Today, Intel (NASDAQ:INTC) announced it would be teaming up with Chinese tablet chip vendor Rockchip in a bid to extend its reach within China's technology ecosystem. In particular, Intel and Rockchip will work together to design a quad-core Intel Architecture based product built on TSMC's (NYSE:TSM) (and perhaps on other contract foundries') 28-nanometer process based on the SoFIA design that Intel is designing for the low-cost tablet/smartphone market. This has pretty interesting long-term implications.
What's the scoop?
In this deal, it looks as though Intel is providing the basic SoFIA SoC framework it is using for its own designs. As you may recall, Intel is planning on launching two products: SoFIA 3G and SoFIA LTE. The 3G part will sport two Intel-designed CPU cores (likely Silvermont based) and the LTE part will sport four. However, in many markets, the "quad core" marketing point is a necessity, especially as ARM (NASDAQ:ARMH) has made it easy for its partners to tout four or more CPU cores in even the lowest-end of products, even if those cores aren't very powerful.
So, in order to address this market, Intel is working with Rockchip to develop a quad-core SoFIA with integrated 3G capability. In particular, it looks like Intel is handing over some of the key IP blocks and will be putting the Intel branding on the product. Intel will handle sales/distribution in geographies where it is strong, and Rockchip will handle sales in geographies (think China) where it is strong. Rockchip gets to expand its product portfolio to include an integrated modem (it doesn't have an in-house modem strategy), and Intel pushes X86 further into ARM territory.
The business implications
Intel seemed to indicate it was interested in a longer-term partnership with Rockchip. In the near term, the economics of this don't seem to be all that great for Intel, particularly as it's handing over foundry margin and is probably splitting the revenue and/or profits from the sales of these chips (although Intel didn't want to go into much detail here). However, think about this from a longer-term perspective.
Going forward, Intel will bring its SoFIA product into its own manufacturing facilities built on its own process technology. Further, Intel will still be providing the CPU IP as well as other critical building blocks, so even though Rockchip will be doing the integration (and bringing its own IP to the table), Intel still has a pretty sizable part of the design. On top of that, Intel will be able to run these products in its own factories, and each sale of such a product is a royalty check ARM doesn't get and -- more importantly -- a wafer that TSMC doesn't sell.
So, Intel gets more volume into its factories, and it gets to proliferate X86 across a wider base of customers that it potentially wouldn't have gotten if it didn't partner with Rockchip. Rockchip, on the other hand, doesn't need to worry about developing its own in-house modem (this is very expensive, and many have failed). In short, this really is a win-win for both parties.
Foolish bottom line
Intel is making interesting business move after interesting business move under new CEO Brian Krzanich, and it's clear that the company is very serious about winning in mobile. The goal here seems to be to make sure X86/Intel Architecture stays a first-class citizen in the computing world and to capture as much of the industry's volume as possible into its factories. A very smart business move on Intel's part, and one that ultimately proves that the company's management team is acting very aggressively to secure its long-term future.
Ashraf Eassa owns shares of ARM Holdings and 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.