Intel and TSMC to announce joint venture

[Majic 7]

http://www.xtremesystems.org/f...howthread.php?t=219375 Just saw this on xtremesystems. May belong in video, though. We will know Monday.

 

[Idontcare]

I bet this has to do with Atom.

Intel needs the cost-structure of Atom to decrease so they can maintain their targeted 55%+ gross margins.

They don't need the performance to increase, doing that will just further promote the Atom's penetration into the lower-end light notebook segment to the detriment of Intel's higher ASP SKU's.

Intel and Micron formed the IM Flash joint venture for similar reasons (divesting themselves of the lower GM's associated with flash).

So it would not be a new business model for Intel to form a JV with TSMC aimed at producing Atom and its supporting chipsets, etc, at 40nm or 32nm (or 28nm really, the timing fits for all three possibilities).

Call it IT Mobile. (Intel TSMC Mobile products)

It may even include the non-larrabee graphics chips that are to be incorporated into Clarkdale and Arrandale products. (would go some distance to explain why the GPU in clarkdale is so freaking big despite being built with 45nm tech)

TSMC is sitting at about 25% fab utilization right now. TSMC is desperate to do anything to move wafers even if it means doing it with zero gross margins, they would be happy to just be able to sell at cost and make payroll for the next couple of years. And TSMC's payroll is much cheaper than Intel's payroll per fab employee/engineer.

Intel can't operate with that type of business model in mind, their shareholders simply won't stand for it.

A JV allows Intel to transfer/license process tech to be used in the fabs, but being a JV it also prevents TSMC from using the process tech in their own foundry fabs. This is better than using TSMC as a foundry (their process tech is markedly inferior to Intel's, and TSMC's production timeline is seriously lagging Intel as well) as well as superior to Intel maintaining their own fabs to produce these lower GM chips. Same motivation that went into forming IM Flash.

 

[magreen]

so why did intel create the Atom if its gross margins are too low to make it worth producing? Were they planning a joint venture all along in order for it to turn a profit, or did something change (the economy?)?

 

[VirtualLarry]

You don't think that there could be some hanky-panky between Intel and TSMC, harming NVidia?

 

[Idontcare]

Originally posted by: magreen
so why did intel create the Atom if its gross margins are too low to make it worth producing? Were they planning a joint venture all along in order for it to turn a profit, or did something change (the economy?)?

We'll know the answer to that question if (assuming it is Atom related come Monday) the JV starts with 45nm or 32nm production.

Understand Intel's position in the industry of IDM's makes them unique. No one else enjoys 55%+ gross margins. A few come close with ~50% GM (TI did for a while), but Intel is champion in the business world of semiconductors just as well as they are the king in process tech.

As such, for them they have to draw a line profitable business that draws less than 55% gross margins, otherwise the business just draws down the average gross margin value which they know their shareholders watch intently.

Atom's gross margins could be 40%, an enviable number for any IDM other than Intel, but it would be too low to make a passing grade for Intel.

It's not just about profits, its about the quality of those profits.

This is all hypothetical speak regarding Atom, not hypothetical speak regarding Intel's drive to keep GM metric of success above 55%.

As for what could cause Atom's gross margins to not hit targets, it could really be an issue of product mix. If Atom had 65% GM but sold for $35 and replaced an otherwise 55% GM sale of a C2D part that sold for $200 then Intel just lost a bundle of net profit, and actual aggregate company-wide GM could decline despite the higher GM part being sold. (because absolute $-profit declines)

So this could be more of a move to lower costs of Atom even further so as to bolster GM's even higher (say 75% in this hypothetical example) to compensate for the increased percentage of total product mix that Atom sales are representing.

I love to speculate on this stuff, particularly when I merely need to wait another 40hrs and I'll have the answer as to what is really going down

 

[Phynaz]

Atom it is, but I'm still having a hard time understanding the benefit, considering it will take a chip redeisgn.

 

[Idontcare]

Originally posted by: Phynaz
Atom it is, but I'm still having a hard time understanding the benefit, considering it will take a chip redeisgn.

The "redesign" was going to happen anyways, as it does for every node even if it is "just a dummy shrink".

The benefit will be Intel's cost to produce the chips will be lower. Same reason TI went fabless for digital CMOS at 45nm and beyond.

 

[Nemesis 1]

Thats not how I read Anand. Article . The reason for the move is to open up new markets for intel Atom that otherwise wouldn't occur . Because of Other Makers not wanting to give Intel their IP. Intel guys are always thinking.

 

[Idontcare]

Well half the Anand article spends time talking about capacity and manufacturing cost, but sure if we ignore that half then we can talk about the other half relating to IP:

Intel also made it very clear that any chip to come out of TSMC, regardless of whose IP it uses, will be an Intel branded chip sold by Intel. It?s the IP angle of the deal that Intel is confident will allow Atom SoCs to be used in new markets and new devices that Intel would not have been able to otherwise target.

I agree its a great pie-in-the-sky dream for Intel.

Basically their model is "we aren't going to license your IP to make new devices to sell into new marketspaces...instead we are going to allow you to spend your money designing an SOC with your IP around our Atom chip, targeted at some market we have no experience or knowledge of, and then we'll take your chip and brand it as our own and sell it into that market".

Oh yeah, I can bet there is a line of design houses backed up all the way out to the parking lot just chomping at the bit to have the privilege of using their IP to open new markets up for Intel.

And how many customers did Intel say they have signed up for this new IP model already? Surely they got some biggies behind them, Nokia or Qualcomm perhaps. No? Well how about a no-name design house then? Nothing? Egads! Impossible, I am shocked!

But that's not what this is really about, which is why Intel didn't have any customer names to drop at their PR fest today. This is all about moving production of low dollar low margin stuff to a foundry, something that everyone but Intel is allowed to do but are chastised for it. Intel is the white knight, so no one would dare think them of outsourcing American/Ireland/Israel jobs to Taiwan. That would be heresy.

This is page 1:

Intel was careful to stress that this move would extend the reach of Atom and not simply shift manufacturing capacity from Intel to TSMC.

And this is page 2:

There are two motivating factors behind today?s announcement and both of them serve Intel?s interests.

First is capacity.

Folks who lived thru TI's 5yr long transition from "we will leverage the foundry's to be a stronger in-house manufacturer" to "the foundries are cheaper, bye bye now" will recognize this exact stage of the "its not about jobs" public face. Same for the folks who now work for TFC.

Its the same playbook, and why not? It's worked for everyone who's done it so far (by "working" I mean managing the transition this way has worked out for executive management to keep the employees from going apeshit while management implements their plans to divest themselves of the manufacturing base). In TI's case it was to go fabless for 45nm and beyond CMOS, but kept their fabs for in-house analog production.

Intel clearly (by my assessments) aims to outsource anything that doesn't need leading process tech, they just announced closing five 200mm fabs and now the early public face of shifting Atom production over to the foundry. This is all very "by the book" from my experience, and I'm not against it either. Cheaper Atom production means cheaper consumer devices. I like that.

 

[taltamir]

basically intel wants to have companies integrate their GPS / G3 / other tech into the atom system on a chip... and retain all rights to sell / market / IP own it to boot.

 

[JeffreyLebowski]

Originally posted by: Idontcare
Well half the Anand article spends time talking about capacity and manufacturing cost, but sure if we ignore that half then we can talk about the other half relating to IP:

Intel also made it very clear that any chip to come out of TSMC, regardless of whose IP it uses, will be an Intel branded chip sold by Intel. It?s the IP angle of the deal that Intel is confident will allow Atom SoCs to be used in new markets and new devices that Intel would not have been able to otherwise target.

I agree its a great pie-in-the-sky dream for Intel.

Basically their model is "we aren't going to license your IP to make new devices to sell into new marketspaces...instead we are going to allow you to spend your money designing an SOC with your IP around our Atom chip, targeted at some market we have no experience or knowledge of, and then we'll take your chip and brand it as our own and sell it into that market".

Oh yeah, I can bet there is a line of design houses backed up all the way out to the parking lot just chomping at the bit to have the privilege of using their IP to open new markets up for Intel.

And how many customers did Intel say they have signed up for this new IP model already? Surely they got some biggies behind them, Nokia or Qualcomm perhaps. No? Well how about a no-name design house then? Nothing? Egads! Impossible, I am shocked!

But that's not what this is really about, which is why Intel didn't have any customer names to drop at their PR fest today. This is all about moving production of low dollar low margin stuff to a foundry, something that everyone but Intel is allowed to do but are chastised for it. Intel is the white knight, so no one would dare think them of outsourcing American/Ireland/Israel jobs to Taiwan. That would be heresy.

This is page 1:

Intel was careful to stress that this move would extend the reach of Atom and not simply shift manufacturing capacity from Intel to TSMC.

And this is page 2:

There are two motivating factors behind today?s announcement and both of them serve Intel?s interests.

First is capacity.

Folks who lived thru TI's 5yr long transition from "we will leverage the foundry's to be a stronger in-house manufacturer" to "the foundries are cheaper, bye bye now" will recognize this exact stage of the "its not about jobs" public face. Same for the folks who now work for TFC.

Its the same playbook, and why not? It's worked for everyone who's done it so far (by "working" I mean managing the transition this way has worked out for executive management to keep the employees from going apeshit while management implements their plans to divest themselves of the manufacturing base). In TI's case it was to go fabless for 45nm and beyond CMOS, but kept their fabs for in-house analog production.

Intel clearly (by my assessments) aims to outsource anything that doesn't need leading process tech, they just announced closing five 200mm fabs and now the early public face of shifting Atom production over to the foundry. This is all very "by the book" from my experience, and I'm not against it either. Cheaper Atom production means cheaper consumer devices. I like that.

Not to get political, but doesn't out sourcing labor and laying off workers here ultimately hurt the US? But I guess multi-national companies don't really care about one market anymore. IF thy screw one market, they'll just move to another one.

 

[magreen]

Very convincing stuff, idc. The IP stuff certainly does sound like a smokescreen.