4 Actions Microsoft Can Take With an ARM License

ARM (s armh) and Microsoft today announced a new licensing partnership that will give Microsoft (s msft) more research and development opportunities with chips that run many of today’s consumer electronics devices such as mobile phones. Prior to today’s agreement, the two companies had a more distant relationship: Microsoft-powered handheld devices such as Windows Mobile handsets and Zune media players run on chips built by other ARM licensees. In contrast, Windows software runs on chips from Intel and AMD (s amd) which are based on the x86 architecture.

To be sure, Microsoft is certainly familiar with ARM processors — it has made its smartphone software work with ARM chips for years — but the new licensing agreement provides far more access than a CPU spec sheet. As Kerry McGuire, director of strategic marketing for ARM, explained on a conference call with GigaOM today:

This is about getting a hands on feel for the ARM architecture, a richer dialogue around what the tech is capable of and a way to experience the limits and potential of what the tech can do in a way that is different than reading a high-level specification.

Indeed, even though Microsoft is a software company, the license it now has with ARM allows for custom chip design and creation, which offers a number of possible scenarios, both in terms of hardware and software.

Emulate Apple and design a chip

Microsoft may never actually take the step into chip design, but it has to realize that a major competitor has done just that: Apple (s aapl) licenses the ARM architecture to design the custom A4 chip that powers both its iPhone 4 and iPad. And with Apple selling almost as many ARM-based iPads (3.270 million) as x86-powered Mac computers (3.472 million) last quarter, Microsoft might view this as a huge paradigm shift in computing for which it currently has no answer. Creating a chip, and a new device around it that doesn’t compete with hardware from smartphone partners would allow Microsoft to face Apple head-on in the mobile computing space. Perhaps this is the missing ingredient to the Windows Tablet PC recipe that Microsoft has been simmering since 2004.

Windows “Lite” on Portables

If Microsoft would rather continue focusing solely on software, the new ARM license could accelerate porting part or all of Microsoft Windows to work on the ARM platform. This would open up an entirely new opportunity for Microsoft at a time when sales of ARM devices are quickly growing. Indeed, ABI Research suggests that ARM-based chips will power more ultra-mobile devices than x86 chips will by 2013. That’s advance warning to Microsoft that a whole class of Windowless devices is forecast, and a deeper understanding of ARM architecture could help offset such a situation.

Less Power-Hungry Servers

Perhaps Microsoft is prepping for a shift to ARM-based chips in servers and experimenting with ARM-powered servers for is online services like Sharepoint and Bing. It may also need to adapt its server software to the architecture as well. For as much progress that Intel (s intc) has made with power efficiency in its Atom line of CPUs, ARM chips are still process more data per watt of power — and the largest cost to any data center is the electricity needed to run the servers. Marvell, another ARM-licensee says an ARM chip can deliver 1 GHz of performance while consuming 700 milliwatts and up to 2 GHz while still consuming less than a watt. The x86 chips perform better, but require greater power consumption: they can deliver as much as 3.6 GHz while consuming up to 130 watts or as little as 1.8 GHz at 40 watts, according to Simon Milner, VP of Marvell’s enterprise group.

Handheld Gaming

Another possibility arose a few hours ago in our weekly live mobile technology podcast. Folks in the chat room suggested a viable option for portable gaming — Microsoft has a large Xbox Live community but hasn’t leveraged it in the mobile space. While the upcoming Microsoft Windows Phone 7 phones will have some type of Xbox Live integration, they won’t be poised as true handheld gaming machines. Even with the Xbox Live effort generating $1 billion a year, Microsoft currently has no portable gaming initiative to compete with Apple (s AAPL), Nintendo and Sony (a SNE).

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