INVESTOR CORNER: Intel- Top 5 Custom Foundry Candidates

Moor Insights & Strategy “Investor Corner” is content specifically written for the professional investment community.  This analysis was written by Steven Eliscu as part of Investor Corner, L-sq Advisors, December 7, 2013.  See important disclosures and disclaimers below.

Intel’s November 21 Investor day reinforced my expectations that:

  1. Material penetration into the tablet market is the near-term litmus test for the new management team’s ability to effect meaningful change.
  2. Headwinds of the secular decline of the PC market will limit Intel’s earnings growth.

However, Intel’s more open view towards potential foundry relationships was a surprise, and in retrospect, Altera’s Investor meeting a few days prior where it stated that it will sell Intel-fabbed 14nm FPGAs into exactly the same server co-processor sockets as Intel’s own Xeon Phi was a notable precursor.

As a result, the list of possible Intel Custom Foundry (ICF) candidates is likely much larger than even just 6 months ago (for this discussion, we exclude consideration of semi-custom foundry business, as the list of potential customers could include most major PC and mobile OEMs).  Accordingly, Intel’s prior statements about ICF capacity requirements of 0.5-1.0 fabs may very well be too low as well.

Based on extensive press speculation and industry sources, Cisco is likely to be an ICF customer (with a possible announcement when Cisco begins shipping systems based on its first 22nm Intel-fabbed custom chips). In addition, as Apple has demonstrated its design prowess by beating the rest of the industry (including Intel) to introduce a 64-bit smartphone processor, if Intel’s process advantage vs TSMC is as big as it projects at 14nm, it seems very possible that Apple may utilize ICF beyond its next generation 20nm processors.

Let’s countdown through the list of additional prime ICF candidates:

5) HiSilicon Technologies – as Huawei’s ASIC arm, it would seem that the Chinese equivalent of Cisco would want to do what Cisco is likely doing. However, even as HiSilicon may be potentially interested in ICF, Cisco’s foundry agreement (as well as the US government) may preclude its access to Intel’s latest process technology (and even prior nodes).

4) Google- which sources its own server designs, would seem be a logical candidate to source its own server processors in the future as well. As Google’s business model requires it lay infrastructure in place well ahead of new services (in contrast to Amazon Web Services, which can largely do these in tandem), lowering its semiconductor purchasing cost could have a material impact on its capex.

3) Broadcom – its StrataXGS high-end switch fabric silicon is likely to remain the dominant merchant solution, even as Intel’s own competing effort through its Fulcrum Microsystems acquisition should remain a component of Intel’s datacenter offering. As advanced switch fabrics are a key enabling technology of software-defined networks, a market Intel believes its processors can have a significant presence, this product line seems to be a good ICF candidate that fits under Intel’s larger umbrella of pragmatism. Additional Broadcom products that could be fabbed at Intel include its network processors and knowledge-based processors.

1/2) NVIDIA/AMD – these ICF candidates are combined as advanced graphics processors (GPUs) would be among the best ways to utilize Intel foundry services as GPUs are big high-performance chips that greatly benefit from more advanced manufacturing. In addition, faster GPUs are also enablers for Intel to sell more high-end processors. While NVIDIA’s Tesla GPU computing products could be considered a direct competitor to Intel’s Xeon Phi co-processors, so are Altera FPGAs, and thus, this is not likely to be a major issue. Additionally, even as future NVIDIA Tesla products will likely integrate its custom 64-bit ARM processor cores (project Denver), again, so will Altera FPGAs, and thus, even this more directly competing product may not be a barrier to a future agreement.

Beyond these top 5 candidates, we will likely see others utilize ICF, especially in the high-end networking market, which could include Juniper, Alcatel-Lucent, Marvell and EZchip. Those companies unlikely to be candidates include: Samsung Electronics, Qualcomm and MediaTek, where their respective leading positions in mobile processors make an ICF engagement unlikely; Altera’s agreement with Intel precludes Xilinx from utilizing Intel’s 14nm and 10nm process nodes; finally, as long as IBM is wedded to its Microelectronics division, it seems unlikely it would consider ICF.

Along with many new ICF customers, we are likely to see Intel engage into numerous semi-custom projects. All told, foundry services are likely to become an integral part of Intel’s business model and enable it to capture parts of the market where it has largely been absent as well as enhance operating margins.


I do not own a stock position in any company whose stock is mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. L-sq Advisors is a consulting firm that may have in the past, present or future solicited and/or generated consulting services from any company mentioned in this article.


Steven Eliscu is Principal at L-sq Advisors.  He brings a unique combination of Equity Research experience – 9 years at UBS, a leading global platform, as a Semiconductor Analyst – along with more than 10 years of senior Marketing and Business Development roles in the technology industry, including 11 years of rising through the ranks at Integrated Device Technology. With this experience, he intimately understands the basis for valuation from the eyes of the financial markets through the lens of his framework for technology value creation. He has a firm grasp of key technology trends (with 3 patents to his name) and the competitive forces driving the tech industry, which have provided the proper context for his understanding of individual companies and ultimately how each should be valued. He developed the basis for his framework based on his experience as an Analyst, and subsequently refined it and brought it to market as the founding Principal of L-sq Advisors.


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