Intel may look to outrun foundry competitors with new CEO Krzanich

Intel could move in the direction of becoming a full-fledged foundry, but will not make products for competitors

By , IDG News Service |  IT Management

But with PC shipments falling and Intel's smartphone and tablet chips not shipping in large amounts yet, Intel will need to fill the factory capacity to reduce the financial burden from low utilization. More chips will be coming out of Intel's factories with the upcoming move to larger 450-mm wafers, analysts said.

Intel won't change direction on its public-facing operations like mobile and PC chips, but is doubling down on manufacturing, said Sergis Mushell , an analyst at Gartner.

Krzanich is the right choice for CEO as he understands the business of manufacturing and ways to generate profits from it. He will be able to take advantage of the company's manufacturing assets, Mushell said.

"At this time, there is no other alternative but to do it. You have to fill up those fabs," Mushell said.

Choosing Krzanich as CEO is a clear indication that Intel believes it is time to take advantage of the manufacturing assets, which are the company's strength, said Dean McCarron , principal analyst at Mercury Research.

"The main goal is profit," McCarron said.

McCarron estimated that Intel would likely dedicate 80 percent of its capacity to its own chips and leave 20 percent for third-party chips. Right now that third-party chip-making operation is small, but McCarron expects Intel to take on more manufacturing contracts as it moves to a foundry model.

Intel is first and foremost a manufacturing company and that is the company's most distinctive strength relative to competitors such as Qualcomm and AMD, which use third parties to get their chips made, said David Kanter , a chip expert and industry observer.

Intel has poured millions of dollars into smartphone and tablet chip development as it tries to take market share away from ARM, whose processors are used in most mobile devices. But Intel has a philosophy of not making chips that would enable competitors.

"Intel is successfully pursuing strategic customers for foundry work, and will continue to do so. I don't believe that Intel will work with competitors ever," Kanter said.

But there could be some exceptions.

"Somebody like Apple -- if they are not going to use x86 -- I don't they would view them as a competitor," said Mercury Research's McCarron.

But Intel recently has had trouble keeping its factories busy because of a drop in PC chip shipments. Krzanich is responsible for the current capacity situation Intel is facing, said Jim McGregor , principal analyst at Tirias Research.

Intel will probably need dedicated capacity and design services to be truly successful and that could take a considerable amount of time to establish.

"They are already working on that, but it will take a long time to put the resources and business model in place," McGregor said.

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