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While at present the feasibility of Intel Corp.’s foundry business is under a huge question mark, there is no doubt that the company may need it going forward. According to financial models created by a Wall Street analyst, the inevitable transition to 450mm wafers will make foundry business viable for the world’s largest chip company.

“To date IFS [Intel Foundry Solution; the company itself calls the division as Intel Custom Foundry - X-bit labs] has remained mostly a niche effort, but we would argue that as Intel’s manufacturing lead continues to widen at 14nm and especially at 450mm, IFS will become a more meaningful driver of top and bottom line performance,” wrote John Pitzer, an analyst with Credit Suisse, reports Forbes web-site.

According to the analyst, Intel’s average selling price of around $120 per chip as well as $10000 – $11500 in revenue it gets from a 300mm wafer are not going to be harmed by the foundry business model, which is by definition less profitable than manufacturing of own devices. But the analyst believes that there will be no problems, especially considering the lead that Intel keeps in the microprocessor business.

“Investors worry about the impact to corporate profitability from foundry business, especially relative to an Intel and Apple relationship. On the surface, Intel’s MPU ASPs of $120 versus the Apple ASP of $20-$25, Intel’s corporate gross margin of 60-65% versus TSMC’s at 45-50% and Intel’s cost/wafer of $10500-$11500 versus leading edge wafers at TSMC at $5000-$5500 would all suggest that any entry into foundry would be margin dilutive with little bottom line impact,” said Mr. Pitzer.

According to the Credit Suisse analyst, if Intel were to produce 100% of Apple’s demand at 14nm, the company would generate an extra $5.8 billion in revenue, 47% gross margins (which is below the 60%-65% of the core business), but with operating margins of 35%, above the core of 28% - 32%.

In fact, it looks like the company is working on its foundry project pretty hard already. Moreover, the company’s Custom Foundry division might have signed more contracts already than anyone could expect it to. In addition to Achronix, Netronome and Tabula, Intel may well have loads of unannounced or pending foundry customers.

“I would be a foundry for strategic relationships and not to enable our competitors. […] We are running a small foundry business, we are building up our capabilities and do not want to compete directly with TSMC, that is not our business model. For the right types of products and not to enable my competitors, I would certainly consider [making chips for others]. There is a lot of stuff in the pipeline,” said Paul Otellini, chief executive officer of Intel, at Sanford Bernstein technology conference recently.

Apparently, Intel Custom Foundry has much more customers than anyone would think. Moreover, at least some of those customers are already manufacturing their products at other contract makers of semiconductors.

“As you know it takes a while to move your designs over, to design them under our process, for us to be able to bring them in-house and so forth and our foundry customers are not going to announce that they have moved until they have moved because it would hurt them at their current suppliers,” said Mr. Otellini.

Tags: Intel, Semiconductor, 450mm, 14nm

Discussion

Comments currently: 3
Discussion started: 12/17/12 05:34:54 AM
Latest comment: 12/18/12 05:21:34 AM

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1. 
Most of these so called anylists from large broking houses and banks are there to boost the share turnover either up or down as these brokers/Bankers make a commission which ever way the share price moves. All they want is for share prices to move. Often times rumours are started by these Brokers/Bank anylists.
All these stories should be taken with a grain of salt A Bloo dy big grain most times.
3 0 [Posted by: tedstoy  | Date: 12/17/12 05:34:54 AM]
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2. 
450mm, as it stands right now, will put Intel at a cost advantage over pure-play 450mm foundries in producing their products, read on to see why. If Intel wanted to move towards a pure-play model (which no one is predicting), they would need to make some changes to the evolving SEMI standards. These changes, such as smaller (12, 5 or single wafer carriers vs. 25 wafer) would improve cycle time on high-mix, high-volume manufacturing with 450mm wafers--something foundries need. The fact is, that if the foundries don't get more involved in the 450mm transition, Intel will experience long-term cost advantages over them in semiconductor manufacturing. For a good article on this written a couple of months ago, see:

http://450mm.com/blog/201...9/making-450mm-foundries/

If Intel was serious about becoming a competitive foundry, these standards would be in the process of being modified. They are not. It's better for Intel (worse for the G450C partners) if they stay as they are. With TSMC not able to provide AMD, Qualcomm, and Apple the volumes they need, all are looking to other suppliers, including GlobalFoundries, and it sounds like Intel. One big outside customer like Apple won't completely change Intel's primary business model, which is making low-mix, high performance, leading edge processors in huge volumes.

With 450mm not hitting high volume until 2018(!), I'd agree with "tedstoy"--this analyst's remarks seem like premature hype that has little bearing to concerns today except to artificially move share prices. Besides, a lot can happen before 2018.
2 0 [Posted by: neodigm  | Date: 12/17/12 11:16:43 AM]
Reply

3. 
TSMC needs to keep an eye on nVidia bcoz Intel would supply nVidia GPU`s, these are the rumour talks going on between nvidia and Intel.

GlobalFoundries are catching up to Intel with their 20nm/14nm. The difference may come down to 6 months. The 450mm should also be about 6 months between Intel, TSMC, Samsung and GlobalFoundries. Intel is actually slowing down whilst other foundries are speeding up.

Its going to come down to design in the end, over cutting edge technology once everyone migrates below 14nm and upto 450mm.
1 0 [Posted by: keysplayer  | Date: 12/18/12 05:21:34 AM]
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