"Virtually every computer and handset manufacturer on the planet is struggling to figure out how to compete with Apple," Otellini said at the Morgan Stanley Technology Conference in San Francisco.
Apple's forthcoming iPhone offers far more features than competing mobile phones, and Otellini believes that handset manufacturers will have to switch to more powerful yet energy-efficient processors to compete.
Intel is developing an ultra low power micro-architecture with integrated graphics that will be able to power mobile devices with mere milliwatts of power. The first version of the chip is slated for release later this year.
The chip features the same architecture as existing server and desktop systems, and will be able to run all existing applications and services.
"If we get power and price down to the right point, I think it is a killer silicon compilation to these kinds of devices," said Otellini.
Apple has not disclosed the hardware specifications of the iPhone, but has said that it will be running a special version of the OS X operating system that powers Mac systems.
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