Is Intel (s intc) about to announce a foundry deal to make Apple chips today? As my colleague Kevin Tofel has pointed out on more than one occasion, Intel is losing the mobile chip war to ARM (s armh). Intel’s Atom mobile chip is seen by most as too power-hungry for use in cell phones and tablets, and as a result the chip-maker is finding itself left behind in the growing mobile market. But according to Piper Jaffray analyst Gus Richard, the company is looking to change all that not by swimming against the current, but by partnering up with Apple (s aapl) in order to make ARM-based chips itself.
According to the EE Times, Richard says that his sources indicate Intel (which recently made forays into the foundry business) is competing for some of Apple’s chip-making capacity. Apple is reportedly looking around for additional suppliers of the A4 and A5 chips it uses to power its iPod touch, iPhone and iPad devices, in an effort to reduce its reliance on Samsung, its existing manufacturing partner for Apple’s ARM-based application processors. Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) has been cited as a new foundry partner for Apple in the past, but Richard says Intel is another likely candidate.
It does make sense for the two to partner, as Intel would become one of the largest ARM suppliers (and therefore a major player in the mobile device market), and Apple would be able to distance itself from Samsung, which it recently took to court for patent infringement (Samsung countersued in response). Samsung’s Galaxy line of smartphones, tablets and now portable media players are Apple’s closest competition in terms of post-PC device dominance. The cosy supplier relationship between the two companies won’t be as easy to maintain as Samsung’s star continues to rise.
Intel would also benefit, as it owns its own manufacturing plants, which are expensive to build and more economical to run full-out — producing chips even when there is no demand. Additionally, as semiconductor designers make chips that pack in more transistors, the chips themselves become smaller, and more fit on a single wafer of silicon.
Essentially, it means that Intel is producing more and more chips as its semiconductor designs get better. But since it has so far missed the mobile wave, it is faced with a coming future where it has multi-billion fabs producing more and more chips that fewer people want. Sure, the demand for Intel’s PC and server chips will continue, but Intel can’t afford to stay on the sidelines of the mobile revolution, so if it can’t get there with its own silicon, it may decide to get there making someone else’s. Then its capital investment in manufacturing — which has been all but abandoned by most chip design firms who now outsource their chipmaking — will still contribute to the bottom line.
Richard notes that any significant shift in Apple’s foundry supplier relationships will take as much as a few years to materialize. That’s because of how Apple manages its supply chain, part of which involves signing high-volume contracts in order to lock-in prices and create component scarcity for competitor products.
With additional reporting from Stacey Higginbotham.