The Chicago Tribune reported today that Intel Corp. has been in talks with Apple, Inc. to establish a foundry relationship, which could lead to Intel eventually co-designing the company's next-generation iPhone and iPad microprocessor chips, based on their Atom mobile processor technology. Both companies have refrained from confirming the story. Intel is in the process of finding a new CEO since Paul Otellini announced in November that he would be retiring, and the new Intel CEO is expected to elevate the company’s stature in the mobile device arena, as more consumers choose to do computing with iPads and iPhones as opposed to traditional PCs. Apple has been searching for another partner to produce its processor chips for its mobile devices, as it seeks to find an alternative from Samsung, which it aggressively competes with directly for smartphone sales.
Even though Intel's smartphone processor chips are currently faster than several from the industry leader, ARM Holdings, its top smartphone chips are based on several generations older, 32nm node semiconductor technology, which is higher in power consumption and lower in performance than ARM’s top designs and require multiple chips for some applications. The latest Atom smartphone processors pale in comparison to ARM chips with respect to speed. This lower speed and functionality is mainly due to the lower, single-core Intel smartphone chips compared to quad-core design for the more advanced ARM processors. However, Intel is expected to launch multi-core x86 smartphone processors in early 2014.
Many of Intel's older foundries are actually even more advanced than foundries of rival chipmakers like Samsung and TSMC. Moreover, many of Intel’s fabs now operate below full capacity due to the slowdown in PC processor sales, which has increased their interest in foundry services such as their new deal with Altera for 14nm node chips geared toward automotive and other embedded device applications. Analysts and shareholders have been nudging Intel to pursue the mobile device space and foundry business more seriously over the last couple years to aid the company in absorbing the high capital equipment cost of frequently implementing new process technologies and lessen the impact of volatile swings in the PC market. The company was hesitant to redirect significant resources from its bread-and-butter 60 percent margin PC processor business for lower margin foundry or mobile activities, but the stock has fallen nearly 20 percent over the past year, while mobile devices ICs and the overall supply chain continues to rapidly grow.
If Intel began producing Apple's ARM-based chips for iPhones and iPads, it may kill Intel's current smartphone and tablet chip designs, which are gradually becoming more efficient in terms of power usage but have yet to be accepted for use in any major mobile devices. ARM's architecture competes against Intel's and is dominating the market; so, Intel may be losing on the design side to obtain gains on the manufacturing front. However, it is always possible that the revenue generated from producing Apple iPhone chips may be re-directed towards increasing their design roadmap competitiveness. Shifting production of iPhone and iPad chips to Intel could generate an additional $4.2 billion in revenue in 2015, with a gross margin of around 50 percent, according to Macquarie market analyst Shawn Webster.
Intel has struggled to adapt its powerful processors for battery-powered smartphones and tablets that require much less intensive computing than for PCs. Its market share for smartphones is less than 1 percent, behind Qualcomm, Samsung and other competitors, which had a more strategic application-oriented approach to meeting the power and speed requirements for Apple mobile device products. Also, Apple is serious about retaining the listing of its mobile products in the government-supported EPEAT green electronics registry, which considers energy-efficiency so reduced power usage for its core processor chips and streamlined, green manufacturing remain an issue moving forward regardless of who makes it.
Of course, Apple discussing having Intel manufacture processor chips for next-generation iPads and iPhones may simply be posturing as well in order to get a more favorable agreement eventually with TSMC or its current partner, Samsung.
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