Intel Corp and TSMC have agreed to team up to develop and make the low-cost Atom chip for use in a swathe of consumer electronics devices, expanding its use beyond netbooks as the chip makers target new markets in a deepening recession.
The move represents a major departure for Intel, which has always manufactured its own microprocessors but is now forced to bring in partners, analysts said.
The world's largest chip maker and the world's biggest producer of made-to-order chips said on Monday Intel plans to combine the circuitry of its Atom, which is prevalent in ultra-small laptops, with the circuitry of other chips, creating a new architecture.
But Intel said it will not transfer its highly prized manufacturing process technology to TSMC. And neither firm would divulge targets, specifications or timeframes.
Intel will, however, allow TSMC to manufacture its Atom chips used in devices such as cellphones, set-top boxes and cameras.
Manufacturing an Intel core other than at Intel is something that has not happened before, said Intel spokesman Chuck Mulloy. For the first time, Intel is transferring the design technology to a third party.
But the move also could open new markets for Intel much more quickly than the chip giant could do on its own, said Hans Mosesmann, an analyst with Raymond James.
By coming to TSMC, it's more humbling (for) Intel, Mosesmann said. Intel would have preferred to do it on its own but it didn't have the in-house technology to get into the markets quickly, he said.
It's more of an acknowledgment that the way we hoped to do this is not going to work out.
But he added: It's the right choice. Intel has to bow to the reality that they're not good at everything.
The deal might also offer a lift for TSMC, which gets to make the new chips that emerge from the partnership but is now struggling with crumbling global spending on devices.
We're not changing our long-term strategy, our roadmap for the Atom, Anand Chandrasekher, general manager of Intel's ultra mobility group, told analysts on a conference call. This is an additional market expansion.
The firm wanted to go after new segments.
Intel announced in January it would shut plants in Malaysia and the Philippines and its one surviving factory in Silicon Valley, cutting as many as 6,000 jobs. At the same time, the firm plans to spend $7 billion over two years to build next-generation, 32-nanometer chip manufacturing capacity.
Atom is the Intel chip used on low-cost, low-power laptops called netbooks, one of the fastest-growing electronics markets amid a deepening global recession.
Top global chip maker Intel has maintained it will manufacture its own microprocessors, though it had previously outsourced some processes, including chipsets and wireless devices, to TSMC and other foundries.
But as the cost of chip manufacturing has skyrocketed, many peers, including graphics chip maker Nvidia, have migrated to fabless or fab-lite strategies. A deepening recession is now curtailing tech spending while exerting pressure on companies to safeguard profit margins by shaving costs.
Distant rival Advanced Micro Devices Inc is spinning off its own foundry company.
Shares in Intel fell 1.7 percent to $12.52 at mid-afternoon on Nasdaq.
(Editing by Edwin Chan; editing by Richard Chang)