Let's look at Snapdragon in a little more detail to illustrate my point. I mentioned multi-tasking as an example of Atom having more horsepower than, comparable ARM products, and I believe the LG phone will have more horsepower than the Nexus One using Snapdragon. But as Ho Ho pointed out on Roborat's blog, ARM isn't that bad. You can see what Snapdragon can do at this link. I think any rational person has to agree that the performance in the video isn't painfully slow. In my mind this gets the performance of the Snapdragon design past the "can it do what I want to do" hurdle. That takes us to the next big differentiator, battery life.
Look at the numbers I threw out there for the power usage on the Snapdragon design. This thing is uses 2-3x less power than Atom and is built on the same process node as Atom without the advantage of HK/MG. If you assume that you will get a 25% power reduction with each process shrink you can see that Atom won't reach power parity with the current Snapdragon design until the 11nm node if you rely on process shrinks alone to get you there.
If Atom is going to reach where Snapdragon is today by the 22nm node using only process shrinks, they would have to achieve a whopping 45% power reduction on each of the next 2 process nodes. I don't see that happening, but even if it did that would still give Qualcom 3 years to improve the power efficiency of the current Snapdragon design.
No matter how badly the foundries may struggle with advanced processes, I just can't see Intel ending up with the 4 node process lead they would need to close this gap on process alone. This also assumes that there is no room for further optimization in the Snapdragon design over the next 6 years when Intel reaches 11nm.
So if Atom is going to compete successfully with the leading edge ARM processors, it is going to come down to Intel's ability to reduce the power requirements of their design while maintaining functionality. Intel's process lead may allow for less efficient designs at the high end, but it is not going to be sufficient to compete effectively in small form factors. The game is different when you are dealing with small form factors, and business as usual isn't going to cut it.
