IBM has landed a major foundry deal expected to be worth more than $US100 million, agreeing to manufacture the next generation of Nvidia's GeForce graphics processors at its fabrication plant (fab) in New York.
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 (mm) wafers. This is the most sophisticated level of production currently used in mass quantities by other chipmakers such as Intel and Taiwanese contractors such as Taiwan Semiconductor Manufacturing (TSMC). The latter currently manufactures graphics chips for Nvidia.
Responding to the announcement, TSMC said that the Taiwanese chipmaker had been reassured by Nvidia that it would remain the primary manufacturing source for the graphics chip vendor.
An Nvidia spokesman said that Nvidia's five-year relationship with TSMC would be unaffected by the decision to add IBM as a foundry partner, Nvidia's Derek Perez said.
TSMC would continue to make the company's older graphics chips and chipsets and would 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. The delay affected Nvidia's ability to keep up with rival ATI Technologies in terms of releasing new products.
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 reflected a desire to use IBM as a development fab and TSMC as the high-volume manufacturer, principal analyst at Mercury Research, Dean McCarron, said.
Intel had a similar strategy, where it manufactured 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 meant the company needed the flexibility to work with different partners, which could bring cost savings, McCarron said.
GeForce processors bring enhanced graphics to PCs. They are usually found in PCs used in gaming and other graphics-intensive applications.
Nvidia shipped 32 per cent of the total graphics processors shipments in the fourth quarter of 2002, according to data from Jon Peddie Research.
IBM refitted its New York 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 in Taiwan.
Since bringing the fab online last year, IBM had signed agreements with Qualcomm and Xilinx to manufacture chips for those companies on the new chip-making technology, an IBM spokesman said.
In January, IBM announced it would work with Intel rival Advanced Micro Devices on developing 65 nanometre 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.