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Intel and Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s largest chip foundries, just announced a marketing collaboration involving Intel’s Atom processor. Atom is Intel’s effort to downsize its processor chips to fit into the realm of emerging smart devices below the Personal Computer space. TSMC will work closely with Intel to port some of the Atom processors to its own process and design flows. TSMC will also have the ability to do engineering on the chip to build customized versions for the large number of existing TSMC customers. However, Intel will have ownership of the final device and the customer, as Intel will be selling the custom designed chips that TSMC designs and builds in its foundry.

As PC sales wane, and their chip revenues along with them, Intel looks to additional sources for revenues. Consumer products represent a massive potential market, though at clearly lower margins and price points. But, Intel’s cost of operations makes it a supplier at too high a price to go after the cut-throat and highly price sensitive consumer market. And Intel is not set up for customized, System On Chip (SOC) solutions the market demands. Enter a partner that can bring all of this capability to Intel – TSMC.

This is a direct attack by Intel on competing processors, especially the ARM processor, which is trying to move upstream from the smart phone and embedded gadgets market it currently dominates, while Intel is trying to move downstream with Atom into this overlapping space. The battleground in the middle will be aggressive and likely bloody, with huge potential returns. And while Intel’s attack is primarily on ARM, it also has profound effect on other players – AMD, Qualcomm (Snapdragon), Nvidia, TI, and even Marvel to whom Intel sold off its own ARM-based processor (XScale).