LAS VEGAS (Reuters) - Microsoft Corp is ready to take its biggest step away from a long-standing, lucrative alliance with Intel, teaming up with Britain’s ARM Holdings to take on Apple Inc in a red-hot tablet and smartphone arena.
The second-largest U.S. technology company plans to design a Windows operating system compatible with chips designed by ARM, a rival of Intel and the dominant producer of chips for smartphones and tablet computers.
The move is the latest major win for the British company, which is making huge strides in mobile computing and on Wednesday also announced that graphics chipmaker Nvidia will begin designing central microprocessors for computers based on ARM architecture.
Microsoft’s move also marks a shift from its alliance with Intel Corp, whose chips have been the mainstay of Windows operating systems on personal computers.
Microsoft’s disappearance from the phone market and its delayed response to tablet devices like the iPad weighed on its shares in 2010.
Investors want to know how the software giant intends to establish a strong presence in a tablet market that some analysts expect to double in 2011. And in smartphones, Microsoft lags rivals like Apple and Google’s Android by far.
“This is an existential issue for Microsoft in terms of its relevance,” said IDC analyst Al Hilwa, calling the smartphone a fundamental challenge to personal computers: “It has more technology, more devices, it’s actually smarter, more aware of its location and of its proximity to me, than my PC is.”
“It’s something essential for Microsoft.”
High-powered, low-battery chips made by ARM dominate the smartphone and tablet markets, featuring for instance in Apple Inc’s iPhone and iPad.
Shares of ARM rose 7.7 percent on the London Stock Exchange ahead of the announcement. Microsoft shares edged 0.3 percent lower to close at $28.
At the Consumer Electronics Show in Las Vegas, executives demonstrated a Windows desktop running off ARM-based chip architecture, including one powered by Qualcomm’s popular Snapdragon processor and another by Texas Instrument’s OMAP.
Also demonstrated was a desktop powered by Nvidia’s Tegra.
Microsoft’s operating software for mobile devices — Phone 7 — already supports ARM processors, but the new version of Windows would mark a shift in its core operating software for computing.
Samsung, Dell and Asustek have already announced that tablets running Windows Home 7 — Microsoft’s core product — will go on sale this year.
The U.S. software maker had no timeframe in mind for the launch of the ARM-supported operating system version, Windows division chief Steven Sinofsky told reporters at the Consumer Electronics Show.
But the executive added that Microsoft typically allows 24 to 36 months between major Windows versions, suggesting a launch date of between October 2011 and October 2012.
“It may be the end of the PC as we know it. In a way, it’s a recognition that the new PC has to look different, so Microsoft has to be at the forefront of evolving it,” IDC analyst Hilwa said.
“They have to evolve the PC, they have to redefine the PC. And it looks like they kind of got the memo on this now.”
Additional reporting by Alexei Oreskovic; Writing by Edwin Chan; Editing by Gary Hill