Altera Agrees to Use Intel to Manufacture Programmable Chips

Altera Corp., a designer of processors used in phone-network equipment, plans to use Intel Corp. as a manufacturer for future versions of its chips, in a challenge to Taiwan Semiconductor Manufacturing Co.

Intel will build so-called field programmable gate arrays, or FPGAs, for San Jose, California-based Altera when the two chipmakers move to 14-nanometer production technology, the companies said yesterday in a statement.

Intel, the world’s largest semiconductor maker, is slowly opening up its factory network to other companies, seeking to gain ground in the $30.7 billion made-to-order chip business by expanding in a market dominated by TSMC. Using Intel for production will help Altera sell the most advanced chips in its markets, Altera Chief Executive Officer John Daane said.

“We continually survey the industry for technology that may give us an advantage, and we identified that Intel was more than a generation ahead in process technology,” Daane said in an interview. “We’re adding a new foundry to gain access to technology which is not generally available to the industry.”

Under the terms of the agreement, Altera will be Intel’s only major FPGA customer on 14-nanometer manufacturing. Altera will use Intel exclusively for chips made on that process and will keep using TSMC for less-advanced production, Daane said.

TSMC Slips

Shares of TSMC, the world’s largest chip foundry, dropped

1.4 percent in Taipei. Taiwan’s benchmark Taiex fell 0.8 percent.

Altera and TSMC “reaffirmed their commitment” to a long-term partnership, with the Hsinchu, Taiwan-based company remaining “Altera’s primary foundry, supplying a wide array of processes,” TSMC said in a statement to the Taiwan Stock Exchange today.

“TSMC remains an important part of our future product development,” Daane said in the statement. “We look forward to continuing our close partnership to jointly develop technologies for next-generation products.”

Cisco Systems Inc. has also signed up as a customer for Intel, two people with knowledge of the matter said last month. Under that arrangement, Intel will manufacture processors designed by Cisco, the biggest maker of routers and switches.

Santa Clara, California-based Intel dominates the semiconductor industry, with a market share of more than 80 percent in personal-computer processors. It sells those chips to computer makers such as Hewlett-Packard Co. Altera’s chips are used in telecommunications equipment, military hardware and computer networks. San Jose-based Xilinx Inc. is Altera’s largest rival in programmable chips.

PC Slump

Becoming a contract manufacturer is one way Intel might seek to counter a slump in its main PC-chip business, as consumer demand shifts to smartphones and tablets. The PC market is estimated to be on course for a second straight annual decline in shipments.

Other companies that have announced plans to hire Intel to make products they have designed include Tabula Inc., Achronix Semiconductor Corp. and Netronome Systems Inc., three small designers of programmable logic and networking chips.

Intel shares rose 1.7 percent to $20.58 at the close in New York, and Altera gained 2.9 percent to $36.04.

(Updates with closing share prices in 13th paragraph.)
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