All these stories should be taken with a grain of salt A Bloo dy big grain most times.
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.