Intel (INTC) To Start Handset Chip Price War, Help Mobile Consumers

Intel (INTC) means to push deeply into the mobile chip market. That is bad news for the two companies that own most of the territory now–TI (TXN) and Qualcomm (QCOM). Intel is the largest chip company in the world and its needs to aggressively expand beyond PC and server chips to keep that distinction.

According to Bloomberg,  “Intel Corp., the world’s largest chipmaker, will sell processors to Nokia Oyj (NOK) for mobile devices, marking the biggest breakthrough in Intel’s expansion into the phone market.” Nokia has 38% of the global handset market, so if the arrangement expands quickly, the traditional providers of chipsets for cellphones face real trouble.

The Intel move is probably good for handset companies and consumers because it is likely to touch off a price war. Qualcomm, TI, and Broadcom (BRCM) cannot afford to let their unit sales drop. They cannot afford to have one more large rival in what has become a crowded market. A brutal fight for territory almost certainly means that competition based on the cost of goods will ratchet up quickly.

Handset companies will benefit from any softness in chip costs. Much of that benefit will be passed on to consumers. The cellphone business is even more cutthroat than the processor industry.  Nokia can use whatever margin improvement its gets from Intel to move down the price points of its phones in the hopes of hurting weaker rivals like Motorola (MOT) and Sony Ericsson and undercutting stronger ones such as RIM (RIMM), Samsung, and Apple (AAPL).

Handset price wars will bring down the costs of cellphones and Intel is about to start a huge one.

Douglas A. McIntyre