Intel Preps for Upturn, Does Deal in Taiwan

Despite a tech spending slowdown which has spelled big trouble for chip manufacturers, Intel ( INTC) is quietly preparing for an upturn.

The processor giant teamed up with Taiwanese chip manufacturer TSMC on Monday, announcing plans to collaborate around Intel's diminutive Atom processor.

Specifically, Intel is looking to develop and build Atom System on Chip (SOC) technology, which integrates various computer components onto a single piece of silicon.

By combining its low-cost Atom processor with TSMC's chip technology, Intel is eyeing the lucrative smartphone and netbook markets, according to Rob Enderle, principal analyst at technology research firm Enderle Group.

"It looks like they are trying to create something that is unique and targeted at certain parts of the market," he told TheStreet.com. "I think it's an attempt by Intel to make sure that they are set up for an upside -- they are expecting a strong fourth calendar quarter for Atom."

The fact that Intel will use TSMC for some of its manufacturing is also a clear indication that the chip giant sees some light at the end of the tunnel, according to the analyst.

"If manufacturing capacity is tight, they can use these folks as backup to hit demand," he said. "They are trying to set up some redundant capacity, particularly as they ramp for a high-volume period such as the fourth calendar quarter."

Intel, which has traditionally manufactured its own processors, is in the throes of a major restructuring effort. After recently announcing plans to cut up to 6,000 jobs, the tech bellwether unveiled a $7 billion plan to add new manufacturing plants.

The Santa Clara, Calif.-based firm has not revealed when the first products from its TSMC deal will be launched, although the need for additional manufacturing capacity is a positive sign.

Like its rival AMD ( AMD), Intel has not had the easiest time of it recently. Sitting on a mountain of inventory, the chip manufacturer reported a massive drop in its fiscal fourth-quarter profit, as the firm felt the strain of the PC slump.

Despite its TSMC deal, Intel's shares were unable to shake off the general tech sector malaise Monday. The firm's stock slipped 36 cents, or 2.83%, to $12.38 as the Nasdaq fell 3.99%.

Even as Intel prepares for an upside, firms in other parts of the chip market are still struggling.

Flash memory maker Spansion ( SPSN), for example, filed for bankruptcy protection Sunday in an effort to restructure $625 million worth of debt as the company continues to explore a possible sale or other alternatives.

Spansion, which is one of the world's largest makers of chips used in digital cameras, cellphones and high-definition televisions, recently said it would slash its global work force by 35%, or 3,000 employees.

Trade group Semiconductor Industry Association said Monday that worldwide chip sales in January fell 28.6% to $15.3 billion from $21.5 billion a year earlier.

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