U.S.-based semiconductor giant Intel has formed a new partnership with market leading computer network corporation Cisco.
The partnership is part of Intel's diversification, aimed to offset falling demand for traditional central processing unit (CPU) chips.
"Intel has recently signed an agreement to manufacture Cisco's networking chips on a contractual basis," said Lee Hee-sung, country manager at Intel Korea, during an interview with The Korea Times.
The Intel executive added that the firm, headquartered in Santa Clara, Calif., hopes to take advantage of the growing demand for value-added programmable and logic chips, a profitable segment.
Cisco Korea spokeswoman Lee Young-mee declined to comment.
The agreement comes after Intel's profits declined from its conventional CPU-related businesses, which were hit by the transition to graphic processing unit (GPU) chips used in smartphones and tablets.
According to Samsung and LG Electronics officials, their companies are less reliant on PC manufacturing, and this has contributed to Intel Korea's lower revenues.
To effectively respond to this change, Intel has been focusing on its foundry (contract) business, which already has a few potential deals such as that with Altera.
Intel's deal with Cisco was no big surprise for the industry because Intel was already making devices for programmable logic start-ups Achronix and Tabula, and network processor firm Netronome.
In contrast to these firms, who are interested in Intel's 22-nanometer processing technology, Altera is interested in its 14-nanometer processing and FinFET technologies.
Officials also said Intel's increasing focus on programmable chips is due to their heightened security.
"Because clients redesign structures of programmable chips, those components are going to be used in base stations, cars and satellites. That's why Intel is pushing for a selective strategy," said a senior fund manager from a U.S.-based investment bank in Seoul.
"Intel wants to add more customers in non-CPU sectors. The deal with Cisco looks significant. If Intel successfully produces chips with designs offered by Cisco, then it will get additional momentum to effectively grow its foundry business," said a source at Samsung Electronics.
The source said he personally doesn't care too much about Intel's entry in the logic chip business at present because Samsung has a clear roadmap and is several steps ahead.
"Samsung's logic chip clients now include Qualcomm, IBM, Xilinx and STMicroelectronics. We welcome new challengers, but Samsung already knows its way," said the source.