Intel takes big step in foundry business

SAN FRANCISCO Tue Feb 26, 2013 4:23am IST

Showgoers visit the Intel booth on the first day of the Consumer Electronics Show (CES) in Las Vegas January 8, 2013. REUTERS/Rick Wilking/Files

Showgoers visit the Intel booth on the first day of the Consumer Electronics Show (CES) in Las Vegas January 8, 2013.

Credit: Reuters/Rick Wilking/Files

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SAN FRANCISCO (Reuters) - Intel Corp (INTC.O) has agreed to make chips on behalf of Altera (ALTR.O), a significant step toward opening its prized manufacturing technology to customers on a larger scale, potentially including Apple (AAPL.O).

Intel will make Altera's programmable chips using its upcoming 14 nanometer trigate transistor technology, the most significant agreement of its kind announced so far by the world's top chipmaker.

"It's a step in terms of building into a business level we wish to achieve," Sunit Rikhi, Vice President and General Manager of Intel custom foundry, told Reuters on Monday. "There's no doubt in my mind the foundry will be a significant player in the future."

Building new generations of chip manufacturing plants is becoming more and more expensive, and to help offset the cost, Intel has said in the past it was willing to open its facilities to strategic customers - as long as doing so does not its help competitors.

Intel has announced agreements to manufacture on behalf of Achronix Semiconductor Corp and other small chipmakers but Monday's announcement with Altera is the most significant so far.

With Intel struggling to find its footing in smarpthones and tablets with its own processor designs, some investors believe Intel may eventually agree to make Apple's processors for the iPhone and iPad.

"If and when we are called upon to serve large mobile customers who can drive a lot more volume, we could serve them today in terms of capability," Rikhi said. "I'm confident we have a very strong platform of offering upon which we can scale."

He declined to discuss Apple specifically.

Altera, which with Xilinx (XLNX.O) dominates the market for programmable microchips, touted its pact with the world's top chipmaker as a major competitive advantage, as a slowdown in telecoms infrastructure spending continues to erode sales growth.

Altera Chief Executive John Daane told Reuters in a phone interview that Altera, which depends on communications infrastructure for about half of its business, is the only major programmable chipmaker that will have access to Intel's plants.

""We are essentially getting access like an extra division of Intel. As soon as they're making the technology available to their various groups to do design work, we're getting the same," he said.

Altera has been waiting for a pickup in spending by carriers in the United States and China. In the December quarter, its revenue fell 4 percent from the year-ago period.

In January, it forecast revenue would fall between 4 percent and 8 percent sequentially in the first quarter.

Shares of Altera were unchanged in extended trading after closing down 0.96 percent at $35.01. Xilinx was down about 0.9 percent at $37, versus a close of $37.30 on the Nasdaq.

Intel's stock was up 0.49 percent in extended trade after closing down 0.93 percent at $20.23.

(Reporting By Noel Randewich; Editing by Gary Hill, Leslie Adler and M.D. Golan)

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