A strategic shift is on the horizon. Intel, the world’s top chip maker, is making small forays into manufacturing chips on a contract basis for other electronics companies. And this shift could lead to a deal with Apple to use Intel’s chipsets in its mobile devices.
It can be seen as a move to give Intel impetus in its bid to make inroads in the mobile arena, a market where the company holds less than 1 percent share. The deal, if and when it comes through, will be a major departure for Intel, who has of late been seeing idle production lines and a fall in the sales of PCs. The company sees this as an opportunity to bring back its fabrication plants to full capacity.
Intel might sign a deal with Apple to make chips for its mobile devices
It could be a precursor to large-scale production of chips for mobile devices, where Intel has fallen behind after a false read of the impact of smartphones. Last week, the company said it will open up its prized manufacturing technology to make chips designed by fellow chipmaker Altera. It was its first sizeable customer in the contract manufacturing, or foundry business, which is expected to grow several times in the coming years.
The Altera deal has fuelled talk of a deal with Apple and a source close to one of the companies told Reuters that Intel and Apple executives have discussed the issue in the past year without reaching a concrete agreement.
“If you can have a strategic relationship where you're making chips for one of the largest mobile players, you should definitely consider that. And for Apple, that gets them a big advantage.” Pat Becker Jr. of Becker Capital Management, owner of about $39 million worth of Intel shares at the end of 2012, told Reuters.
The foundry business sector is notorious for its vulnerability to economic swings and could compress Intel's industry-leading margins, but a deal with Apple, if it does happen, would give them an edge. It is also a move that analysts say Intel has to make to remain a top player. The company believes that taking on more contract manufacturing business will not only help fill an upcoming generation of production lines, but help pay for the cost of research to upgrade them.
Speculation of an Intel-Apple deal has grown steadily over time after the former increased its capital spending budget to $13 billion this year, a jump of 550 percent over last year. Another aspect of the speculation had to do with Apple’s rocky relationship with Samsung, who has so far been the foundry for Apple’s iPhone and iPad chips. Sunit Rikhi, Vice President and General Manager – Intel Custom Foundry, told Reuters last week that the foundry division is ready to sign up a large but unidentified mobile customer, adding more fuel to the fire.
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