Intel Foundry Relationship With Apple Rumoured

Speculation remains high about a possible Apple-Intel chip-making deal.

In a June 6 research note, Citigroup analyst Glen Yeung echoes what others have said, that Intel might enter into a deal with Apple to make the chips that power such devices as the iPhone and iPad tablet. These chips – including the A4 and A5 – are made currently by Samsung based on designs by ARM Holdings.

Intel Production Line Migration

Yeung wrote that initially Intel could build those same chips using the ARM designs, with the idea that Apple would eventually migrate to Intel’s low-power x86-based chips within the next few years

“We believe a foundry relationship may be forming between Intel and Apple,” Yeung wrote. “Our discussions with the hardware supply chain tend to support this belief… We suspect one such condition [under which Intel would perform the foundry work] includes the potential for Apple to eventually convert from an ARM-based core for handsets and tablets to x86.”

Such a scenario would be a huge win for Intel, which is putting a massive amount of money and effort behind its aggressive push into the mobile-device space. Intel continues to make billions of dollars from its core server and PC chips businesses, but those are mature markets and PC sales – particularly among consumers – are showing signs of slowing.

By contrast, the mobile-device space is booming. Market research firm Gartner is forecasting that tablet sales will rise from almost 70 million this year to 294 million in 2015. In addition, market research firm In-Stat is predicting 850 million smartphone sales in 2015. Right now, ARM designs are the dominant chip platform in these markets.

Bridge To Power Reduction

Both Intel and Advanced Micro Devices are working to drive down the power consumption of their processors. Most recently, Intel in May unveiled its 3D Tri-Gate transistor technology, a three-dimensional structure that executives said will reduce the power consumption of its chips by half while improving performance 37 percent over current 32-nanometer processors. The Tri-Gate technology will begin appearing in Intel’s 22-nm “Ivy Bridge” chips, which will initially run in PCs and servers beginning in 2012, and later in tablets and smartphones.

Citigroup’s Yeung said the Tri-Gate technology is a key attraction to Apple executives.

The relationship between Apple and Intel has been a source of heated speculation for months. Last month, Piper Jaffray analyst Gus Richard said in a research note that Intel was “vying for Apple’s foundry business. It makes strategic sense for both companies. The combination of Apple’s growing demand and market share in smart phones and tablets gives Intel a position in these markets and drives the logic volume Intel needs to stay ahead in manufacturing”.

Intel Approaching Several OEMs

Richard reiterated this contention later in May, saying that Intel officials are talking to OEMs – including Motorola – about creating foundry relationships, and that other possible customers could be not only Apple, but also EMC, Cisco Systems, Juniper Networks and Nokia.

“Intel has clearly articulated they are interested in working with companies that want to use x86 architecture,” Richard wrote in a May 31 report. “The company is not interested in enabling its fab-less competitors or ARM Holdings”.

According to Citigroup’s Yeung, Intel’s manufacturing Apple chips based on ARM designs would be a temporary situation.

“But as Intel readies [its] 14nm [manufacturing process], potential for a shift to x86 exists,” he wrote. “At that stage, Intel would have appropriately moved along the SoC [system-on-a-chip] learning curve.”

A partnership between Intel and Apple would be crucial to Intel’s hopes of gaining share in the mobile device space, according to Rob Enderle, principle analyst with The Enderle Group. In an email to eWEEK in May, Enderle said such a move would boost Intel’s fortunes.

“Rumour is that Apple is looking at such a move and, if they get Apple, the earth moves,” Enderle wrote regarding the Tri-Gate announcement. “But if they don’t get a major brand and/or a very popular product, [the Tri-Gate technology] still won’t be enough.”

Intel executives have said making the move into the foundry business would be difficult, given that it would take away fab capacity from its own higher-margin processors.