Say Hello to Intel, the Foundry Service!

Did you hear? Intel (Nasdaq: INTC  ) has opened shop as a foundry service, selling its bleeding-edge manufacturing processes to third-party customers.

Before you exclaim that Intel has gone insane, let me calm your nerves. The chipmaker doesn't plan to become an all-around foundry giant in the image of Taiwan Semiconductor Manufacturing (NYSE: TSM  ) or United Microelectronics (NYSE: UMC  ) . Direct competitors Advanced Micro Devices (NYSE: AMD  ) and NVIDIA (Nasdaq: NVDA  ) will never be able to close the gap to Intel's advanced manufacturing processes by simply buying production capacity from the chip giant. Nor is the company producing mobile powerhouse processors on command from Marvell Technology (Nasdaq: MRVL  ) or Qualcomm (Nasdaq: QCOM  ) . Intel's Atom chip wants to compete with these products, and it would be suicidal to let the foxes in the henhouse.

No, the only client allowed to stamp processors out of Intel's specially processed 22-nanometer silicon wafers is a privately held designer of Field Programmable Gate Arrays (FPGA) named Achronix. FPGA chips are known to be slow and power-hungry, but make up for these deficiencies by being reprogrammable after they leave the production line. You'll find these chips in the design stage of more ambitious microprocessors, specialized cryptography machinery, or super-secret military applications. It's a relatively low-volume product category that poses no threat to Intel's speed demons, and Intel expects to use less than 1% of its next-generation manufacturing muscle on Achronix's behalf.

If an audacious plan to convert Intel into the next Taiwan Semiconductor is the World Series, this partnership is minor-league batting practice. Not that cloning TSMC would be such a bad idea -- the leading foundry produces fatter operating cash flow margins than Intel today, but then sinks most of it into factory upgrades and dividends. No, Intel is simply sticking a timid toe into unfamiliar waters to check the temperature. The company gets an opportunity to try out its next manufacturing process in production volumes, without tinkering with its own chip designs in the process. Intel is even asking its devotees for input on the whole foundry idea.

This is an early test of a new idea, immaterial to earnings and virtually risk-free. At worst, Achronix goes elsewhere after a failed experiment. At best, Intel shows off the flexibility of its manufacturing capabilities to an adoring semiconductor industry, and perhaps signs up a very select list of non-competing clients. In short, this is nothing more than Intel showing off.

Follow Intel and its curious side projects by adding the stock to your Foolish watchlist.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Intel is a Motley Fool Inside Value recommendation. NVIDIA is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Intel, Marvell, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (1) | Recommend This Article (2)

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 November 04, 2010, at 9:04 PM, austec wrote:

    It's great to be a an unethical corporation breaking laws all over the world! So much cash earned from monopolizing, threatening and bribing the entire computer industry!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1358723, ~/Articles/ArticleHandler.aspx, 10/25/2014 2:20:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement