Fundamentally, Intel is a company that understands the need to re-invest for the future. If the leadership recognizes the need to change their product mix, I think they will manage to pull it off. Their management is not hamstrung by the accountants as so many other large mature companies are.
Also, in response to the observation that "Intel gears their process towards performance," that is more a function of what we predominantly see from their major product lines. It is useful to look at some of the papers Intel has published. With the control and long range planning of their semiconductor process development, Intel has been putting a lot of emphasis into expanding each technology platform for use in low power and RF applications. The product people at Intel have control over all the process knobs they want, thanks to in-house manufacturing. When they see the right market opportunity, they will be able to deliver the technology to support the product designs.
They would have to ditch their x86 architecture for that, which would take out one of their most appealing value propositions: backward compatibility. Intel would then have to go through a learning and adjustment process to be an ARM-like. This would take large amounts of money and resources with no guarantee of success in the end. I am not too optimistic about Intel's prospects. I think they have started to move a wee bit too late.
I think it's still too early to write Intel off the embedded/mobile world. Intel has enough resources to defeat ARM in that field.
IMHO, Intel needs to do the following to succeed:
1. Be more aggressive on power efficiency with their embedded processors, even if that means completely dropping the legacy code support. Most x86 legacy code was built for Windows anyway. The lack of legacy support won't affect much for embedded systems.
2. If 1 is not enough, adopt a new, RISC architecture to design their next generation embedded processors. The Atom architecture is still CISC, so it can't compete with ARM's RISC in power efficiency. A new, RISC architecture, helped by Intel's advanced process technology, would surpass ARM-based processors in power efficiency.
3. Intel could then port Linux, Android, and other embedded operating systems to its new embedded processor. Intel has enough expertise and resources to create a new software development ecosystem around its new embedded processor.