By Janet Kornblum and Baker Li
SAN FRANCISCO/TAIPEI (Reuters)—Intel Corp will develop its low-cost chips for ultra-small laptops with Taiwan's TSMC for a range of electronic devices, helping both firms expand into new markets amid a deepening global recession.
Intel has long insisted on making its own microprocessors, but is increasingly bringing in partners to help it tackle new markets and boost its product range. There was market speculation Intel would outsource the production of chips to trim costs as demand dries up.
The world's top chip maker said on Monday it plans to put its Atom—the brains of ultra-small laptops—on single chips that behave like an entire computer, a computer on a chip.
But Intel stressed it will not transfer its highly prized manufacturing process technology to TSMC.
Some analysts said Intel might be trying out TSMC before embarking on more full-fledged outsourcing. Neither company provided targets, specific products, or timeframes for their tie-up.
"For them to come to the decision to outsource manufacturing of any product that they design is a monumental change in their mindset," said Patrick Wang, a Wedbush analyst. "Intel could be testing the waters with TSMC."
Intel has been keen to expand beyond personal computers into the rapidly shifting world of gadgets but it "has in the past been frustrated in its efforts," PiperJaffray analysts wrote in a note issued on Monday.
Roping in TSMC could open new markets for Intel much more quickly than the chip giant could do on its own. And the agreement validated TSMC's leading portfolio of intellectual property and manufacturing capability, analysts said.
Intel will port its Atom processor cores to TMSC's technology platform.
"It's the right choice. Intel has to bow to the reality that they're not good at everything," said Hans Mosesmann, an analyst with Raymond James.
Intel will let the world's biggest contract chip maker make newly developed Atom-based chips for gadgets such as smartphones, set-top boxes and cameras, boosting volumes at the Taiwanese foundry at a time sales are shrinking in a downturn.
TSMC said the new chips will also be used in other products, including low-cost netbook laptops and Mobile Internet Devices (MIDs), which are basically handheld computers that support the complete range of Internet applications familiar to PC users.
"It is good for TSMC in the longer term but TSMC is likely to start making the chips from the fourth quarter or early next year at the earliest," BNP Paribas semiconductor Eric Chen said.
"The foundry market seems to have hit bottom but we don't expect to see a significant recovery in the second quarter, so maybe we have to wait until the second half."
It is believed that a wider customer base and larger economic scale would allow TSMC to be an early beneficiary from the next upturn in the industry.
(Editing by Gary Hill and Anshuman Daga)
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