Intel Competes Against Others to Grab Apple's Foundry Business - Report

Intel Reportedly Wants to Produce Custom Chips for Apple

by Anton Shilov
05/02/2011 | 02:47 PM

For many years Apple has been acquiring custom system-on-chip (SoC) solutions from Samsung Electronics and in the recent years started to use capacities of Samsung to make its own custom SoCs. But going forward the company may start ordering chips from Taiwan Semiconductor Manufacturing Company. Interestingly, but even Intel Corp. may be attempting to compete for Apple's foundry business.

 

''Based on a number of inputs, we believe Intel is also vying for Apple's foundry business. 'It makes strategic sense for both companies. The combination of Apple's growing demand and market share in smart phones and tablets gives Intel a position in these markets and drives the logic volume Intel needs to stay ahead in manufacturing,'' said Gus Richard, an analyst with Piper Jaffray & Co., reports EETimes web-site.

Apple's custom A4 and A5 system-on-chip (SoC) solutions help Apple not only to maximize its profit margins and tailor feature-set of its consumer electronics, but also to greatly reduce its dependence of Intel's x86 microprocessors. Apple's shipments of products based on its A4 microprocessor reached nearly 50 million units in 2010 from virtually zero sales in 2009, IHS iSuppli research indicated recently. Apple in 2010 shipped nearly four times as many units of A4-based products as it did of x86-based. The situation is quite natural as Apple sells a lot more consumer gadgets, which may be powered by almost custom chips, than personal computers, which should be based on x86 microprocessors.

Apple clearly needs additional manufacturing capacities to make custom chips for its various products. But since the company cannot design its own x86-based processors, Intel would have to produce custom SoCs based on ARM processing technology. Strategically, Intel does not need to produce ARM designs due to its x86 everywhere strategy. Moreover, Intel does not have pre-developed intellectual property for SoCs  and it is impossible to license it for quick integration into system-on-chip products.

''Intel's manufacturing lead gives Apple an additional competitive advantage in these markets and distances it from Asian competitors that are knocking off its products. Furthermore, it would also serve to weaken Samsung who is a significant competitive threat to both companies. While it will take a few years for Apple to shift foundry suppliers, we believe Apple is shifting away from Samsung. We believe TSMC will start getting revenue from Apple in Q4 of this year. We believe the recent patent lawsuit between the two companies is further evidence to support our belief that Apple is moving its silicon needs elsewhere," added the analyst.

Although Apple does not want to depend on Intel too heavily, it also needs to reduce its dependence on Samsung.