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Intel's Double-Chip Gambit

By Cliff Edwards and Arik Hesseldahl Has Intel gotten its manufacturing groove back? Just a year after suffering an embarrassing series of snafus and product glitches, the world's largest chipmaker seems to think so.

The Santa Clara (Calif.) company announced late on Sept. 19 that will produce not one but two types of chip at its newest plants worldwide, those that turn out semiconductors measuring 65 nanometers, just a fraction of the width of a human hair. For the first time, Intel (INTC) will use the same manufacturing line to produce chips tuned for speed and performance, as well as others designed for ultra-low power usage and increased battery life.

At first blush, the news hardly seems earth-shattering. Chipmakers for years have been able to produce both products. Indeed, foundries such as TSMC and UMC (UMC) now produce both low-power and high-performance chips for a variety of customers that don't have their own manufacturing plants.

FLEX MANUFACTURING. But Intel appears to be the first dedicated chipmaker ever to conquer the longstanding manufacturing barrier that prevented companies from using the same machines in a plant to create the two types of chips without costly tradeoffs in terms of time and chip performance, analysts say.

"The reason why you've never been able to build a factory to do both very efficiently is that factories are historically inflexible," says VLSI Research analyst Dan Hutcheson. "If you try to change midrecipe to something else, it slows you down."

The announcement highlights Intel's recent, concerted push to transform itself from a so-called "speeds and feeds" company, focused on ever-faster, energy-hogging chips, into one that responds to customer demands for products that offer decent performance and great battery life.

STRIKING BACK. "They're recognizing that in some market segments like telecom, mobile handsets and handhelds, the parts tuned for faster speeds are too difficult to use and too power-hungry," says In-Stat analyst Kevin Krewell, editor-in-chief of the Microprocessor Report newsletter.

It's a belated response to rivals such as Advanced Micro Devices (AMD) and Texas Instruments (TXN), which have been able to steal the limelight in two areas most important for Intel's continued growth: servers and handheld-communication devices. AMD's Opteron server chips continue to gain traction with most of the top server makers, while TI for years easily has been able to fend off Intel's challenges to its dominance in chips for the fast-growing cell-phone market.

Now, for the first time, Intel will have the tools to address most customer needs, says senior fellow Mark Bohr, director of the company's process architecture & integration labs. Using new techniques to modify transistors as they're packed onto a 300 millimeter wafer the size of a dinner plate, Intel plans to offer chips roughly 1,000 times more energy-efficient than their other versions. Most dedicated chipmakers, including Intel and competitors such as TI or Freescale Semiconductor (FSL), typically gain only a 10-times performance improvement through process tweaks, analysts say.

ROUGH PATCH. Intel didn't say what chips for mobile devices it may target for the new manufacturing process. But the greater performance improvement could translate to a notebook PC using the Intel Centrino platform that can run nine hours without a recharge, instead of the six hours Intel promises over the next couple of years, Hutcheson says. And PDAs or cell phones using Intel Xscale chips might last a full week before they have to be plugged into an outlet. "We can be much more competitive in those markets," Bohr says.

Bohr's confidence marks a shift from a year ago, when Intel suffered an embarrassing series of manufacturing missteps and product recalls that tarnished its reputation for operational excellence and left customers fuming. Since then, CEO Paul Otellini has shaken up the organization to focus on delivering platforms of chips and software to meet specific customer needs.

Intel's competitors aren't standing still, though. AMD next week plans to unveil details of its newest chips, which will put multiple cores on one die and offer low power consumption. The smaller company, which has captured about 10% of the server-chip market, contends it remains more than a year ahead of Intel on the technology front. Meantime, TI in December plans to begin offering customers its DaVinci chip and software platform as a one-stop shop for creating low-power phones, set-top boxes, and other consumer electronics.

BACK ON TRACK? And Intel has been trying for years, so far with little success, to become a big player in communications chips for telecom equipment and cell-phone makers. Its efforts have been rebuffed because of poorly performing products and missed product delivery dates.

Intel still must convince skeptics it's willing to work closely with customers to get products to market both on time and cheaply, analysts say. Even so, the chipmaker appears to be turning up the heat on competitors using the one tool it has used so effectively in the past -- manufacturing. If Intel can execute well there, the battle suddenly becomes much more heated.

Edwards is a correspondent in BusinessWeek's Silicon Valley bureau

. Hesseldahl is a BusinessWeek Online reporter in New York

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