While CPUs based on the x86 architecture, pioneered by Intel (INTC 0.71%) decades ago, are dominant in the PC and server markets, it's a very different story in the smartphone market. In the world of iPhones and Android devices, chips built on the Arm architecture reign supreme.
Intel tried and failed to put x86 chips into peoples' pockets with its line of Atom mobile SoCs. It never really worked, and the initiative fizzled out around 2016. Smartphones require chips with very different performance and efficiency characteristics than PCs or servers, and while there's nothing inherently more efficient about Arm compared to x86, Arm-based chips have dominated the world of low-power computing for a long time.
Taking a different approach
Today, Intel has no meaningful presence in the smartphone industry at all. Atom was shelved long ago, and the company sold off its smartphone modem business in 2019. Instead, Intel is focused on its core PC and server CPU businesses.
On top of manufacturing its own chips, part of Intel's strategy under CEO Pat Gelsinger is to build out a foundry services business to rival market leader Taiwan Semiconductor Manufcaturing (TSMC). While Intel's track record breaking into markets outside of PCs and servers is lackluster, one of its core competencies is semiconductor manufacturing. The company's plan is to leverage its manufacturing footprint and expertise to make chips for industries that would otherwise be unreachable.
One such area is smartphones and embedded applications. On April 12, Intel announced an agreement with Arm that will make Intel a viable manufacturing option for any Arm-based chip designer. The plan is to initially focus on enabling the manufacture of mobile SoCs on Intel's upcoming 18A manufacturing process. Over time, the scope of the agreement could be expanded to include chips for automotive, Internet of Things, data center, aerospace, and government applications.
Intel's 18A manufacturing process isn't scheduled to be ready for volume production until the second half of 2024, so it will be a while before Intel starts pumping out Arm-based chips. But come 2025, companies like Apple and Qualcomm will have a third manufacturing option beyond TSMC and Samsung if everything goes according to plan.
A multibillion-dollar opportunity
The days when most chip companies manufactured their own chips are long gone. Semiconductor manufacturing is so complicated and capital intensive that many companies have opted to focus on chip design while outsourcing manufacturing.
Chip designers seeking the best manufacturing processes now turn to either TSMC or Samsung. For TSMC, which leads the third-party foundry market with a revenue share near 60%, this demand has led to incredible growth and profits. In 2022, TSMC booked nearly $76 billion of revenue and around $34 billion of net income. For a company like Apple that needs to manufacture hundreds of millions of chips each year on the absolute best manufacturing process available, TSMC is essentially the only game in town.
Nothing is going to change overnight, but Intel is positioning itself to be an alternative option for companies like Apple. Intel already has a large manufacturing footprint, and it's been ramping up manufacturing investments under Gelsinger. With the Arm deal, Intel will have a real shot at stealing away a meaningful amount of business starting in 2025.
Of course, a lot can go wrong for Intel. The company has a history of manufacturing delays, and it will need to convince potential customers that those troubles are behind it. But if things go roughly to plan, Intel could have a new multibillion-dollar business on its hands.
