Intel will make chips for Panasonic's audiovisual systems

Panasonic's upcoming TVs, stereos and other audiovisual equipment will run on higher performing, more power-efficient chips made by Intel.

Intel signed an agreement with Panasonic to make next-generation system-on-chips to process audio and video. The chips will be made using the 14-nanometer process, which could bring additional performance and power savings to enhance the multimedia features in Panasonic's TVs, stereos and other equipment.

Intel will work with Panasonic's System LSI division, which makes video encoding/decoding and chips for TVs, Blu-ray players, set-top boxes and other products. Panasonic will design the chips, which will then be sent to Intel's fabrication plants for manufacturing. The Panasonic SOCs will have so-called 3D transistors, which have helped boost performance and reduce power draw in PCs over the last three years.

Intel's 14-nm factories are considered among the most advanced in the industry. Adding a high-profile customer like Panasonic will enhance the visibility of Intel's fledgling chip manufacturing operations, said Chuck Mulloy, an Intel spokesman.

For decades, Intel made its own chips, but in the last two years has expanded its custom-chip business, opening up its factories to external companies. Every two years, Intel invests billions of dollars in upgrading factories. Intel felt the need to keep its factories busy with the PC market declining in recent years and the company's limited presence in smartphones and tablets.

Intel has been selective about its custom-chip customers and its deal with Panasonic will be its first foray into multimedia chip manufacturing. Intel is currently making high-margin FPGAs (field programmable gate arrays) for companies like Altera, Achronix and Tabula, which are expected to start shipping later this year.

Consumer electronics chips are typically smaller in size compared to FPGAs, which will provide a manufacturing challenge to Intel, said Jim McGregor, principal analyst at Tirias Research.

"It won't soak up a lot of [factory] capacity. As Intel expands into foundry services, any win is a good win," McGregor said.

Intel may have advanced factories, but doesn't yet have the mindset to compete with established custom-chip makers like TSMC (Taiwan Semiconductor Manufacturing Co.) or GlobalFoundries, which are catching up on manufacturing technologies, McGregor said.

TSMC and GlobalFoundries operate with the mindset of making chips for others, but Intel is not used to the idea of modifying its manufacturing process based on other designs, McGregor said, adding that Panasonic will provide a new challenge.

"All of those become manufacturing challenges," McGregor said. "There's a huge learning curve to becoming a foundry."

Beyond serving third-party clients, Intel is taking more steps to keep its factories humming. The company has stepped up its custom server-chip business for larger clients, and recently said it would bake FPGAs directly into its server chips. Intel has previously embedded FPGAs into its chips.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com