Today, Intel announced that it signed a $1.5 billion deal with Spreadtrum and RDA Microelectronics, both fabless chip makers from China and part of the Tsinghua Unigroup Ltd., in an effort to get more access to mobile devices in China.
"China is now the largest consumption market for smartphones and has the largest number of Internet users in the world," said Intel CEO Brian Krzanich in a statement. "These agreements with Tsinghua Unigroup underscore Intel's 29-year-long history of investing in and working in China. This partnership will also enhance our ability to support a wider range of mobile customers in China and the rest of the world by more quickly delivering a broader portfolio of Intel architecture and communications technology solutions."
China has a huge and booming mobile market, which is a great opportunity for many players, including chip makers. Intel has been struggling to compete with ARM in the mobile market and has seen relatively little success so far. Mobile OEMs have gotten used to ARM chips, and they have employees that have been hired for their ARM chip expertise, making it difficult to start developing on new platforms.
ARM chips also tend to be significantly more affordable than Intel's solutions. Intel has been trying to fight this with subsidies, but that's not a very sustainable strategy for its mobile chip business, so the company is now looking for alternatives such as selling its Atom CPU IP to other chip makers that can build inexpensive SoCs.
Both Spreadtrum and RDA Microelectronics design chips for low-end smartphones and feature phones along with 2G, 3G and 4G modems, making this deal very complementary to another deal Intel made with Rockchip (a tablet chip maker from China) earlier this year. Through these deals, Intel can cover both the budget smartphone and tablet markets, in China or elsewhere.
"We have been tackling mobile on many fronts, from comms, to integrated IA, to performance and to value and entry segment, making steady and significant progress," Intel's Ellen Healy told us. "The entry and value market is exploding with integrated platforms, which is a key focus for us with SoFIA. We have also made great progress in comms with our latest launch of the Intel XMM 7260 LTE platform for all mobile devices, including performance phones."
She added that Intel is focusing on the growth of value and entry market segments as well as the emerging mainstream segment, "comms" and tablets while the company strengthens its overall roadmap.
Intel seems to be giving these Chinese chip makers the IP for its Atom processors and its own 3G/4G modem technology. The company is then asking Spreadtrum and Rockchip to make SoCs around that IP and build them on 28nm in a foundry like TSMC. Intel is essentially replicating ARM's business model here, since it's selling its Atom IP to other companies that can then make chips using that IP.
Intel will only get a (small) royalty from that IP, but it will be Spreadtrum or Rockchip that will make the bulk of the money from the sale of the chip to OEMs. Intel knows that if it can conquer the low-end market with x86 processors, where all the volume is, it can later try to conquer the mid-range and high-end of the market. However, Intel can't do that on its own, because the company's costs for making low-end chips seem to be too high, especially when building them on cutting edge process technology such as 22nm Trigate or 14nm Trigate.
Spreadtrum, RDA Microelectronics and Rockchip can solve the price aspect of the problem by using cheaper components and an older manufacturing process. The question is what happens to the performance and power consumption of Atom chips on a 28nm non-Trigate/FinFET process when Atom has managed to only be competitive with 28nm ARM chips by using a smaller and more advanced 22nm Trigate process.
This can raise new problems for Intel as ARM chips start to move to 20nm next year, while these Atom-based SoCs from Intel's new partners won't be available until the second half of 2015.