IBM to manufacture Nvidia’s graphics chips

IBM Corp. landed a major foundry deal expected to be worth over US$100 million Wednesday, agreeing to manufacture the next generation of Nvidia Corp.’s GeForce graphics processors at its fab in East Fishkill, N.Y.

Work on the new chips will start in the middle of 2003. IBM will use its 0.13 micron process technology to produce 300 millimetre wafers, which is the most sophisticated level of production currently used in mass quantities by other chip makers such as Intel Corp., and Taiwanese contractors such as Taiwan Semiconductor Manufacturing Co. (TSMC) , which currently manufactures graphics chips for Nvidia.

Responding to the announcement, TSMC issued a statement Wednesday saying that the Taiwanese chip maker had been reassured by Nvidia that it would remain the primary manufacturing source for the graphics chip vendor.

An Nvidia spokesperson confirmed that Wednesday, saying that Nvidia’s five-year relationship with TSMC would be unaffected by the decision to add IBM as a foundry partner, said Derek Perez of Nvidia. TSMC will continue to make the company’s older graphics chips and chipsets going forward, and will manufacture new chips as well, he said.

TSMC has had trouble implementing its current 0.13 micron process technology, causing delays in product shipments for customers such as Nvidia and Transmeta Corp. The delay affected Nvidia’s ability to keep up with rival ATI Technologies Inc. in terms of releasing new products, but Perez denied suggestions that the delays contributed to Nvidia’s decision to add IBM as a partner .

More likely, the decision to bring in IBM reflects a desire to use IBM as a development fab, and TSMC as the high-volume manufacturer, said Dean McCarron, principal analyst at Mercury Research Inc. in Cave Creek, Ariz. Intel has a similar strategy, where it manufactures developmental chips in low volumes at certain fabs, then switches to high-volume fabs once demand for that chip picks up, he said.

Nvidia’s wide range of products means the company needs the flexibility to work with different partners, which can bring cost savings, McCarron said.

GeForce processors bring enhanced graphics to PCs, and are usually found in PCs used in gaming and other graphics-intensive applications. Nvidia shipped 32 per cent of total graphics processors shipments in the fourth quarter of 2002, according to data from Jon Peddie Research.

IBM refitted its East Fishkill facility last year, laying off a number of workers in other technologies to make way for the contract chip-making services. Wafer fabrication plants are notoriously expensive to build from scratch, and many chip designers choose to outsource the manufacturing to foundries such as TSMC and United Microelectronics Corp. in Taiwan.

Since bringing the fab online last year, IBM has signed agreements with Qualcomm Inc. and Xilinx Corp. to manufacture chips for those companies on the new chipmaking technology, an IBM spokesperson said.

In January, IBM announced it would work with Intel rival Advanced Micro Devices Inc. on developing 65 nanometer process technologies. At the time, the two companies said there were no foundry services involved in the deal. AMD and Nvidia work closely together on a number of different technologies, such as Nvidia’s chipsets for AMD processors like the Athlon XP.