Why Intel needs to elbow ARM out - it's about its future fabs

Why Intel needs to elbow ARM out - it's about its future fabs

Summary: Intel's plans for gigantic 450 mm chip fabs will be derailed if it can't fill their production lines...

Many Intel watchers are concerned that the world's largest semiconductor company hasn't been able to break into the smart phone and tablet markets, which will lead to serious consequences.

Intel barely registers a blip as a supplier to smartphone and tablet makers yet it dominates all other microprocessor markets. British chip design company ARM has a near monopoly because they use less battery power and can be easily customized for each product.

How is it that a small 27 year old company like ARM, which reported just $213 million in revenues in its most recent quarter, is considered such a huge threat to Intel which reported $13.5 billion, nearly 64 times as much?

Even if Intel won over ARM's entire business tomorrow it would boost its quarterly profits only by about $100 million -- almost a rounding error on its most recent quarter's $3.8 billion in operating income.

Yet Intel's critics are claiming ARM is a chip giant killer.

Clearly that's not the case, Intel's business would have to shrink at catastrophic rates for many years for that scenario to come true.

However, there is an Achilles' heel weakness in Intel's future roadmap but it's to do more with the brutal economics of chip making.

Intel's clean-room secret...

The secret to understanding Intel is that it's a semiconductor company first; and a microprocessor company second.

It is absolutely brilliant at making chips. Its chip manufacturing technology is stellar -- often several years ahead of rivals. Its chip fabs are the most advanced in the world and cost more than $5 billion each to build.

Intel just happens to make microprocessors because they happen to be the most profitable chips to make. If you are great at making chips then you should concentrate on making the most profitable type of chips.

Few people know that Intel did a pivot in its early history. It used to make a living making memory chips until they became commoditized by Japanese rivals in the 1980s and margins plunged. It dumped DRAMs and focused on the far more profitable microprocessor markets which were beginning to spike in demand. And because of its experience in making lots of memory chips, it knew how to make microprocessors in volume.

High yields...

Intel's great skill is that it can make far more useable chips per wafer than any of its competitors. Rivals might have to trash 20% to 40% of the chips on each wafer. But Intel's production yields are in the high 90% range.

Since manufacturing costs per wafer are about the same at each company, the fact that Intel can harvest 30% to 40% more chips per wafer is a tremendous competitive advantage. This is why Intel is so profitable.

But running a chip fab is not easy, you have to run it at near full capacity or you start losing a ton of money.

Chips take about 3 months to make and they are put through more than 300 separate processes. You can't just stop and start production because the machinery is so finely tuned, and so sensitive to outside factors, that it has to be kept in a stable state, running all the time.

Atom to elbow ARM out...

Intel has every reason to be concerned about ARM as a strategic market that might spill into desktop and even into server markets, where it already has a small toehold. Intel's competitor to ARM is its Atom family. While Atom has come a long way and the architecture isn't as power hungry as its desktop and notebook processors, they aren't a match for ARM.

This is a problem because Intel wants to make a lot of Atom chips, not just because it wants ARM's market for strategic reasons, but also because it needs to be making a lot of chips to keep its future chip fabs running at optimal performance.

Can't stop the fabs...

Today's silicon wafers are about the size of a dinner plate at 300 mm in diameter. Intel plans to shift production to 450 mm silicon wafers — the size of a small coffee table. That's about 40% more chips per wafer at a fraction of additional production costs.

With the massive silicon wafers, and the move to smaller geometries below 22 nm, which squeezes more chips into the same area, Intel's new fabs will be able to make mind blowing numbers of chips.

But before Intel spends $7 billion plus on 450 mm fabs it has to ensure that it will have mind blowing demand for its chips. It needs high demand because it has operate its fabs at near full volume and 95% plus yield rate.

If Intel were making hundreds of millions of low cost Atom chips, replacing all those ARM chips, it would have the volumes it needs to keep its fabs running smoothly. That means it has the means to manufacture all of its highly profitable server and desktop microprocessors, at the lowest possible production costs.

There's another very important element in this story: a high volume chip like Atom is essential in helping to quickly ramp up production of all of its chips.

High volume products qualify chip production machinery and fine-tune hundreds of complex chip processes. They are essential to Intel being able to maintain high levels of usable chips per wafer.

This is why ARM markets are important to Intel and why it must defeat it with Atom, or something similar -- it needs the numbers. Not because it needs the microscopic revenues that feed ARM.

Intel needs those markets for the sheer volume of chips that device makers such as Apple and others buy, so that its hugely expensive future 450 mm fabs will be viable producing its high profit chips.

Topic: Intel

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  • Inside Intel

    Is a very nice book if you want to know more about the history of Intel.
  • Revenue is not a fair comparison.

    As ARM does not have to maintain it's own fabs or production.

    Still, it does make for nice sensationalism. It would be nice if you reported facts on a like for like basis.
    • I Noticed This Tendency as Well

      He also flips the numbers for yield to make them seem of greater contrast. He starts out with the negative yield for other chip makers and then contrasts it with the positive yield for Intel. There's no reason to do this. The numbers as they stand are good enough. He doesn't need to flip them.

      Intel also doesn't dominate any of the embedded markets as far as I've seen (not limited to mobile devices). Of course, outside of mobile devices the margins for embedded devices are pretty low. They're not all that high for mobile other than perhaps at the very high end. The embedded market tends not to be as spec competitive as the desktop/notebook market. Of course the embedded market also includes places where NEC, Infineon, Renesas, Freescale, etc. are well known names, though the public in general have mostly forgotten them.

      There's also nothing stopping Intel from making ARM chips again if they desired. They've just decided against this. They want their part of the market to be theirs top to bottom.
  • 15 billion arms licensed to date

    98% of cellphones since 2005 have had arms in them. all ipods, ipads, nintendo ds and gba, most routers and other hardware. once, people did buy 8051 series, now they use arm instead. intel now only have pc and pc server markets. pcs are starting to dwindle due to the rise of tablets, servers will also fall as power becomes more expensive. intel fabs may be the best at making huge expensive chips, but what if that isnt what people want?
    • People might want longer battery life, which is ARMs biggest positive, but,

      when it comes to power and performance, they can't compare to x86 chips. And, that's were the ARMs will fail to compete with Intel, because, speed and performance will still rule on PCs and on servers.
      • "can't compare to x86 chips"

        Sorry to disappoint you, but the x86 architecture is complete rubbish and "performance" is not it's strong side. There are way more powerful microprocessor architectures around.
        The "x86" architecture is only useful today, because AMD agreed to let Intel license AMD64 which is way more sensible architecture, even if based on "Intel's" instruction set.

        If it was not for IBM to order Intel the CPUs/chipsets for their IBM PC we would not have remembered that company by today.
        • Your tangential post did not rebut my argument, and the disappointment

          is coming from you, since you decided to argue against my point, and you had no real argument against what I said.

          The x86 CPUs are still more powerul, and provide for much better performance.

          That AMD argument is completely irrelevant, and so is the reference to IBM.

          Otherwise, you posted complete nonsense.
  • Intel Should Make ARM Chips

    x86 is never going to be a serious competitor to ARM. Intel needs to stop wasting time and effort on these dead-end Atom chips, and figure out how it can join in making ARM chips in a profitable fashion. x86 simply cannot bring to bear the kinds of economies of scale available in the much higher volume ARM market.
    • Intel can't make ARM chips

      intel making ARM chips would be the best solution possible both technologically (x86 is a antiquate and extremely inefficient architecture) and on long term (x86 is fated to die sooner or later) but it would be also suicide in the short and medium term because of various factors;
      1) Intel has spent a huge amount of money in R&D for new x86 architectures and they can't just throw it all away..
      2) Changes of such depth cant just be made in few days, it's true that intel has a huge amount of money and a huge know-how in CISC processor architectures, but they have absolutely no experience in RISC designs and out there there are companies quite good at designing them (like samsung, texas instruments and nvidia)
      3) Intel is a huge corporation with a hundred thousand employes and can't just change type of product if not in long times, they have in fact a lot of engineers specialized on CISC designs (quite all of them i think) that would become a useless weight (making them develop RISC chips is pointless they don't have proficiency)

      the only alternative I can see, at last that is partially viable (I still think i'll be a suicide but it would cost them less money) is trying to push also in mobile market an architecture derived from itanium's EPIC (the name of ISA not an adjective) IA-64 here the big problems would be retrocompatibility...
      Filippo Savi
      • Intel had RISC proficiency

        They made a number of RISC chips that never caught on. They also made ARM chips at tone point but sold that to Marvel. But they did have RISC proficiency.
  • Manufacturing chips for other companies?

    When I was studying abroad in Shanghai we once had an executive of Intel come speak to our class. I asked him if Intel ever intended to open its nanofabs to manufacture chips for other companies, and he said Intel had no intention of helping rival chip makers. I'm wondering if chip volume becomes a problem, whether manufacturing chips for other companies can become a viable way to get around it.
    Lei Gong
    • Manufacturing chips for other companies?

      I think it will be their last resource but I doubt it will ever happen because it's their biggest advantage over other companies, AMD namely they make great 8 core chips if they had 77W tdp of intel's processor they would be a big threat to intel's "always high prices" policy
      Filippo Savi
      • 8-core chips

        Who cares if AMD doesn't have 77W tdp? They're the only ones who have 8-core chips for the general user and the tdp isn't really that bad at 95W.
  • Intel wants to be omnipotent

    Intel just cannot be in every platform at once. They are trying and they will fail. Making mediocre chips and then floding the market with them is not a way to success. They are going to kill off markets just to hang a sign, Intel Inside.. NOT!!!!
  • Intel did not create...

    the basis behind the Pentium processor chip design. It was a small and hungry player, Apollo. Perhaps it's better to have smaller companies at the helm making processors to get the leaps you need to advance the art of computing.
    Tony Burzio
  • Anyone ever heard of XSCALE?

    XSCALE was Intel's version of ARM. The IP was licensed just like everyone else does. They sold their interest to Marvell Technology Group in 2006.

    Doesn't anyone ever research before posting? Ignorance is bliss?
  • W8 should help intel get into the tablet market. There dipping into

    smartphone already in europe. I reall hope the next gen nokias get on the intel bandwagon when airmont is ready. The intel chips just pack so much more perf. starting with airmont power should not be an issue any longer.
    Johnny Vegas
    • And yes intel needs to compete with arm on price too. with 450mm they

      should have no problem lowering their price and still maintaining theyre accustomed margins.
      Johnny Vegas
    • Nokia users won't be pleased

      .. having to wear an heavy battery on their waist and the phone in their hand warming like there is no tomorrow.

      The Atom architecture is actually very primitive. It can only consume "less", because it also does way "less". There were a lot of promises of Atom-powered servers and despite a lot of enthusiasm these remained in the realm of not-so-exciting experiments.

      Unfortunately, the author is absolutely spot-on on the primary issue for Intel: while Intel has invested heavily in chip making, their CPU design abilities are mediocre.
  • Wow. Just wow.

    Sooo - you want Intel to elbow ARM out - because you're worried about yields at a factory?



    Sorry, no. Life ain't no rose garden, and competition is better than a monopoly. I don't want to live in a world with a monopoly chipmaker. The benefits of competition far outweigh any lost millions that Intel may have to endure by not becoming a monopoly.