul Otellini is widely seen as having been nudged out of his job for missing the boat on this shift away from PCs.

So once again at CES in Las Vegas, Intel is reminding the world that yes, it can translate its technology over to mobile and do it well.

The company plans to roll out a new smartphone platform aimed at the low end of the Android market with its “Lexington” project. Intel has its “Bay Trail” quad-core Atom chip on the way to cover the high-end smartphones. New chips to come, too, for the Ultrabooks the company has so loudly trumpeted over the past year. It’s all supposed to last longer, work better and just plain beat competitors like Nvidia and others using ARM-based architecture.

Intel gave us a peek at the way this will work in December, when it revealed a new manufacturing process for making mobile chips using Tri-Gate transistors.

It’ll just take ’em a little while. Most of this stuff won’t hit the market until the 2013 holiday season. Yes, a full year from now.

At the very least, Intel had a few partners on board to show off. For the low-end smartphones, Acer, Safaricom and Lava will use Intel’s forthcoming platform. And some analysts think that however far off, this is a smart play for Intel.

“The Lexington platform is absolutely targeted at emerging regions, which will let Intel deliver a more functional phone than others like, say, a Qualcomm or a Mediatek,” Patrick Moorhead, president and principal analyst at Moore Strategy & Insights, told me. “Combined with some of the higher-end features they’re bringing to the low-end phones, they’ll undoubtedly pick up customers with this silicon.”

But we’ll still have to wait until Christmas to see most of this stuff, while competitors like Nvidia continue to introduce subsequent generations of their successful mobile products.

Perhaps by then, the latest and greatest phones you’re seeing launch today might be outdated enough for you to pick up a new one. That’s Intel’s hope, at least.

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Today, a new company called Trustonic launched with backing from ARM (the British chip company whose designs power most of the world’s mobile devices), Gemalto and Germany’s Giesecke & Devrient.

The basic idea is to provide security at the chip level, separate from the operating system on a device. Such chips will provide a Trusted Execution Environment that can be used to store account information, passwords and other sensitive information, making it easier to use and access from a mobile device.

It’s based on an ARM technology called TrustZone, and enhanced by software developed by Gemalto and Giesecke & Devrient. The hope is to create a platform that device manufacturers can build into future smartphones and tablets. Trustonic’s approach will be to license the technology to chipmakers, support companies who build phones and tablets while also enabling service providers to turn on services that take advantage of it for which they can charge additional fees.

Ben Cade, Trustonic’s CEO, said that ARM, Gemalto and Giesecke & Devrient had collectively poured “tens of millions” into the joint venture, but declined to specify how much. ARM owns 40 percent of the company while the other two will control 30 percent each. It will be based in the U.K.

Naturally, Trustonic — since it hails from ARM’s camp — will have an easy introduction to most of the companies involved with the mobile phone and tablet universe. But the question will be whether the kinds of experiences the technology enables not only get the job done, but whether or not they make users happy.

There’s also the question of adding additional parts to the mix. Generally speaking, most chips inside a phone or tablet over time get mushed together so they can be made less expensively. Anything that added to the bill of materials — the combined cost of all the components inside a device — will have to be offset by a perceived increase in value.

That might seem easy at first when it comes to security, but by and large consumers say they put a high value on security but rarely act that way. More often than not people create easy passwords, and are lax about changing them. We’ll see if this new approach makes a difference.

Speaking at a Sanford Bernstein conference yesterday covered by Bloomberg News, Otellini said that Intel’s board of directors will likely select an internal candidate to succeed him when he retires next year and not an external one. When Otellini’s decision to retire was announced last month, a lot of attention was paid to the fact that Intel said it would break with tradition and consider external candidates in addition to the internal ones already in the running. Trouble is, there aren’t many available executives who fit the bill.

Intel Chairman Andy Bryant more or less made it clear in comments to the New York Times that the “external candidate” language in the press release issued that day had more to do with covering the Intel board’s backside from a corporate governance point of view than anything else.

“It’s not up to me, but I think that’s the most likely outcome,” Otellini said at the conference, adding that he’s “very comfortable” with the internal people vying for the job.

If you’re not up to speed on who those candidates are, then you should go read this post from last month listing who’s who and why they’re in the running.

The smart money says the race will come down to COO Brian Krzanich and CFO Stacy Smith, with software chief Renée James representing the dark horse who would get the nod if Intel’s board decides to vary pretty substantially from its script.

The thing is, it won’t. Intel needs some radically new thinking in order to rise to the challenges facing it in the smartphone and tablet space. Having essentially conquered the first wave of the digital world by stomping all over every other challenger in the PC and server industry with its chips, churned out by its world-beating manufacturing expertise, it entered a new decade looking flat-footed in the face of its first existential threat in a generation: ARM.

There are now PCs running a variant of Windows with ARM-based chips inside them from vendors like Nvidia and Qualcomm. And while it’s still early to say, the perception in the marketplace is that these devices, not those with Intel chips inside them, have the momentum of the moment. Even Apple, Intel’s showpiece customer on the PC, is said to be close — and by close I mean arguably within a few years — of switching away from Intel chips to its own internally designed ARM-based chips on the Mac.

That leaves Intel with two strongholds: One vulnerable, one seemingly unassailable. The vulnerable one is the server space. The movements by many chip companies to harness new ARM-based designs to attack Intel’s dominance there will, I think, emerge as an important story in 2013.

The unassailable one is Intel’s manufacturing prowess. There is not a single entity on the planet that knows more about manufacturing chips, nor anyone that can do it anywhere near as well as Intel. In time, this fact will force Intel to become more of a foundry company than it has been before.

Consider some other comments that Otellini made at the Bernstein conference yesterday, as reported by Barron’s. Asked about the possibility of becoming a foundry — that is, a company that manufactures chips on contract for companies that don’t have their own chip factories — Otellini said:

We’re running a small foundry business. We are building up our capabilities. We don’t want to compete with Taiwan Semiconductor Manufacturing. But for the right types of products, and not to enable my competitors, I would certainly consider it. There’s a lot of stuff in the pipeline. … I think it makes sense for us to have that kind of capability, particularly as our semiconductor lead gets wider over the rest of the industry.

Which brings me back to the dark-horse candidacy of Renée James to be Intel’s next CEO. A lot of the value that goes into chips is now coming from software. Chips are made to be computing engines, but they’re also programmable, and a lot of secret sauce that gets put into them comes not only from hardware but from software. Intel is still a manufacturing company, but it is also a software company and employs legions of software engineers — including but not limited to the McAfee security software division it acquired in 2010. Software will increasingly become as important a strategic advantage in the manufacturing and customization of chips as the technology itself. Why not put a software executive in charge?

Also, if there were ever a moment to go off the script that Intel has followed since the days of Andy Grove — wherein every CEO has served first as COO — and shake tradition just a bit, it might be now. Just a thought.

But last week Hastings did lay out a concise summary of the challenges Microsoft is facing as it launches its newest operating system, along with its Surface tablet/PC. Hastings made his comments in front of a group of Dow Jones reporters and editors, and I figured it’s useful for everyone to see them.

In case you don’t like to read: Hastings says that he likes the Surface, but that it doesn’t really matter whether he and other users like the device — the key battle for Microsoft will be how developers respond to Windows 8. And he thinks CEO Steve Ballmer is “unbelievably self-aware” about the challenges his company faces. “He’s the last guy to be in any little bit of denial.”

His full comments:

[Microsoft has] many great assets and many great challenges. The great assets are the technology, and Windows, Office. And you guys know Ballmer. He is unbelievably self-aware, self-critical, smart. He’s the last guy to be in any little bit of denial.

So he sees the challenges clearly. But they’ve got a better set of competitors than they’ve ever had, in Google and Apple, on different sides. So they’ve got some big, interesting competitive battles.

If you think about the development of the mouse, when they had DOS, that was a real challenge to the whole Windows ecosystem. And they eventually won that, with Windows, because you could run DOS in an internal window, and so they had compatibility to all your DOS-based apps. But they did use pointers and mice and that kind of thing, and they were able to keep the installed base of DOS people and move forward into Windows.

So now look at what they’re doing, which is when you use Windows 8, it’s all for touch. But you can hit a thing and you open a window, essentially into the the old desktop, and you have all your apps and compatibility.

So it’s basically that play, that was so successful for them, again. Which is, essentially “we’ve got all the things about Windows you still need,” especially for the corporate users that generate the profits, “plus we’ve got the new touch stuff.” And then slowly apps get built for the new world. And you use DOS in the original example, or Windows 7 in the new example.

What’s great is they see the threat. They didn’t wait, like RIM, and sort of say “Oh, touch isn’t very good,” and that sort of stuff. Just like they did in the late ’90s about the Internet tidal wave. They’re really good at seeing the threat, and saying, “goddamit, we’ve got to nail this,” and putting all hands on deck and doing that.

I use the Surface. It’s great because you can plug it in at night, and it lasts all day long. It’s like an iPad, it’s ARM hardware.

Does Windows 8 work? That’s the more relevant question. Surface is a tactic to spur people on, to get Windows 8 really successful. It kind of doesn’t matter how successful Surface is. But it does matter a lot if Windows 8 is succesful.

They’ve got 350 million PCs that will be sold next year, and they’ll all have Windows 8 on them. So there’s a huge installed base for people to write Windows 8 applications. And then that kickstarts the application cycle that makes it valuable.

The challenge for them is, okay, what’s the profit stream, if the marketshare is different than it has been in the past. The big profit streams are from very high-share products — Office and Windows. So to the degree that the eventual revenue is not the same split as in the past, then there’s a threat to the profit stream.

Which is why the stock has been flat for eight or 10 years. People see that, and they’re scared about the future profits. The profits in 10 years have grown huge, but the stock hasn’t moved, because people are afraid of the future profit stream.

So, as the company succeeds with Windows 8, that takes away a big fear — if they do. And if they don’t, it’s a different battle.

Update: AMD is now saying the company is “not actively pursuing” a sale in statements to The Wall Street Journal, and which spokesman Drew Prairie just re-iterated on the phone to me. One key observation: It is not denying that it has hired JP Morgan.

Remember that third parties have already been brought in to advise AMD executives. Before the layoffs, McKinsey and Co. was engaged to handle the job cuts, while the Boston Consulting Group was brought in to advise on a new strategy. Who says JPMorgan or another bank hasn’t been brought in to advise on the sale of patents or other assets?

The news can’t come as too much of a surprise, given the troubles AMD has seen of late. But it also comes on the heels of a whole new strategy in which the company said it would would take an “ambidextrous” approach to chips. It said last month it will combine its x86 technology, which it shares in a complicated patent cross-licensing arrangement with Intel, with the ARM chip technology that is so popular in smartphones and tablets and is now encroaching into low-end notebook PCs that were once part of AMD’s bread and butter.

It should be noted here that all this comes days after AMD nominated Ahmed Yahia Al Idrissi, the second representative from its largest shareholder, the Abu Dhabi-based sovereign wealth fund Mubadala Development Company, to its board of directors. I have heard, but not been able to confirm, that the reason for the nomination of Al Idrissi to the board had to do with a trigger provision of the agreement between AMD and the investment firm concerning stock price.

AMD is facing a significant cash crunch and recently cut about 15 percent of its workforce in a brutal restructuring.

As I’ve argued before, AMD will be an incredibly complicated company to acquire.

Within minutes of announcing a deal, any potential suitor would likely find itself on the business end of a visit from lawyers for Intel. As I noted, Intel and AMD have operated under a series of complicated and mostly secret patent cross-license agreements that give AMD access to the crown jewels of Intel’s intellectual property — the x86 instruction set.

The name dates back to the days when PC processors were known by model numbers like “386” and “486,” and the instruction set is a fundamental piece of what makes a PC a PC. The patents are also important to servers, and, as Intel has slowly worked its way into selling chips for tablets and smartphones, to mobile devices, as well.

When AMD first sought to spin off its manufacturing operations into the company that became GlobalFoundries, Intel and AMD were in the middle of a bitter antitrust lawsuit. Intel argued, not without merit, that AMD couldn’t assign its access to the x86 patents to another company, even in a spinoff, without first getting Intel’s approval. Adding to the complication was the fact that AMD had been taking investments from that Arab sovereign wealth fund. Ultimately, they resolved the dispute as part of a broader settlement hashed out in a series of difficult negotiations with the help of a mediator on the Hawaiian island of Maui in late 2009.

Part of that settlement limits Intel’s behavior in such a scenario. It agreed to hold off on suing to block anyone seeking to purchase any of its competitors — AMD is really the only one — for one year and negotiate first. But no matter what, any company that reaches a deal in principle to buy AMD will then have to turn right around and negotiate with Intel. And those negotiations could easily fail and send both parties to court.

Asked about Intel’s future, ARM Chief Executive Warren East noted that Intel is a company that has successfully navigated a number of big changes during the 60-year history of the chip industry. So those who write the company off are probably making a mistake, East said.

“I think it’s a little bit early to call that sort of thing for Intel,” East said, kicking off the Open Mobile Summit in San Francisco. “Intel has successfully in that time reinvented themselves from a memory maker into a microprocessor company.”

Nonetheless, ARM and the legion of companies that make chips using ARM’s designs certainly have their sights set on Intel’s key markets. Once relegated to low-end devices, ARM-based chips dominate the smartphone market and, with the release of Windows RT, now are competing in the PC market as well.

ARM last week announced a new line of 64-bit chips aimed at bringing a threefold increase in performance for roughly the same amount of power consumption. The company is also working to bring its chips into another power-sensitive area: The data center.

Technology, East notes, already consumes 10 percent of the world’s electricity, highlighting the need for more power-efficient chips. He likened it to the auto industry where miles-per-gallon has replaced horsepower as the key benchmark.

“That is an essential part of the equation,” East said.

East said that he sees continued tough competition, whether it is his firm and other chip players or on the device front, between Apple, Google, Samsung and others.

That’s one cynical way to interpret the story from Bloomberg News saying that Apple is exploring ways to move its Macintosh line of computers away from Intel’s chips and toward using its own internally designed line of chips.

Apple’s last shift in chip technology happened during 2005 and 2006, when it pivoted away from the old IBM-made PowerPC architecture and instead embraced Intel’s processors, which already run inside most of the world’s personal computers.

One side benefit that resulted was that Macs soon had the ability to optionally run Microsoft Windows and other operating systems, too. One of the most popular software products for the Mac is Parallels, a virtualization program that allows users to install and run Windows side by side on the Mac.

Bloomberg’s story says that Apple engineers have “grown confident” that its own line of chips — the current top of the line is the A6X inside the newest iPad — will eventually have enough computing muscle to run a full-featured Mac, and not just an iPad or iPhone.

Such a change would no doubt hurt Intel, already fighting to maintain its spot as one of the tech industry’s agenda-setting companies, as the PC market contracts and its lack of participation in the mobile market becomes ever more glaring.

The thinking goes that, in time, Apple will want to offer a more unified computing environment across all of its platforms — phones, tablets and PCs — and one key way to make that happen is to have a single chip architecture inside them all.

It isn’t crazy, and you just know that somewhere in some lab in Cupertino or Austin, there is a hopped-up prototype Mac running some weird iteration of OS X on some hopped-up prototype A-chip, just to see if it can be done. As the late Steve Jobs once said about the prospect of switching to Intel, but before it happened: “We like to have options.”

Certain pieces of the puzzle are in place; others have yet to be properly put in place, none of them impossible. Probably the most important one was the introduction by ARM — the British chip designer whose cores form the basic designs around which Apple’s A5, A6 and A6X chips are built — of the Cortex A57 and A53 cores last month.

These are the first 64-bit ARM cores ever, and being 64-bit capable is a must for a Mac. Why? Memory. A 64-bit chip can address a lot of memory, much more than an older 32-bit chip can. Take the base configuration of a MacBook Pro. It ships with eight gigabytes of DRAM memory on board and, depending on the model, can be expanded to 16GB. The iMac maxes out at 32GB of RAM. The muscular Mac Pros can in some configurations take up to 6GB of RAM. All that RAM requires a 64-bit chip, and before last month, a chip based on an ARM core couldn’t get there. Now it can.

The fundamental problem will be one of performance. Intel’s history of chip designs have always tended to emphasize boosting the overall computing power of a chip, and it has done this better than anyone else. There’s a reason that Intel chips are found in most of the world’s PCs servers.

And while I’m painting this in broad brushstrokes, this emphasis on computing muscle has, over the years, caused Intel to lag ARM-based chips when it comes to power efficiency. In the same way there’s a reason that Intel chips are inside most of the worlds PCs and servers, there’s a reason that ARM-based chips, built by companies like Qualcomm, Nvidia, Texas Instruments, and now Apple, are inside most of the world’s mobile phones, smartphones and tablets.

So it would seem that the state of play right now has the best chip going where it’s best suited. Intel chips go in Macs, and ARM-based A5, A6 and A6X chips go in the iPad and the iPhone. Each is the best tool for the task at hand.

But could ARM designs catch up with Intel enough that an ARM chip could be as good — or better, as it would have to be — to knock Intel out of the Mac, as the Bloomberg story suggests? They could. I talked with analyst Nathan Brookwood about this. He said that while ARM chips generally don’t match Intel’s on performance right now, Apple has the in-house expertise to design one that could get there. It would take a few years, but it could be done. “There’s no reason that an Intel chip couldn’t arbitrarily be made to have the same power efficiency as an ARM chip. There’s also no reason that an ARM chip couldn’t be faster, with the right hardware resources brought to bear,” he told me. “It’s all a matter of implementation.”

If a company decided it wanted to design an ARM chip that was, as Brookwood put it, “hell-bent on performance,” it could be done. “You could get a pretty fast machine,” he says.

Trouble is, it would have to be not only be fast, but have a really excellent road map, lasting well into the future, that not only met but exceeded that of Intel. That’s a tall, tall order.

And there would, of course, be numerous complications, none of them insurmountable.

Remember that when Apple shifted from PowerPC to Intel, it had to provide a cushion to all those software developers. Software written for the old chip had to work on the new, and vice versa. This was done primarily through emulating the old chip on the new. Apple called the technology Rosetta.

It turns out that there’s a path for a new Rosetta-like technology on ARM. A Russian start-up company called Elbrus Technologies has developed emulation technology that allows an ARM chip to run software developed for Intel’s x86 chips. (Read about it here, at EETimes.) Advantage ARM.

What about Intel? It has advantages, too, none of them trivial. One is the best record in the world of consistently delivering chips that outrun every other chip in the world, when it comes to raw performance. It also has the world’s best chip-manufacturing technology and expertise. And it has the benefit of a fruitful, seven-year relationship with Apple.

It’s a toss-up for now. If the environment shifts in such a way that ARM designs are bolstered by Apple’s own considerable and growing chip-design expertise, and its desire to rely less and less on outside partners to control its destiny, Apple could indeed move the Mac to an ARM-based chip of its own design.

If it does happen, it will not happen quickly. It would take at least two years, and then, if history is any guide, the transitional phase during which software developers and customers alike would have to have their hands held would last another two years. It is something that Apple does well.

Another thing that Apple does well: The precise opposite of what some rumors suggest it will. The story is properly hedged with the classic “to be sure” paragraph that says no final decision has been made on any of this. The speculation will grind on via the rumor mills. And until there’s more evidence on the table that this transition is happening, my advice is to treat it as nothing more than that: A rumor.

As the market for PC microprocessors — in which AMD has for decades been a far-distant No. 2 to the market’s global leader, Intel — has dwindled amid softening demand for PCs and servers, AMD has sputtered badly. Read is said to be assembling a new corporate strategy that would involve pivoting toward chips aimed at tablets and smartphones, and an update on that strategy is expected next week.

But in the meantime there is a new fundamental concern about AMD’s ability to survive long enough as a going concern to embark on that strategy: AMD is running low on cash.

The concern comes from Stacy Rasgon, an analyst at Sanford Bernstein in New York, who encapsulated his worries in a research note issued to clients today. Once bullish on AMD given its relatively low price and the prospect that AMD stood a fair chance of generating cash at a healthy clip, Rasgon has now changed his mind. “The combination of a weak PC market and poor execution is significantly pressuring the top line, while the company appears to be suggesting long term gross margins will be significantly lower than in the past,” Rasgon wrote.

AMD has $1.3 billion in combined cash and marketable securities as of the quarter ended Sept. 29, down from $1.6 billion at the end of the quarter ended in June. As its profit margins and free cash flow contract, AMD will consume cash at such a rate that it will be down to $600 million by the end of 2013.

On top of that, AMD’s debt load will become a more urgent concern. The company finished its September quarter with more than $2 billion in long-term debt, up from $1.53 billion in the June quarter. And the cost to protect against a default on that debt via credit default swaps has started to spike. As Bloomberg News noted today, debt investors think AMD has a 62.5 percent chance of defaulting on its debt within five years, up from 51 percent on Oct. 17, the day before it reported earnings.

It now costs more to insure against a default on debt from AMD than it does to insure debt from Finland’s troubled wireless phone concern Nokia, or from Freescale Semiconductor, also facing cash troubles. “Apparently the debt markets believe AMD is more at risk from liquidity issues than even Freescale. We think this is likely correct,” Rasgon wrote.

Without a turnaround in the market for personal computers — something that’s essentially impossible to predict right now — or a significant improvement in AMD’s ability to generate a healthy profit on its chips, the cash burn will continue.

If it gets as bad as Rasgon says it might, that’s going to raise some uncomfortable questions about AMD’s long-term viability and reignite the recurring takeover chatter that hits the company from time to time. The problem is, as we’ve pointed out a few times before, AMD will be a complicated company for any potential suitor to buy, mainly because of its unusual relationship with rival Intel.

It’s not the first time that the conventional wisdom has counted AMD down for the count. In the late 1990s, it was bloodied and beaten and seemed all but defeated. Then in 1999 it announced a novel approach to server chips that within a few years proved so successful in the marketplace that AMD gave mighty Intel some sharp competitive headaches.

A new strategy is coming. AMD is supposedly close to announcing something called an “ambidextrous” strategy that will in some way include using chip cores licensed from ARM, the British holding company whose technology lies at the heart of most of the chips powering the world’s smartphones and tablets, including the iPad, the iPhone and numerous devices running Android and Windows.

This would be a fundamental shift in AMD’s approach. Its prior CEO, Dirk Meyer, and his predecessor, Hector Ruiz, had been advocates of the so-called “x86 everywhere” philosophy. The phrase “x86″ refers to the basic instruction set used by chips from PC microprocessors from Intel and AMD. They are a key part of what makes a PC a PC, and give software developers the world over a common set of assumptions they can make when writing software.

ARM chips, on the other hand, are based around a fundamentally different set of instructions that, among other things, make them especially good at consuming very little power, a must in mobile devices. A variant of Windows known as Windows RT has only recently been created to run on a new generation of notebooks.

Many people expect AMD to supplement its current designs with an ARM-based design, and its recent hiring of a crack ARM designer — Apple’s former head chip designer Jim Keller — certainly raised a lot of industry eyebrows.

Whatever AMD does, it better do it fast.

“You see physically the difference,” CEO Paul Jacobs said Wednesday during a meeting with a handful of reporters. “It’s not a theoretical thing. It’s right there in your face. This one over there has a fan and it’s thicker and it has this battery life and this one is thinner.”

If anything, Jacobs said, he is more convinced after seeing the first crop of Intel-based Windows 8 tablets.

Computers running both new flavors of Windows go on sale Friday, with Microsoft’s Surface PC the best known Windows RT machine, though it uses a chip from Nvidia. Qualcomm has designs with Samsung and Dell, though the ETA on Samsung’s model is unclear.

The biggest issue with Windows RT, Jacobs concedes, is the availability of apps, since, with the exception of Office, Windows RT runs only apps designed for the new-style Windows.

“Everybody knows it,” Jacobs said. “We’ve been focused on it. Microsoft has been focused on it.”

For his part, Jacobs said he is pretty happy with the app selection, though he concedes he personally wants a program for watching live ESPN programming.

“Yeah, I want WatchESPN,” Jacobs said.

Qualcomm has sponsored a contest to encourage developers to write Windows RT apps as well as, in some cases, help to fund their development. Jacobs said that Microsoft isn’t really being given the benefit of the doubt here, despite its long track record of attracting developers.

And over time, Jacobs said, all big software makers will have to rewrite their apps to have modern attributes such as touch support and the ability to remain connected to the network while using only a small amount of power.

Jacobs said that people should not assume a lack of interest in Windows RT just because there are only a handful of devices.

“There’s a lot of people waiting in the wings,” Jacobs said, but noted that Microsoft is still limiting the number of hardware makers that any one chip firm can work with. Qualcomm, for example, is working with Dell and Samsung.

“To be fair, they are trying to manage their resources,” Jacobs said.

Jacobs also doesn’t believe too many PC makers will be scared away from Windows RT just because Microsoft is doing its own tablet with Surface.

“I would say the manufacturers are already dealing with an environment in which some form of verticalization is happening,” Jacobs said. “I think it is probably fair to say some of it is driven by Apple’s success.”

Google, he notes, bought Motorola, so Android device makers have the same sort of issues.

For Qualcomm, it’s an opportunity to be in a place it has wanted to be for ages — inside PCs and tablets.

“We’ve talked to Microsoft for many, many years about ‘what do you guys think about porting Windows to ARM,’” Jacobs said. “I think the growth of the tablet market actually caused them [to make] the decision.”

Samsung’s latest attempt to tilt at Apple’s windmill is the Galaxy Note 10.1. Released in the U.S. on Aug. 16, at a high-profile event in New York, it sells for a starting price of $499.99 for a 16 gigabyte version. Like other tablets from Samsung, it runs Google’s Android operating system, specifically the version from last year known as Ice Cream Sandwich, though an upgrade to the newer Jelly Bean is coming eventually. It has also been reviewed favorably, including last week by AllThingsD’s Walt Mossberg.

Now, the gearheads at IHS iSuppli — the folks who last month dismembered Google’s Nexus 7, and before that Apple’s latest iPad — have taken the Galaxy Note 10.1 apart to see what makes it tick. More importantly, they’ve also estimated how much Samsung spends on the components used to assemble it; from that, it’s pretty easy to guess at Samsung’s profit margin.

Rassweiler says the firm tore down a version of the tablet that includes the ability to connect to 4G wireless networks (it is not yet available in the U.S.), and which sells at retail for about $640. As yet, the only model available in the U.S. is a Wi-Fi-compatible model. All told, the cost of the components — “bill of materials,” or BOM in industry lingo — for that model adds up to $283. Take out the 4G wireless components and leave the Wi-Fi-only, and the BOM estimate comes down to about $270, he says.

Technically speaking, says analyst Andrew Rassweiler, who supervised the teardown, the Note 10.1 doesn’t break any new ground. “As is usually the case, each hardware release offers an incremental set of improvements over the last generation,” he says. The tablet’s main microprocessor chip is the quad-core Samsung Exynos processor, made by its own chip division, and based in part on a design licensed from ARM. The chip has already been seen in the Samsung Galaxy S III smartphone, and costs Samsung about $18.

Also seen in the torndown unit, and spotted before in other Samsung devices, is a wireless chipset from Intel’s recently acquired Infineon division. “By reusing components, Samsung can negotiate better pricing with suppliers, and it shrinks the incremental cost of developing other devices like this tablet,” Rassweiler says. Combined, all the wireless components add about $15 to cost, and a little less in the Wi-Fi-only version.

The Galaxy Note’s main differentiating feature is the digital pen, or stylus, that lets users write and sketch on the screen. The main part that allows that is a hybrid capacitive touchscreen that also allows the conventional touch interface that tablet users are accustomed to. Samsung’s combined cost of the display and touchscreen components adds up to $100. The pen comes from Wacom, the same company known for its graphical tablets favored by digital artists.

Also spotted inside the Note: A gyroscope chip from STMicroelectronics, a power-management chip from Maxim, a touchscreen-controller chip from Atmel, and an audio chip from Wolfson Micro. Some of those companies are also regular Apple suppliers.

Which brings us to another important point: Samsung gets most of the parts from itself. It is the world’s biggest manufacturer of memory chips, and one of the biggest manufacturers of LCD screens. It also ranks at or near the top of the world’s suppliers for chips to smartphones and tablets generally, and even manufactures, under contract, Apple’s own A5 chips used in the iPhone and iPad. “Samsung’s competitive strength is in controlling a large percentage of the parts that go into their final product,” Rassweiler says. Most of the key components — the display, the memory, the main processor and the battery — were all made by different branches of the far-flung Samsung empire.

By comparison, the total cost of all the components on the latest iPad, as estimated by IHS iSuppli at the time of its release in March, was $316. Oddly enough, Samsung made the so-called Retina display that Apple touts as that device’s main differentiating feature. The cost to build the Nexus 7 was estimated at $152.

And while a cost of about $270 might lead you to the conclusion that Samsung is taking a fat $230 on each unit sold, Rassweiler says there are more costs to consider that a teardown can’t account for — software and development costs, for starters.

In the end, Samsung may not be coming even close to denting Apple’s commanding market share, but it may be making a slightly better profit. One fact that emerged from the epic patent lawsuit between Apple and Samsung is that Apple’s iPad gross margin runs between 23 percent and 32 percent. Rassweiler says that even after accounting for software and other non-material costs, Samsung probably makes a slightly larger margin. There is that.

David Schmoock, Lenovo’s head of North American operations, tells Bloomberg that Windows RT tablets running ARM processors will cost a third to half as much as their Intel-powered, Windows 8 brethren.

Windows 8 tablets will cost $600 to $700, according to Schmoock. And Windows RT devices will cost $200 to $300 less. “RT will play in consumer and retail at very aggressive price points,” Schmoock said. “It will do well, but it’s going to be more of a consumer price-point play to begin with.”

If Schmoock is correct, this means we could see Windows RT tablets priced as low as $300. That’s $100 less than Apple’s iPad 2, and $200 less than the entry-level “new” iPad. So Microsoft would be seriously undercutting Apple on price — a wise move strategically, given its current position in the tablet market. Getting a 10-inch Windows RT tablet for $300 is a pretty compelling proposition. And it would do much to speed consumer adoption of the platform, which would in turn fuel the app development that needs to occur for the Windows ecosystem to truly thrive and match the one that has arisen around Apple’s iOS.

Jim Keller joined Apple by way of its 2008 acquisition of the start-up PA Semi. Update: Actually it may be a little more complicated than that. See the update at the bottom. (That’s Keller pictured at right with PA Semi co-founder Dan Dobberpuhl, from a 2005 PA Semi publicity shot.) Keller was the original architectect of AMD’s Athlon line of processors, which for a time — in 2005 and 2006 — put a bit of a scare into Intel.

It’s a big win on the personnel front for AMD, which has seen a boatload of talent head for the exits in the last 18 months or so since Dirk Meyer was booted as CEO and former IBM and Lenovo exec Rory Read joined as his replacement.

The hiring is full of historical threads: Keller’s primary job had been to work on Apple’s A4 and A5 processors, the ones that go inside the iPhone and the iPad. Remember that Apple for a long time relied on South Korea’s Samsung — the same Samsung with which it is in an epic legal battle right now — to design and manufacture the chips that went into later generations of the iPod, and then the first iPhone.

Then, in 2008, Apple wrote a $278 million check for PA Semi, and made a bunch of huge strategic choices in the process. First, only three years after having shifted its microprocessor allegiance to Intel and the x86 architecture on the Mac, Apple opted to fully embrace the low-power ARM architecture on its mobile devices. This is a slap that Intel, whose Atom line of chips are to this day still clawing for market success in the mobile market, has never quite gotten over.

Anyway, you know a lot of what happened already. Apple became the master of the design of its own chips, though Samsung continued to build them. Apple then went on to acquire more ARM chip designers, scooping up Intrinsity in 2010.

Outwardly, everyone seemed happy, then Dobberpuhl quietly left Apple in 2010 and joined Agnilux, another chip start-up that wound up being acquired by Google later that year.

So, anyway, back to Keller. I just got a comment from Patrick Moorhead, a former AMD VP and president of Moor Insights, his research firm. “Jim looks like a good pickup for AMD,” Moorhead writes. “Undoubtedly he will be focused on architecting the lowest power cores at a given performance level. Additionally, Keller knows the mobile SOC [system-on-a-chip] game better than most anyone in the industry which will help AMD as those design principles need to come to PC processors.”

Keller’s boss will be Mark Papermaster, the former Apple senior vice president for iPhone engineering who left two years ago this week, following the iPhone 4 AntennaGate flap. Papermaster surfaced first at Cisco Systems, then joined AMD last fall.

So what’s Job One for Keller at AMD? Anand Lal Shimpi at Anandtech puts it pretty simply: Get the performance of AMD’s mainline x86 chips back on track. It has been lagging behind Intel badly in recent years, and its business prospects have suffered mightily.

Like I said, Keller was responsible for a lot of the success that AMD saw during the last decade. During a period in the late 1990s, when Intel was working on the designs that ultimately became the Itanium processor for servers, the computer industry more or less kicked back at Intel’s plans to shift to 64-bit computing because Itanium wasn’t — and isn’t — fully compatible with software written for mainstream x86 processors.

In one of those moments that only a historian of the chip industry could appreciate — and I was in the room — AMD showed up at the 1999 Microprocessor Forum with Hammer, its code name for a different approach that extended the traditional x86 architecture, which was for decades the cornerstone of mainstream personal computers and servers in the 64-bit realm.

Hammer became Athlon, and the marketplace voted with its purchase orders, and sided with AMD’s approach over Intel’s. Itanium was a market failure. And, for a time, AMD won a fair amount of server business away from Intel. That is, until Intel responded with its own variation of AMD’s approach on its server chips. It’s the kind of success that AMD could stand to experience again.

Update: So it seems that Keller joined Apple not directly via the PA Semi acquisition. Longtime chip market analyst Kevin Krewell tells me via Twitter, that Keller had had a falling out with PA Semi management prior to Apple’s 2008 buyout of the startup. Keller he says, got to Apple separately.

@ahess247 Jim Keller had a falling out with management at PA Semi and he left before PA was bought by Apple. Jim got to Apple separately.

August 1, 2012 12:16 pm via webReplyRetweetFavorite

@Krewell

Kevin Krewell

Who knew? Anyway, now that we’ve cleared that up, here’s the press release:

August 01, 2012 08:00 ET
Computer Architect Jim Keller Joins AMD as Chief of Processor Group

Industry Veteran Architected Several Generations of Popular Apple, Broadcom and AMD Processors

SUNNYVALE, CA–(Marketwire – Aug 1, 2012) – AMD (NYSE: AMD) announced today that Jim Keller, 53, has joined the company as corporate vice president and chief architect of AMD’s microprocessor cores, reporting to chief technology officer and senior vice president of technology and engineering Mark Papermaster. In this role, Keller will lead AMD’s microprocessor core design efforts aligned with AMD’s ambidextrous strategy with a focus on developing both high-performance and low-power processor cores that will be the foundation of AMD’s future products.

“Jim is one of the most widely respected and sought-after innovators in the industry and a very strong addition to our engineering team,” said Papermaster. “He has contributed to processing innovations that have delivered tremendous compute advances for millions of people all over the world, and we expect that his innovative spirit, low-power design expertise, creativity and drive for success will help us shape our future and fuel our growth.”

Keller was most recently a director in the platform architecture group at Apple focusing on mobile products, where he architected several generations of mobile processors, including the chip families found in millions of Apple iPads, iPhones, iPods and Apple TVs. Prior to Apple, Keller was vice president of design for P.A. Semi, a fabless semiconductor design firm specializing in low-power mobile processors that was acquired by Apple in 2008. While there, he led the team responsible for building a powerful networking System on a Chip (SoC) and its integrated PowerPC processor. Keller previously worked at SiByte® and Broadcom as chief architect for a line of scalable, MIPS-based network processors that supported 1Gig networking interfaces, PCI and other control functions. Before Broadcom, he spent several years at AMD, playing an instrumental role on the design team responsible for the groundbreaking AMD Athlon™ 64 and AMD Opteron™ 64 processors, which featured the world’s first native x86-64 bit architecture.

Keller co-authored the widely adopted HyperTransport specification, as well as the innovative x86-64 processor instruction set, which is used around the world today in hundreds of millions of desktop, notebook and server systems. Jim was a corporate consulting engineer at DEC, and architected two generations of Alpha processors during his tenure there. He holds a Bachelor of Science degree in Electrical Engineering from Penn State University.

ARM said it is entering the second half of the year with a “record order backlog and a robust opportunity pipeline,” and forecast its annual revenue will be in line with market expectations of $875 million, up 12 percent from $785 million last year.

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Could the Surface be a real competitor for the iPad?

“We set out to reimagine the tablet,” Sinofsky said in a brief interview following Monday’s introduction of the Surface tablet. “We want a vision for a tablet that is a great PC; a PC that is a great tablet.”

Clearly, the relationship between Microsoft and the PC industry will be an interesting one to watch in the coming days, weeks and months. As for how the computer makers feel about Microsoft making its own tablets, Sinofsky deferred to comments made by his boss, Microsoft CEO Steve Ballmer.

Ballmer didn’t say much, but when asked by AllThingsD, he noted that the computer makers did have some idea that Microsoft was doing its own Windows 8 hardware.

“If you look at the bulk of the 375 million machines that get sold (next year), they probably aren’t going to be Surfaces,” Ballmer told AllThingsD. “On the other hand, we could have a sizeable business.”

Beyond showing off the design of the Surface and offering reporters a very brief opportunity to get up close to the device, Microsoft gave out some specifics on Monday. It talked about the device’s magnesium case, its weight and dimensions, as well as the types of ports it features and the chips that power it.

In other areas, such as pricing and availability, the company spoke only in generalities. The ARM-based models — the ones based on Nvidia chips — are due this fall with Windows 8, and should cost about the same. The Intel-based models, which are thicker and heavier, should follow about three months later and should cost around the same as today’s Ultrabook laptops.

One area Microsoft didn’t really talk about at all was battery life. The company isn’t talking specifics, but I did ask Sinofsky if he thinks Surface will deliver the type of battery life and performance that customers would expect.

“I definitely think so,” Sinofsky said.

After signaling for months that it would attack the market only through its traditional hardware partners, Microsoft has decided to enter the tablet business more directly.

The company isn’t talking about its effort, but Microsoft has scheduled an event Monday in Los Angeles, where it has promised a “major” announcement. AllThingsD reported earlier on Thursday that the event would center around Microsoft’s tablet strategy.

Sources say that Microsoft concluded that it needs its own tablet, with the company designing both the hardware and software in an effort to better compete against Apple’s strengths. Microsoft’s tablets may include machines running ARM-based processors as well as models running on traditional PC processors, sources said.

Online site The Wrap reported this evening that Microsoft will manufacture its own devices, something that AllThingsD sources have also heard in recent weeks.

The move could allow Microsoft to better match Apple’s tight integration, but it is also fraught with the potential for conflict. Microsoft makes most of its money from Windows and Office, and depends on an ecosystem of PC makers like Dell, HP, Acer and Lenovo to make those Windows-based machines.

Many of those same computer makers, at Microsoft’s urging, have been developing tablets running both Windows 8 and Windows RT — the version of Windows 8 designed to run on the ARM processors used in today’s phones and tablets.

It is unclear how Microsoft intends to differentiate its work from that being done by the PC makers, and just how they will respond. That said, it is unclear where PC makers will go.

They could focus more energy around Android, but Google is also in the hardware business, both directly through its Motorola acquisition and indirectly through its Nexus efforts, in which others manufacture devices largely designed and controlled by Google. The company is said to be working on a tablet, as well.

While Microsoft has always avoided making its own computers, it has experimented with a variety of approaches in other devices.

After failing to catch up to the iPod with a variety of hardware partners building products around Microsoft software, the company created the Zune. Although the Zune managed to grab the share once held by its partners, it never emerged as a serious threat to the iPod, and the hardware effort eventually fizzled.

On the phone side, Microsoft initially followed the PC approach, designing the operating system but giving hardware makers wide leeway to create their own devices. With Windows Phone 7, its latest entry, Microsoft has taken a far more hands-on approach, working more closely with fewer partners and demanding tight control over the kind of devices they can produce.

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The company has scheduled an event on Monday in Los Angeles where it is expected to show devices running the software as well as highlight some of the kinds of programs and services that will run on the products, according to sources outside the company.

Microsoft is confirming the L.A. event but is not offering any details on what will be covered.

That Windows is coming to the same kinds of chips that power Android phones and tablets is not a surprise. Microsoft first announced its plans in this regard at the January 2011 Consumer Electronics Show.

Since then it has demonstrated Windows 8 running on ARM processors, and a few computer makers have shown the kind of hardware they plan to use. However, Microsoft has not allowed the public any hands-on time with those ARM-based machines.

By contrast, Redmond has released three public test versions of Windows 8 for Intel and AMD chips and said it expects to finalize the code in the coming weeks. As for Windows RT, as the version for ARM chips is known, Microsoft has said it expects some machines using the new software to debut around the same time as Windows 8 machines running on traditional PC processors.

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• Microsoft’s Long Love Affair With Tablets
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• Microsoft Is Doing Its Own Tablet. How Do You Like Them Apples?
• Microsoft Schedules L.A. Event for Some Windows Tablet Talk