Should Intel Enter the Foundry Business?

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Should Intel, with its many large semiconductor manufacturing facilities, put some of its spare capacity to work making chips for others? The question has the immediate response of “no way,” but it’s a more complex question than that.

In the world of semiconductors, Intel is a rarity in that it makes its own chips. Most of its competitors don’t. AMD, Nvidia, Marvell, Broadcom, and Qualcomm are all multibillion dollar chip companies that don’t make a single piece of silicon. They outsource the manufacturing to third-party foundries, the largest being the Taiwan Semiconductor Manufacturing Corp. or TSMC.

And there has been plenty of complaining about TSMC by its customers. Both AMD and Nvidia are customers of TSMC, and for years they have struggled to get enough graphics parts to meet demand. When TSMC migrated to 40nm and 28nm manufacturing, it spent months trying to get yields up to demands, driving AMD and Nvidia crazy in the process.

So it’s not too surprising that the CEO of a fabless chip designer would publicly call upon Intel, the world’s largest chipmaker, to open up some of its manufacturing capacity to other firms. That it came from Nvidia CEO Jen-Hsun Huang is surprising, since the acrimony between Intel and Nvidia is so strong.

But it seems Huang is willing to give Intel a little of his money. Forbes reports Huang suggested Intel go into the foundry business. “Why not be a foundry for all the mobile companies? There’s no shame in that,” he said.

He specifically said Intel should produce ARM-based system-on-a-chip processors from Apple, Broadcom, Nvidia, Qualcomm, Texas Instruments and more. Given Intel has been trying for several years to compete with ARM with its Atom processor, one would think Intel would have nothing to do with that.

And one would be right. “The primary focus of our technology and manufacturing continues to be on providing competitive advantage for Intel products and platforms,” said Jon Cavill, a spokesman for the company.

However, he did offer this bit of hope. “We have a small nascent foundry business today and it’s very much in its early stages of growth. We’re taking a slow and deliberate approach in building our offerings in this area.”

Don’t dismiss it, because nothing is impossible in this industry, argues Tony Massimini, chief of technology with Semico Research. “There have been rumors about Intel doing this. Whether there’s substantiation to it is hard to say. I can imagine some folks on the Atom side being upset with that. But at the same time they have lots of capacity available,” he said.

Intel has the capacity thanks to all of its fabrication plants and thanks to turning its own CPUs into an SoC. “They have a lot of well-amortized manufacturing sitting around now that they’ve integrated a lot of chipset functions in the processor. So Intel has all this idle functionality that is cutting edge for everyone else,” he said.

But there are lots of question marks. Would Nvidia, which has no love lost for Intel, actually give it money to manufacture Tegra chips? And if Intel plays favorites and works with companies that are less threatening, that could bring anti-trust scrutiny Intel doesn’t want.

“It would be a major business decision and it’s more that than just technology,” said Massimini. “When you go into the foundry business, you have to manage all these different customers. What Jen-Hsun said is not as off the wall as it sounds. Take it with a grain of salt but don’t write it off 100 percent.”

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