Having entered the foundry business last year, Intel (NASDAQ:INTC) has officially landed its third foundry customer. The company reached an agreement with Altera (UNKNOWN:ALTR.DL) to build its next-generation Field Programmable Gate Array -- FPGA -- based on Intel's upcoming 14-nanometer tri-gate implementation of FinFET transistor technology. FinFET technology delivers superior levels of scalability, allowing for much greater performance at the same power budget. To date, Intel is the only foundry that has implemented this technology.
Aimed at ultra high-performance systems for the military, wireline communications, cloud networking, and computing and storage applications, Intel's chips will enable breakthrough performance and power efficiencies that wouldn't be possible without enlisting Intel's 14-nanometer technology.
Altera has been a longtime customer of Taiwan Semiconductor (NYSE:TSM) for 20 years. Given this history, Altera reaffirmed its commitment to TSMC as its primary foundry and its upcoming 20-nanometer process. However, it's not looking promising that TSMC's 20-nanometer process will match up against Intel's 22-nanometer FinFET system-on-a-chip, because TSMC won't be implementing FinFET until its 16-nanometer generation. In an effort to remain competitive, it's expected that TSMC will accelerate its 16-nanometer roadmap. To clarify, TSMC has to risk implementing a new technology alongside an accelerated process jump, which opens the possibility for many unforeseen challenges.
For Altera it's a smart business decision to diversify away from TSMC while TSMC works through these potential challenges. By the time Intel brings its 14-nanometer processes online later this year, it will have already had a previous generation of FinFET experience, and only has to worry about making the process jump.
First of many?
Does this mean that Intel could potentially dismantle TSMC's foundry business? Theoretically, yes, but in practice, there's not a chance in the slightest bit. During Intel's most recent conference call, CEO Paul Otellini made it clear that the company is only interested in becoming a selective foundry for certain customers and would not be interested in taking on business that enables a competitor. For the time being, it sounds like being a foundry is more of a learning process than anything else.
Being a selective foundry allows Intel to maintain its technological edge against the competition. As process nodes continue shrinking in the coming years, Intel's generational lead should become more apparent to the world. Ultimately, Intel is hoping its heavy investments today will lead to a world where Intel ends up inside every computing device, regardless of form factor.
Fool contributor Steve Heller owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. 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. The Motley Fool has a disclosure policy.