May 27, 2011

Intel May Consider Manufacturing Rival Processors

Intel Corp. said it would consider using its manufacturing capacity to make processors for rival firms, although any proposal to produce non-Intel chips would require an "in-depth discussion", Reuters reported on Thursday.

Speaking to journalists after an investor event in London, Intel's Chief Financial Officer Stacy Smith said the chipmaker would be very selective about any such deal.

Intel sees its lead in advanced manufacturing technology as a critical asset, and opening its factories up to rivals would be a dramatic shift.

"There are certain customers that would be interesting to us and certain customers that wouldn't," Smith said, adding that Intel would gladly make chip cores based on its own architecture for other companies, but using its sophisticated manufacturing technology to make competitive architectures would be a "tough decision."

"If Apple or Sony came to us and said 'I want to do a product that involves your IA (Intel architecture) core and put some of my IP around it', I wouldn't blink. That would be fantastic business for us," he said.

"Then you get into the middle ground of 'I don't want it to be a IA core, I want it to be my own custom-designed core,' and then you are only getting the manufacturing margin, (and) that would be a much more in-depth discussion and analysis."

Intel has signed some "tiny" foundry deals during the last year, primarily to gain access to new technology, Smith said.  But a proposal from a major competitor such as Apple is "not in the works today."

While manufacturing chips for other companies would help Intel mitigate the growing costs of building more advanced factories, Smith said the likelihood of making chips for others is not driving the company's investment in capacity.

Intel has refined its proprietary architecture over the years, and now designs powerful processors that run some 80 percent of the world's computers. However, it has fallen short in adapting its chips for smartphones and tablet devices "“ a lucrative, fast-growing market dominated by British chip designer ARM's battery-friendly design.

Apple's iPad tablet computer is runs on an ARM-based processor made by Samsung Electronics, Reuters reported.

Combining Intel's leading-edge manufacturing technology with ARM's energy-efficient architecture could give rivals a competitive advantage, making it more challenging for Intel to sell its own processors.

Earlier this month, Intel unveiled a new "3D" manufacturing technology that it said gives higher performance while consuming less energy.  It is investing heavily to stay ahead, having raised its capital spending plan for 2011 from $9 billion to $10.2 billion in April.

Such growing levels of investment in manufacturing capacity by Intel and others have raised concerns among some investors of a potential glut in supply that could cause average selling prices to fall.

But Smith said capacity increases are being driven by growing demand for notebook computers in emerging markets.

"We see real data and we have shown our prices have been up six quarters in a row, our mix is good, and our factories are pretty full and we are putting in capacity that is consistent with the unit growth that we have been experiencing," he said.

"We don't put out a forecast specifically for prices, (but) I have said I expect 2011 to be a relatively benign pricing environment based on the strength of our technology."

Shares of Intel's stock fell 18 cents, or 0.79 percent, on Thursday, closing at $22.50.


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