Intel Aims Manufacturing Firepower at Wafers

{complink 2657|Intel Corp.}, the world's biggest semiconductor company by revenue, wants to produce wafers on a contract basis in its next-generation fabrication plants for at least one, and possibly other, chip vendors, threatening to end the dominance of the sector by a handful of Asian pure-play foundries or contractors.

Intel, according to a report in EBN sister publication EE Times, will begin its push into contract wafer production by manufacturing FPGAs for Achronix Inc., under the terms of an agreement signed by the two companies on Monday, Nov. 1. The deal will initially cover 22nm FPGAs, according to Achronix executives.

Speculations about Intel's foray into the contract wafer business has focused on the possibility the Santa Clara, Calif.-based company might buy Achronix later in furtherance of a yet to be disclosed interest in expanding into the FPGA market. That is certainly a reasonable conclusion, although it appears that was not Intel's main reason, at least based on statements from one of its spokesperson who noted the company was open to adding other foundry customers.

Intel no doubt has the capacity to offer foundry services to so-called fabless semiconductor manufacturers — those companies that lack the ability to fund their own fabrication plants but many of which are often at the leading edge of IC design. A semiconductor wafer fab reportedly can cost $3 billion or more, and few companies in the chip world today have the resources to spend on capital expenditure.

In fact, many of the companies that used to build new fabs from scratch are also going fabless or “fab-lite,” by outsourcing wafer production to foundries like {complink 5388|Taiwan Semiconductor Manufacturing Company (TSMC)}, {complink 1067|Chartered Semiconductor Manufacturing Ltd.}, {complink 5826|United Microelectronics Corp. (UMC)}, and {complink 103|Advanced Micro Devices} spinoff {complink 12822|GlobalFoundries Inc.}

Meanwhile, Intel routinely spends billions annually on capital expenditure and R&D. In 2010, for instance, the company is devoting $3.2 billion to R&D and $5.2 billion to capex. In October, Intel announced it would spend $6 billion to $8 billion upgrading older fabs and creating a new one in the United States alone. That kind of firepower is equaled only by {complink 4751|Samsung Electronics Co. Ltd.}.

The rest of the foundry market should be concerned. GlobalFoundries' entry into the sector, following its recapitalization by Abu Dhabi-based Advanced Technology Investment Corp., has already intensified the competition among players. But Intel would be an even more ferocious player. Even No. 1 global foundry TSMC cannot match Intel's resources or ability to push the boundaries of next-generation semiconductor manufacturing.

Why would Intel consider offering the output of its fabs to potential rivals? Currently, it does not necessarily need other IC vendors to keep the fabs busy, but with demand-and-supply dipping and bobbing with each nasty economic wind, Intel may be considering this move as part of future plans to keep its facilities fully loaded. Furthermore, unlike many of its semiconductor rivals, Intel's overwhelming domination of the microprocessor market means it must continue to invest in manufacturing facilities, with the attendant problem of not being able to run them at capacity during times of weak demand.

Why keep foundries running at below 100 percent utilization when the excess capacity can be lent out — for a fee and in the US — to semiconductor companies seeking to limit exposure to Asia's foundry partners?

2 comments on “Intel Aims Manufacturing Firepower at Wafers

  1. Barbara Jorgensen
    November 4, 2010

    It will be interesting to see what happens if there is a sudden spike in demand. AMD once “leased” its manufacturing capacity to Alcatel and then pulled back when demand hit the roof. The result was an ugly and protracted lawsuit.

    I am not sure that foundries were as dominant at that time as they are now, so maybe the fact that there is ample competition in the market will be enough to avoid such situations in the future.

  2. Ashu001
    November 5, 2010


    This is a good and smart decision on Intels part.

    They are just looking to hedge their costs here.Manufacturing semiconductor plants are a massive expense any which way you look at it.By actually taking contracts from others for atleast a part of their production they hedge their bets.Since its not neccessary a best-selling product from the Intel stable today still remains a best-seller six months down the line.And in that event if they have someone else(even if it is a competitor) to pick up the slack it saves them for having to idle all that manufacturing capacity.

    But Barbara also raises an important issue about contractual disagreements which can and may occur.That is something which is part of the territory.But then is'nt that what Intels massive Legal team is there for ?



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