What Does Intel's Partnership with TSMC Really Mean?

[Rob Williams]

From our front-page news:

Yesterday, Intel made a surprise announcement regarding a "long-term strategic" cooperation with TSMC (Taiwan Semiconductor Manufacturing Company) to help produce Atom processors. Although at this point in time, the announcement is about a memorandum of understanding, we can expect to see the TSMC producing Intel's 32nm Atom processors in the near-future.

This announcement marks the first time Intel has ever ported a processor to an external source, and given the number of fabs that the company already operates, what benefit do they actually hope to see here? According to the press release, it's so that Intel can gain more exposure to other markets, but as Ars Technica reports, there's no doubt a lot more to it than that.

The problem in theory is simple. Intel's desktop processors aren't in demand right now, but their Atom processors are... and they are selling them by the bucket-load. However, each Atom processor costs significantly less to the customer than a desktop CPU, so Intel has to sell a lot more of them in order to see profit. The situation is made even worse when Intel has to spend lots on R&D and also devote fabs to Atom... a product that will never generate near as much revenue as a fab that produces desktop processors.

So by having the TSMC help produce Atom CPUs, they can use their R&D elsewhere, and also free up some space in their own fabs for production of other products. It's still all a very sticky situation though, because this move proves that Intel cannot rely on Atom for much of anything... the money simply isn't there. The economy isn't helping their desktop CPU situation either, so until that all clears out, Intel is in a complicated position.

Intel's margins on Atom are much thinner than those on regular desktop and server CPUs, and with each process shrink, Atom's cost (and price) will go down. But fabs get more expensive with each shrink, so the result is that Intel has to sell many more Atoms at 32nm than it does at 45nm to make money. The demand for all of those Atoms may or may not materialize, which is why Intel will pay TSMC to fab them and share the risk that the demand may not be there. Meanwhile, Intel wants to save its (very costly) in-house fab capacity for high-margin products, like its CPUs.

Source: Ars Technica​

 

[Kougar]

I haven't read the Ars article, but my understanding is this is primarily done for two reasons. A) Additional supply should they need or wish it (Intel themselves sell 200M CPUs, and stated they plan to sell more Atom's than CPUs in the future) and B) so companies can expand the SoC design and build their own propriatary IP into the Atom SoC.

Things like Wifi, 3G, GPS, Bluetooth, and plenty more use IP that Intel can't legally put into Atom without paying licensing or royalty fees, but is needed to make it an attractive SoC to rival ARM. They could either pay out massive amounts in licensing costs, or they could allow the IP holders or interesting buyers to contract out with TSMC to built it into SoC Atom chips. This would avoid the licensing nightmare, sells more Atoms, and widens the prospective markets for it. And unlike ARM's approach of licensing out their ARM core, this allows Intel to keep a firm grip on their own Atom core IP so no one else can get ahold of it except TSMC.

 

[Rob Williams]

I agree, a lot of this might have to do with other people being able to build their own IP into the Atom, but I'm still wondering if there's more to it than that. The Ars article also brought up another good point. This decision was made at almost the same time that Craig Barrett retired. According to another article linked by that one, that could have been caused by the fact that he never wanted to see that happen, and decided to call it quits. Or, it could be just that he's older and wants the rest of his life to worry about other things than Intel ;-)

Things like Wifi, 3G, GPS, Bluetooth, and plenty more use IP that Intel can't legally put into Atom without paying licensing or royalty fees, but is needed to make it an attractive SoC to rival ARM.

I wish other sites managed to sum it up so clearly. Good thought... that makes a ton of sense.

 

[Kougar]

I agree, a lot of this might have to do with other people being able to build their own IP into the Atom, but I'm still wondering if there's more to it than that. The Ars article also brought up another good point. This decision was made at almost the same time that Craig Barrett retired. According to another article linked by that one, that could have been caused by the fact that he never wanted to see that happen, and decided to call it quits. Or, it could be just that he's older and wants the rest of his life to worry about other things than Intel ;-).

Wow, guess I should have read that article! The thing is, the article I read had Intel themselves stating this deal began negotiations almost two years ago. I think Ars got a little speculation happy.

The deal with TSMC took two years to negotiate, an Intel spokesman said, in part to ensure that both companies' rights to patents and other intellectual property would be safeguarded.

Source