The seemingly unthinkable scenario of Intel manufacturing ARM chips may be closer than we think, following a report by Reuters of negotiations between Intel and Apple. A source close to one of the companies has revealed that executives have met over the previous year to discuss a contract manufacturing arrangement — whereby Intel's foundries would be used to produce chips to Apple's specification — but that no agreement had yet been reached.

It's well known that Apple would love to extricate itself from the uncomfortable relationship of dependency it currently has with Samsung — the Korean chipmaker builds the A series of processors found in the iPhone and iPad and retains a stranglehold on Apple's business because of its unequaled volume production capabilities. Intel is just the right sort of large-scale competitor, equipped with advanced fabrication technology, that can unseat Samsung and provide Apple with the manufacturing diversification it needs.

There's clearly interest within Intel to expand its fab operations

But why would Intel be interested in such an agreement? From the Santa Clara perspective, a foundry deal with Apple would certainly be stimulative to profits in the immediate term, but it'd also undermine its own efforts to push Atom and the rest of its x86 processor line into mobile devices. At the same time, it was only last month that the chipmaker agreed to produce chips for Altera with its upcoming 14nm fab process, so there's clearly an interest within the company to expand its foundry operations. Whether this mooted partnership with Apple does come to fruition may well be a decision left to Intel's new CEO, whose identity should soon to be known, given that current leader Paul Otellini plans to retire in May.