By developing its own wireless baseband chips, Samsung is moving into territory owned by the No. 1 wireless chipmaker Qualcomm, which owns much of the intellectual property around the 3G CDMA standard. One of the reasons Samsung said it would develop its own LTE and WiMAX chips is to eliminate some of the royalty payments it makes, and thus reduce the costs of its handsets — a direct jab at Qualcomm.

Qualcomm owns less IP around WiMAX and LTE (although any handset will also need to communicate with 3G standards for quite some time). Samsung’s entrance into the market also takes advantage of the departure of two other players. The second-largest chip provider in that market, Texas Instruments, said in October it would exit the wireless baseband business (although it is making custom 4G chips with Motorola for handsets). Also this year, Freescale said it would sell its handset business.

The handset chip business has become more competitive, and as Qualcomm starts to lose some of its IP muscle, that will only continue. Samsung’s experience fighting it out in the cutthroat world of memory manufacturing may give it an edge here — although getting customers other than those of Samsung’s handset division might be a challenge.

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But the world has, as they say, moved on, and Intel (INTC) has regained its dominance of the industry, generating $35.4 billion in revenue for 2006, and maintaining a one-year lead time in manufacturing future generations of chips. Its financial muscle gives Intel the strength to face the expensive R&D challenges inherent in the chip industry alone, while its smaller competitors must band together.

Last September, Intel laid out its plans to build chips on the 32-nanometer node, and today at CES the company launched its first-ever laptop containing a chip based on the next-generation 45-nanometer manufacturing process. The different nodes measure the size of the chips, with the 32-nanometer node containing 4 million transistors in a dot the size of a period. The benefits of such shrinkage are faster chips that consume less energy.

But much like shoving too many people into an elevator, cramming that many transistors into a small space leads to problems. From a manufacturing standpoint, it’s difficult. And there is also a problem with power leakage. There are a variety of ways to solve this. Intel is going it alone, but its competitors — including IBM, AMD, Chartered Semiconductor, Freescale Semiconductor, Infineon and Samsung — have taken a different approach: They are working together.

Gary Silcott, a spokesman for AMD, says it doesn’t make sense for each participant in the effort to throw millions — or billions — of dollars at the basic research associated with 32-nanometer manufacturing. That may be true, but it could also lead to problems for the consortium, which in December said it expects to have a solution to some of the problems of working at the 32-nanometer node by the second half of 2009. Silcott says AMD should have chips at that node in products in 2010.

Intel plans to have its 32-nanometer chips in products a year earlier, in 2009. Provided the chips work, that lead time could be enough for Intel to protect its margins on processors that will fund the next generation of Intel’s R&D. Once AMD catches up with its own 32-nanometer chips, Intel can react to the competition with lower pricing, leaving AMD perpetually behind. Other members of the group who don’t compete as directly against Intel should fare better.

Of course Intel’s efforts may hit snags while the collaborative effort powers ahead, but as chips get smaller, size really does matter.

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