Executives from Intel Corp., the world’s largest maker of computer chips, and Apple, one of the world’s largest consumer electronics companies, discussed chip manufacturing contract last year, according to a media report. In case the two giants manage to agree on a foundry deal, Intel will get a client which demands will be comparable to Intel’s own, whereas Apple will get access to the world’s most advanced process technologies.
Intel established its Intel Custom Foundry division within its technology and manufacturing group about three years ago, but it remains extremely tight-lipped about its ongoing endeavors, future plans, prospects and clients. Being the largest maker of semiconductors in the world, Intel has leading-edge process technologies and invests more than anyone else in research and development (R&D) of new manufacturing processes as well as building new manufacturing facilities. Since it every new technology node costs more than the previous one and the cost of new fabs is growing as well (and with 450mm factories their cost will get even higher), Intel needs to constantly sell more chips and ensure full utilization of its factories. One of the ways to guarantee maximum utilization of production facilities is to make chips for others.
Officially, Intel has four foundry customers for whom it produces chips they designed, but there are talks that the company has signed deals with many more market players without public announcements. Moreover, Intel and Apple executives have discussed a potential foundry agreement, under which Intel will produce chips for Apple, in the past year but no agreement has been reached, a source close to one of the companies told Reuters news-agency.
"If you can have a strategic relationship where you are making chips for one of the largest mobile players, you should definitely consider that. And for Apple, that gets them a big advantage," said Pat Becker Jr, of Becker Capital Management, which owned about $39 million worth of Intel shares at the end of last year.
At present Apple utilizes Intel’s x86 microprocessors inside its Macintosh personal computers. However, the amount of those PCs it sells is relatively limited. Meanwhile, all Apple’s iPhones smartphones and iPad media tablets – which sales are growing very rapidly – are based on Apple-designed custom ARM-architecture processors. Apple needs to make those chips using the most advanced process technology possible in order to provide better performance and longer battery life for its devices. However, Apple also needs over 200 million of its A-series system-on-chips per year, which requires production capacities that Intel may not be able to provide as this is comparable to the number of chips it sells per year.
In the past, Paul Otellini, the outgoing chief executive of Intel, said that while the company is not interested in making ARM-based chips since they compete against Intel’s x86 offerings, it may still be interested in making chips for Apple.
"Anything is theoretically possible. [...] The Apple [foundry contract] win would be a lot more attractive than the Qualcomm win," said Mr. Otellini.
While the foundry deal between Apple and Intel is unlikely to be signed until Intel starts to manufacture chips on 450mm wafers and starts to build completely new fabs, it is very likely that the new chief executive officer of the world’s largest maker of chips will pay more attention to the contract manufacturing business since its importance may grow dramatically over long-term future.
Apple and Intel did not comment on the news-story.