Sat, Nov 23, 2013 - Page 1 News List

Intel starts making chips for competitors

NEW ERA:More competitors are entering the foundry business on the back of fast-moving mobile technology, like Taiwan Semiconductor Manufacturing Co forecast

Bloomberg

Intel Corp is providing increased access to its manufacturing plants for other chipmakers, taking advantage of advanced production capabilities and seeking to boost its revenue sources as it faces greater competition.

Intel’s move seems to have had a very minor impact on the leadership of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) as the stock price of the world’s top contract chipmaker edged lower by less than 1 percent.

TSMC shares slid 0.99 percent in Taipei trading to NT$100 yesterday.

Intel, the world’s largest maker of semiconductors, which has mainly only made its own chips, is expanding its foundry business by manufacturing chips to order for other companies, Intel CEO Brian Krzanich said on Thursday at an investor meeting in Santa Clara, California.

Intel, which said at the meeting that sales next year would be little changed from this year’s levels, would focus more on providing what customers want rather than trying to push its own designs, said Krzanich, who became the company’s sixth CEO in May when he succeeded Paul Otellini. Krzanich, 53, is a former factory manager who ran part of a network of plants that Intel says are the most advanced in the semiconductor industry.

“We had become insular,” Krzanich said. “We had become focused on what was our best product, rather than where the market was moving.”

Otellini had said Intel’s plants were closed to competitors. Earlier this year, Krzanich said he would consider changing that stance and on Thursday he confirmed the company’s willingness to make chips for companies that are beating Intel in mobile phones.

As more competitors enter the foundry business, TSMC said in June that the industry entered a new era of competition.

“Now, in this new era of competition, the competition is not foundry to foundry, it is not foundry to IDM [integrated device manufacturing], it is grand alliance to IDM,” TSMC chairman Morris Chang (張忠謀) said.

By IDMs, Chang implied Intel and Samsung.

Grand alliance is a business model adopted by TSMC to counter its competitors, such as Samsung and Intel.

Grand alliance is an alliance with customers, with the Electronic Design Automation (EDA) companies, with the intellectual property providers, and of course, with the key vendors — the critical vendors, Chang said.

“We’re needing some kind of signal or sign that mobile is happening and they’re getting some kind of presence there,” said Betsy van Hees, an analyst at Wedbush Securities in San Francisco.

“The mobile business is an ugly business. It’s very tough,” she said.

Intel said revenue would be approximately the same next year. Analysts were projecting average sales of US$53.7 billion next year, up from a forecast of US$52.6 billion this year, according to estimates compiled by Bloomberg.

Gross margin would be in the middle of its target range of between 55 percent and 65 percent, in line with analysts’ estimates, Intel chief financial officer Stacy Smith said.

Intel predicts the PC market, measured by units, will be down by a “low single-digit” percentage, Smith said.

While spending on new plants and equipment next year will be little changed from this year at about US$11 billion, investments aimed at enabling customers to convert to Intel chips in tablets will hurt total profitability, he said.

Intel vice president Hermann Eul, who heads the company’s mobile division, said the company would focus on developing parts for a smaller number of smartphone makers with large sales volumes.

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