Intel Ready To Manufacture Chips for Others: a Sign of the Times
Intel (INTC) has agreed to manufacture semiconductors for Achronix Semiconductor. What makes the deal notable is that Intel will provide its current top production technology. That is a first for the chip giant, and it shows just how much the market has changed and what Intel might need to do to maintain the relentless investment in new equipment and manufacturing processes, even as prices continue to get crushed and the company warns of sales shortfalls.
Production technology really means how small a manufacturer can make its chips. The smaller the size of the technology -- Intel is currently at the bleeding edge with 22 nanometer -- the more transistors and, so, functions can go into the chip. Also, shorter paths between transistors means faster operations. The third bonus is that, by fitting more chips on a single piece of silicon, the manufacturer in theory gets more efficient production, lowering costs and increasing margins.
The newer processes can offer competitive advantage, but there's a big business trade-off. A new semiconductor plant costs several billion dollars and the continued work on improving processes means constant capital investment. Manufacturers need to get as much utilization -- the operation of the factory for profitable use -- as possible. The vast majority of semiconductor companies don't have the financial resources to build their own chip plants, so they use so-called foundries such as TSMC and STMicroelectronics.
By no means do all chips need the top in production capabilities. Many semiconductors use older processes whose development costs are long written off because the chip vendors don't need more. Up until now, Intel has made older plants available to others because that hasn't lessened the company's competitive advantage and it could still get utility out of previous investments. Furthermore, the 22nm process is so new that even Intel hasn't put it into production yet, and won't until next year.
However, times have changed. It's no longer clear that Intel can keep manufacturing and selling as many chips as it possibly can. The company must make the newer processes, each generation more expensive than the last, profitable. And yet, Intel doesn't want to create more effective competition for itself.
Achronix's interest is a perfect match. Achronix specializes in FPGAs -- field-programmable gate arrays. These are devices that companies can buy and then program to work more like a custom-designed chip intended for one purpose, and speed of operation is often a drawing point. Also, although FPGAs have been more expensive than custom chips, as the industry moves to smaller geometries, the production costs of bespoke semiconductors goes up in price. A single iteration to test a chip design can literally cost tens of millions of dollars. If a production run isn't sufficiently large, eventually the new technologies become too expensive for many companies to use.
This is unlikely to be a one-off relationship. Intel has already said that it is open to working with other companies as well, which should be unpleasant news for foundry companies, which have rarely moved to new manufacturing technologies as quickly as Intel. Given the time it takes to prepare to use the new processes, Intel will have an attractive lead over the traditional foundries. To catch up will mean that the others have to spend more money, so an uptick in the sales of semiconductor manufacturing equipment could easily happen.
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Image: courtesy, Intel