Intel Corp.'s (INTC) latest action to increase the market for its popular Atom chip should have mobile chip makers taking notice.

The tech titan's move to partner with chip maker Taiwan Semiconductor Manufacturing Co. (TSM) represents an unusual shift in strategy for the world's largest chip maker, underscoring its determination to grab market share in the space. Intel's entry into mobile chips presents a threat to the sector's traditional leaders. However, with Intel releasing few current products or public plans, the competition - at least for now - is likely to remain fierce.

Intel wants to challenge mobile chip companies Qualcomm Inc. (QCOM), Texas Instruments Inc. (TXN) and others that make chips from the design licensed by ARM Holdings PLC (ARMH). Intel's traditionally strongest markets use the x86 chip design, but sales have plummeted amid the current economic downturn.

"I'd say they should be worried about it," Roger Kay of Endpoint Technologies said, concerning the mobile chip makers.

"The issue is the looming clash between x86 and ARM," he said. "This takes it one step closer to reality."

Monday, Intel said it would license its popular Atom processor to TSMC for embedded chip designs. The deal - which doesn't replace Intel's current roadmap for standalone Atom chips - gives Intel a greater opportunity to get its chips into handheld phones, portable Internet devices or other consumer electronics.

Those markets represent an increasingly important part of the growth plans for Intel and other chip makers. Smartphones and netbooks - the low-cost laptops for checking email and surfing the Web - have remained two resilient tech categories as others suffer from cutbacks in spending.

The downturn in chip sales has generally spared Qualcomm and Broadcom Corp. (BRCM) - companies focused on wireless and networking. Shares of both chip makers are down less than 20% over the past year, while the Philadelphia Semiconductor Index has fallen almost 45%.

Intel is down 39% and Texas Instruments, which also sells analog chips, has lost 53%.

 
   A Shift In Strategy

Intel's decision to essentially allow TSMC to become a contract manufacturer of its chips should demonstrate the chip giant's seriousness in grabbing market share from current leaders.

Intel traditionally shunned the idea of outsourcing its microprocessor manufacturing, most recently criticizing rival Advanced Micro Devices Inc.'s (AMD) decision to spin off its manufacturing operations, saying that losing control would translate into more complications and potential problems.

But to reach the market with the embedded features mobile customers desire at the power and performance required for mobile handset devices, Intel needed the capabilities of TSMC's intellectual property and manufacturing processes.

Currently, chips using the ARM architecture run with lower power and can be more easily customized to include specific features - such as global positioning or Bluetooth technology - on a single chip.

Without partnering with TSMC, Intel's sales and marketing chief Sean Maloney said it could have taken years to gain the same position that the company can now occupy.

By allowing other features on a single Atom chip, Intel is providing a second option in addition to its standalone product. The standalone chip already dominates the netbook market, and last month Intel said its next-generation Atom chip, known as Moorestown, will be used in an upcoming mobile Internet device made by LG Electronics Co. (066570.SE).

Nevertheless, analysts don't see Intel dominating in mobile devices like it does in PCs and servers anytime soon. The company didn't provide any information on specific products, design wins or even the product categories it will be targeting.

Meanwhile, Qualcomm in particular will likely be a far more formidable competitor to Intel chip dominance than its traditional rival, AMD.

Along with strong growth in the wireless market, Qualcomm has a chip, known as Snapdragon, which it plans to implement in netbooks. Also, 3G wireless technology is all but required at present for any mobile devices that quickly access the Internet - and would likely be licensed from Qualcomm.

"If the majority of broadband modules are 3G, then they are going to need that 3G broadband," Endpoint's Kay said.

-By Jerry A. DiColo, Dow Jones Newswires; 201-938-5670; jerry.dicolo@dowjones.com