Intel’s Ironic Edge

According to a report from Digitimes, a leading Taiwanese news outfit, Intel (NASDAQ: INTC  ) is beginning to place orders for its next-generation 28-nanometer cellular baseband design. This chip, known as XMM 7260, is the company's second-generation LTE modem supporting LTE-Advanced, category 6 transfer speeds (i.e. 300Mbits/sec), and both TD-SCDMA and TD-LTE modes, giving it much broader appeal than the firm's first LTE attempt, the XMM 7160.

That's not the interesting part
While the speeds, feeds, and features of the company's next-generation cellular baseband parts are certainly interesting, what's more interesting is where Intel is actually having these chips built. Intel isn't building these chips within its own bleeding edge factories, but rather outsourcing production to Global Foundries.

Intel's next-generation modems will be built on Global Foundries' PolySiON (i.e. lower performing than high-K metal gate) 28-nanometer process (which should be rather cheap by now). This is the case because Intel has yet to port over its modem IP (which was likely in development at Infineon, the company that Intel acquired for modem development, well before Intel acquired it) to its own, more sophisticated manufacturing process.

The implications
Interestingly, at Intel's investor meeting, the company made it clear that it would have an LTE-Advanced modem with category 6 speed support shipping to customers during the first half of 2014. Qualcomm (NASDAQ: QCOM  ) , on the other hand, will be sampling its first category 6 modems during the first half of 2014 for broader availability at some point during the second half of the year.

While Qualcomm is no doubt a modem juggernaut, it's interesting to note that there is an ironic twist here in favor of Intel. Qualcomm's next-generation modem is built on Taiwan Semiconductor's expensive, bleeding edge 20-nanometer manufacturing technology. This brings performance and power improvements, but at the same time, these newer nodes are typically more expensive than mature, fully depreciated nodes.

This means that Intel may have a significant time-to-market and cost advantage by virtue of the fact that it built its modem with a similar feature set to Qualcomm's latest on a cheaper, well-known process node. It's in Qualcomm's long-term strategic interest to move modems to new nodes as quickly as possible and to integrate those modems into apps processors, but this could be a short-term advantage for Intel.

Foolish bottom line
Form an even longer-term perspective, all of these foundries will lose Intel's baseband business as these products are moved in-house (to, of course, get performance, power, cost, and integration advantages), but in the shorter term, Intel needs to build these parts externally. Given that most of Intel's mobile volume through 2015 will likely be built externally (either at Global Foundries or, in the case of SoFIA, at Taiwan Semiconductors), this is an interesting and deep irony for the company with the world's most advanced manufacturing technology. However, time-to-market reality means that Intel needed to bite the bullet and fork over the foundry margin, at least for the next few years.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 13, 2014, at 11:02 AM, drborst wrote:

    Ken, The point seems good, but its hard to read through the vitriol. The purpose of a newer node it to reduce die size and cost.

    Ashraf, pls respond to Ken's point and not his tone. But better, try and explain the reason Intel isn't porting faster. I heard BK say infeon designed on TSMC and they'll build there (GloFlo is part of an alliance, so the switch from TSMC is no big deal, right?). But is there something really different about a processor and modem? Is this a design issue, or a process issue?

    DRB.

  • Report this Comment On January 14, 2014, at 10:28 AM, yabba100 wrote:

    OK Hear my comment in entirely different context.

    Assume I am Olive Garden and I have coffee as desert. I have the greatest coffee in the world and Starbucks and Dunkin Donuts are behind me by at least 2-3 years.

    Now I want to diversify and start coffee shops all over the world. There are few missing pieces in running Olive Garden(intc) Vs. Starbucks(TSMC),

    1) What is my pricing structure, what incentives I should give to make sure I have customers, and not give to make sure I do not leave money on the table.

    2) How are my contracts written, should I let my customers buy pound(Wafer lots) or by cup (tested Soc).

    3) What are the Flavors I should give as options (28/22/20/14 HighK, POLY, LP etc..)

    I can get all these information by buying it from them and let my kitchen spotless until I am ready to pounce. FAB IT FOR OTHERS.

    Now Starbucks cannot say I will not give coffee to you because that will be discrimination. Where as Olive Garden can enact rules for their potential customers (No T Shirts/Shorts/Sneakers/Guns) to exclude people they donot want (ARM)

    This is imho BRILLIANT !!!!

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