IT Life

Analysis: Intel's New Fab Part Of Plan To Combat AMD

Intel's plan to build a new 300-mm fab has little to do with future PC growth, as the chip giant hinted earlier this week. Instead, the fab announcement is part of a major plan to play catch-up and gain a competitive edge over microprocessor rival AMD at the critical 45-nm node, an analyst says.
SAN JOSE, Calif. — Intel Corp.’s announcement to build a new 300-mm fab has little to do with future PC growth, as the chip giant hinted earlier this week. Instead, the fab announcement is part of a major plan to play catch up and gain a competitive edge over microprocessor rival Advanced Micro Devices Inc. (AMD) at the critical 45-nm node, according to an analyst.

In other words, Intel hopes to accelerate its fab — and product development — efforts by simply outspending its smaller rival. As reported, Intel on Monday (July 25) announced plans to build a new 300-mm wafer fab at its site in Chandler, Ariz., at a cost of $3 billion. The facility is Intel's sixth 300-mm wafer fab to date.

The new factory, dubbed Fab 32, will begin production of leading-edge microprocessors based on 45-nm process technology. Production will start at the second half of 2007. Construction is set to begin immediately (see July 26 story).

Intel's new 300-mm fab opens “another front” in the processor wars against AMD, said Les Santiago, an analyst with investment banking firm Piper Jaffray (Minneapolis), in a report.

The two companies are already fighting it out on the legal front. Last month, AMD filed an antitrust suit against Intel, alleging that its archrival has been operating an unlawful monopoly in the x86 microprocessor market and has coerced computer makers, distributors, small system builders and retailers in their dealings with AMD (see June 28 story).

Now, Intel is firing the latest salvo, this time, on the competitive landscape. “We believe that Intel's increased capital spending is yet another development in the all-out war that has broken out between the two rivals,” Santiago said.

“Although demand for [Intel’s] microprocessors remains strong, we do not believe that is the primary reason for Intel's increased capital spending,” Santiago said. “With AMD gaining market share on the strength of its 64-bit x86 and dual-core technological lead, Intel has decided to deploy its huge cash war chest and R&D resources to once again gain back its competitive advantage.”

Intel is currently developing its 45-nm process within its D1D 300-mm development fab in Hillsboro, Ore., which was first disclosed in 2001. The new Fab 32 plant will become the company’s first high volume fab for 45-nm products, said Bob Baker, senior vice president and general manager of Intel's Technology and Manufacturing Group, during a conference call on Monday.

The chip giant is currently ramping up its 90-nm products, with 65-nm designs due out later this year. Intel’s Fab 32 will be required “for capacity [needs] in ’08 and ’09,” Baker said.

Indeed, Intel hopes to gain an edge at the 45-nm node, which is expected to be deployed in the 2008 to 2009 time frame. “The goal is to move quicker and faster to the next technology node and once again gain a cost advantage over AMD,” Santiago said.

Intel's $12-to-$13 billion cash position and nearly $5.5-to-$6 billion annual capital spending budget gives it an advantage over AMD. In comparison, AMD’s current cash position sits at $1.2 billion, while it has a $1.5-to-$1.6 billion annual capital spending budget.

“We continue to favor Intel at current levels,” the analyst said. “We believe that Intel will narrow the current technology gap with AMD going into 2006, while at the same time moving into the next manufacturing nodes (65-nm and 45-nm) faster than AMD.”

AMD, not surprisingly, is expected to respond in order to keep up with Intel. “We do not expect AMD to announce spending on a new fab,” he said. “We speculate that AMD may choose to further its partnerships with IBM and/or Chartered Semiconductor to counter the Intel threat.”

AMD, according to some accounts, is reported to be considering the construction of a third wafer fab in Dresden, Germany. AMD's Dresden operation includes a 200-mm fab line. A 300-mm line, Fab 36, is currently ramping up production, and will start producing 64-bit processors early next year (see June 15 story).