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Intel's -- and the Entire Tech Industry's -- Big Competitor: China

Intel (INTC) has some big problems on the mobile front, but it's kept humming along thanks to its strength in traditional PC markets. But now it faces a growing new threat on that front: China.

The Institute of Computing Technology at the Chinese Academy of Sciences has been working for close to a decade on microprocessor chips. And now it has 64-bit CPUs, based on the Silicon Graphics MIPS architecture, that emulate x86 Intel chips.

Uh oh.

China has made no secret that it wants to get its hands into every aspect of high tech and to move upstream, away from being seen as an outsourcing factory and toward controlling important aspects of the industry. The following roadmap shows that while the country has emphasized supercomputing -- really a form of splashy marketing to show its capabilities -- it also wants to provide chips for all levels of computers, including PCs and laptops (click to enlarge):


Notice the interesting switch in market development. Instead of going after the low-end business first, China has focused first on higher margin top end of the business. Not only does that offer greater business opportunity, but it lets the country make its reputation. Up until now, Chinese chips have lagged Intel's in performance, largely because China has still used an older silicon manufacturing processes. But the country plans to shift to state-of-the-art technology that could rival Intel, with first chips possibly on the market by next year.

Combine that development with the road map and the thought that China makes many of the world's PCs. Would the country underwrite chip manufacturing and development to grossly underbid Intel? Of course. Will consumers really demand Intel inside their computers? Not so clear. Especially on more powerful computers, the CPU is the most expensive component.

What if Chinese companies -- and, remember, that includes Lenovo -- could suddenly take $50 to $100 off their prices? Not only will Intel lose sales to PC companies happy to make the switch, but it will feel enormous price pressure from existing customers, who must compete with cheaper competitors and who will need to reduce their costs. Over the next three years, this is going to be one painful development for western companies.

Maybe Intel has enough money and leverage to keep AMD (AMD) at bay, but how do you strong arm the world's second largest economy? Could Intel find that it loses a grip not only on the future, but on the past and present at the same time?

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Image: Wikimedia Commons