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Intel (INTC) is working on a foundry partnership with Cisco (CSCO) in which the former would...

Intel (INTC) is working on a foundry partnership with Cisco (CSCO) in which the former would manufacture the latter's custom processors, Piper reports. The firm thinks the deal could represent a $1B/year opportunity. Intel entered the foundry market earlier this year, betting its huge resources and cutting-edge manufacturing processes would make it a worthy rival to the likes of TSM and UMC. But its customer wins have thus far been limited.
Comments (6)
  • wigit5
    , contributor
    Comments (3949) | Send Message
     
    You have to start somewhere...
    20 Sep 2012, 01:54 PM Reply Like
  • MexCom
    , contributor
    Comments (3050) | Send Message
     
    Sounds good. I initiated a position today in CSCO.
    20 Sep 2012, 04:23 PM Reply Like
  • pfettes
    , contributor
    Comments (16) | Send Message
     
    I'm still scratching my head as to how I should interpret this - good or bad. On the bad side, instinct tells me the foundry business is a lot less appealing than the IDM business. On the good side, to the extent that INTC soaks up more industry capacity, it extends its scale versus competitors, making it harder for them to continually reinvest at INTC's pace. Also on the good side, diversifying fab capacity utilization to more varied end markets could improve the stability of fab utilization. Hmmm. My verdict is still out. Thoughts?
    21 Sep 2012, 11:05 AM Reply Like
  • wigit5
    , contributor
    Comments (3949) | Send Message
     
    As INTC continues to shrink down to 14nm and 7nm they probably need less of their capacity to get the same results...

     

    I'm not sure but if they can utilize excess capacity sounds like a win win
    21 Sep 2012, 11:13 AM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (753) | Send Message
     
    I think it makes sense for Intel. They have some excess capacity and a technology process lead over TSMC, UMC, IBM, etc. The margins for the foundry business will probably never match those of the CPU business, but since it will rely on a lot of the same fixed costs, there isn't much downside.
    21 Sep 2012, 12:02 PM Reply Like
  • pfettes
    , contributor
    Comments (16) | Send Message
     
    Yeah, I guess to the extent it is just used to absorb excess capacity (which is already a sunk cost) at positive cash flows, I can see your point. That should in fact improved ROEs. I just hope that the overall capacity management strategy (i.e. scheduling of rampups of new plants and mothballing old ones) is driven by trying to match the IDM business as much as possible, not the foundry business.
    28 Sep 2012, 12:45 PM Reply Like
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