No. 2 chipmaker Samsung is showing Intel how to succeed in the brave new world of tablets and smartphones.

Samsung's Galaxy Tab is competitive with Apple's iPad: Samsung makes the device and supplies the main chip inside. Here, Intel is playing catch-up.

While Intel is the largest chipmaker in the world, Samsung is No. 2. And, unlike Intel, it also has a large and successful affiliated consumer arm that churns out products like the Samsung Galaxy Tab. Not surprisingly, many of those products use Samsung silicon too.

That's a vertically integrated strategy that Intel can't match. And that's not all. Samsung also supplies chips to outside customers (Intel's business model) like Apple which use its chips in outrageously popular products like the iPhone and iPad.

The scary part is that the Samsung Galaxy Tab is a solid product and worthy competitor to the iPad, even besting it with features like front and back cameras--a feature you won't see until the iPad 2, most likely. (I test drove the Android-based 7-inch Galaxy Tab for about 30 minutes and was very impressed).

That puts Samsung in two of the leading tablet designs on the market--one its own product.

Before I go too far, let me back off a bit by saying that Intel's dominance in the hundred-billion-dollar-plus annual PC market has given it an almost unassailable lead in chips. Intel is also the leading chip supplier for the tens of millions of servers worldwide that power the Internet. The latter a nontrivial point often obscured by the glare of glitzy end-user products like the iPad (which uses Intel-powered servers when accessing Web sites worldwide).

That said, Intel is obviously racing to play catch-up in tablets and smartphones, two of the fastest-growing computing markets. The chipmaker has formed a new business unit for Netbooks and tablets and CEO Paul Otellini spent a lot of time at a technology conference today explaining how it's going to eventually be competitive.

"It's important to keep a perspective in the early days of any market. Things change. Markets change," Otellini said today. "It wasn't too long ago--2003--where virtually all of the silicon in a storage system was custom. It's grown dramatically over the intervening seven years to where we now are the predominate architecture for storage vendors," he said, implying that Intel will could eventually become a big player in tablets and smartphones.