An Intel-NVIDIA Foundry Relationship Now Makes a Lot of Sense

A long time ago, NVIDIA (NASDAQ: NVDA  ) CEO Jen-Hsun Huang seemed to be very interested in having Intel (NASDAQ: INTC  ) build its Tegra chips (and indeed, chips for all of the mobile companies). While Intel would most likely avoid such business as it would threaten its Core and Atom processors, NVIDIA's discrete graphics business would certainly be a fantastic candidate for Intel's Custom Foundry.

GPUs: A near-perfect fit
If you look at NVIDIA's highest-end GK110 part (known colloquially as "big Kepler"), you'll notice that it is a 7.1 billion transistor beast with a die size that weighs in at 550 square millimeters. These chips also sell for hundreds of dollars and with better performance, the company can command a premium. With Intel's transistor performance lead, its density lead, and its reputation for having some of the best manufacturing yields (that is, how many chips built actually work on a given wafer) in the industry, this could be a beautiful partnership.

From a strategic perspective, if NVIDIA were able to build these graphics chips at Intel, this would completely tip the scales further in what has already been a pretty lopsided duopoly in NVIDIA's favor. NVIDIA already has the marketing/brand down, extremely good hardware designs, and some of the world's best graphics software teams in-house. Augment that with a manufacturing advantage, and it's very difficult to see how rival Advanced Micro Devices (NYSE: AMD  ) could compete on performance, power, or -- frankly -- cost.

But what's the downside?
While Intel does not today build discrete graphics cards (and probably has no interest in doing so), it is competing head-to-head with NVIDIA's GPUs (branded Tesla) in the high-performance computing space with its own Xeon Phi. By giving NVIDIA access to its latest and greatest manufacturing technology, Intel neutralizes what is probably its biggest competitive edge against Tesla. However, if we step back for a moment, we realize the following:

  • NVIDIA's Tesla business is on the order of a few hundred million dollars per year and capturing it entirely via Xeon Phi would be more of a philosophical victory rather than a financial one.
  • Capturing the entirety of NVIDIA's high-end discrete business would more or less deprive TSMC (NYSE: TSM  )  -- Intel's real long-term enemy -- of all of those leading-edge wafer starts, which is a much more critical strategic objective than winning fairly niche high-performance computing accelerator card sockets.

The next potential point of contention would be NVIDIA's Tegra business. It would be awfully weird for NVIDIA to have to build its Tegra processors over at TSMC while its big discrete GPUs get preferential treatment. The problem here is that if Intel were to do a Rockchip-like deal with NVIDIA, the latter company has enough graphics IP (among others) chops to really deal some damage to Intel's higher-end Atom line and even parts of the Core line with an X86-based Tegra. 

Foolish bottom line
While these thoughts are, admittedly, highly speculative, they are also not impossible. Intel's recent willingness to open up its factories and given how well suited big, performance-sensitive graphics processors are to Intel's manufacturing strengths make this an interesting consideration, but as is always the case in business, the devil's in the details.

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  • Report this Comment On June 01, 2014, at 11:05 AM, raghu78 wrote:

    Ashraf

    I think your speculation is running wild and without reason. Nvidia is developing 64 bit custom ARMv8 Denver cores and Nvidia's goal is to deliver complete heterogeneous SOCs which combine powerful Denver cores with industry leading Nvidia GPU cores on a single silicon die all connected to a HBM stack with several hundreds of Gb/s or even terabytes/s of bandwidth. These chips will run servers which will directly compete with Intel not just in HPC but in various other areas. Nvidia is also a founding member of OpenPOWER foundation with a goal to use POWER architecture in their high end servers.

    http://en.wikipedia.org/wiki/OpenPOWER_Foundation

    "Nvidia is looking to merge their graphics cores and Mellanox to integrate their high performance interconnects with Power cores."

    The future is not about discrete Tesla boards paired with high end Intel Xeon CPUs. Its all about

    highly integrated SOCs with terabytes of bandwidth. And since Nvidia is clear about using Power and ARMv8 for the CPU cores they are a direct threat to Intel. There is no sense in Intel providing foundry services to Nvidia.

  • Report this Comment On June 02, 2014, at 10:05 AM, rav55 wrote:

    @Ashraf

    If Intel has so much foundary capex that they can fab nVidia silicon then Intel has serious problems. If Intel thinks it can enjoy growth in the selling it's capex then that means it's NOT burning it's own silicon to give away in the Tablet market. Is Intel foundry space a growth market?

    Intel can't sell the silicon they now fab for the Tablet market. So much so that they are giving it away to the tune of about $4 BILLION per year in losses for the Communication and Mobile Group. Last year it was $3.1 BILLION and they are on a roll to hit $4 BILLION this year with $0.95 BILLION in losses for the 1st quarter this year. Way to go. Hurrrah.

    Do you want to see Intel stock climb to $40?

    Then demand that Orteliini close the Communication and Mobile Group and stop the bleed of shareholder value.

    Maybe then Intel will start paying a dividend AGAIN. And Warren Buffet just might buy back in.

    Or yeah, I forgot, Intel might also drop a tad lower than the 2nd greatest short position in the WORLD. Sirius has that dubious honor at #1, then it's good ole Intel.

    Gee whiz there Ashraf. I hope that I didn't bully you with this post. You acussed me of doing that on last piece that you slapped together, then you removed that little whining gem.

    Did your editor do that out of embarrassment?

  • Report this Comment On June 02, 2014, at 11:25 AM, SSchlesinger wrote:

    @RAV55 (Above)

    #1. Intel pays a dividend, and has never stopped.

    #2. The CEO of Intel is Brian Krzanich, not Ortelini (Paul Otellini was who you were referring to?)

    #3. The shareholder revolt to demand Intel get out of mobile won't happen.

    Thank you for pointing out the losses. If you've ever had a business then you'll know that that before you even open the doors of a store you're losing a ton of money just getting to this point. Is this really a bad thing? Everybody demanded Intel to get into Mobile, and they have with a huge investment. But it will also keep them competitive in desktop and servers.

    The best news is that Intel will sell it's foundry business at a premium to companies like NVDA if Intel decides to go down this route. That is more premium dollars in Intel's pocket helping to pay off those billions in losses, and less money in TSMC's hands. Worse yet, it's less demand for cutting edge technology from TSMC, making it more difficult to keep up with Intel.

    I've seen your plan, and I've seen Intel's plan and I like Intel's plan better. Sorry.

  • Report this Comment On June 02, 2014, at 12:12 PM, FluorescentHell wrote:

    Ashraf, I think you have pointed out the conundrum that Intel faces in foundry. Intel's focus is on leading edge processes while TSMC makes their money on lagging nodes. This means that Intel needs to sign TSMC Early Adopters (like Altera) while TSMC can heavily discount their leading nodes. Who are the two biggest volume early adopters at TSMC? AAPL and QCOM.

    I think Intel would be willing to sign QCOM or APPL if the deal was beneficial to both companies. Today, Intel doesn't have a big enough bargaining chip with their foundry. If TSMC stumbles with 16nm, then I can see both QCOM and AAPL looking at Intel 10nm. Since Samsung announced they are licensing FDSOI, it signals that they are not going to be a leading edge FinFET player, so we can count them out.

    I think we have to wait to see if TSMC can deliver on time and with reasonably cost effective yields.

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