As developments go, this one is a bombshell. For the first time, Intel has agreed to build ARM chips based on its prime competitor’s architecture, for another company. For decades, Intel was an Intel-only shop. When it announced plans to lease some fab space to companies several years ago, the deal was presented strictly as a low volume project to be used for a handful of small customers, with no significant impact on Intel’s bottom line. Even the news that Chipzilla would build FPGA’s for Altera on 14nm wasn’t a huge shift in this policy, though Altera was a bigger customer than Intel had previously signed.

ARM cores, however, are a different matter altogether. The difference between building FPGAs for Altera and building ARM cores for Altera is that ARM cores are what Intel is fighting with its own products. Has the company given up on pushing x86? Is this a fundamental admission that x86 can’t compete in mobile?

No.

x86, fab capacity, and the foundry model

Bay Trail blew a hole in the idea that Intel can’t build chips to compete with ARM on power consumption, and prices are much more sane, this time around. While the exact differences break down to a matter of the particular SoCs being tested, Bay trail on 22nm did for x86 what Cortex-A15, Snapdragon, and Apple’s Swift and Eagle cores did for the ARM ecosystem. But if Intel can build cores that compete with ARM, why is Intel looking to fab ARM processors?

Because Intel also needs to keep to its foundries full. Earlier this year, the company admitted to running fabs well below capacity and delaying its 14nm buildout in certain locations in order to prevent massive inventory build-up. Because Atom chips are so much smaller than conventional x86, Intel needs to shift more processors to keep utilizing running at the same rate. Then, factor in the long-term plan to roll out 450mm wafers, which are significantly larger than the 300mm wafers Intel currently uses, and the need for more chips is even more acute. The entire idea behind Atom was to drive the “Atom Everywhere” future. If Atom isn’t winning the designs it needs to hit those necessary targets, the solution is to look into fabbing for other companies.

But there is a catch to all this. Intel may be fabbing chips for Altera, but it imposes design constraints on itself that other manufacturers don’t match. We’ve talked before about the difference between “gate-first” and “gate-last” technology at TSMC vs. GlobalFoundries, Samsung, and IBM, and how you can’t move a design from GF to TSMC without a full redesign because of it. According to lithography expert Dr. Chris Mack, one of the major differences between Intel and the other foundries is that its tight design rules have allowed it to stick with inexpensive double-patterning methods and lower manufacturing costs at a time when TSMC and GlobalFoundries are struggling with per-yield costs on new nodes.

But the downside to this, as you may have guessed, is that anyone who wants to build at Intel has to do a full chip redesign. Even if you’re already using gate-last at 28nm with TSMC, you can’t just hop over to Intel. So in addition to doing a die shrink for 14nm, you’ve got to design the core new, from the ground up, to hit Intel’s constraints. Calling that non-trivial is an understatement. It’s going to take enormous amounts of work for any company to field a chip at Intel.

So, the real question here isn’t just “Does Intel want to make chips for other companies?” It’s “Do other companies want to make chips with Intel?”

What we’re seeing here is a fundamental shift in how Intel values its own technological prowess. For decades, the company has explicitly linked x86 and foundry technology, with the latter firmly in service to the former, despite occasional attempts to invent a better microarchitecture. Look around today, however, and it’s Intel’s foundry prowess that stands apart. Even after the recent delay, Intel will ship 14nm in volume in the same timeframe (plus or minus a quarter) in which TSMC is shipping 20nm. Intel has already made the jump to FinFET, which TSMC won’t follow until the 2016 timeframe. Intel is on track to be at the forefront of EUV and 450mm wafer adoption, and its III-V semiconductor plans are underway.

If Intel can offer a cost advantage on 14nm where other companies are struggling to do the same on 20nm, it’s got a major marketing advantage that has nothing to do with x86. And it’s going to play that hand for all its worth. Ideally, the company would obviously like to be building its own cores on x86 to put in the smartphone designs that ARM is currently winning, but failing that, capturing the business volume of customers willing to pay a huge premium for cutting-edge foundry technology isn’t a bad way to go.

Now read: Intel delays Broadwell release date until 2014 because of defect density issues