New Intel CEO to guide new business

Intel's next CEO is likely to shepherd the top chipmaker into a growing contract-manufacturing business, a strategic shift that could lead to a deal with Apple Inc and give it a fighting chance to make inroads in the mobile arena.

Manufacturing chips on behalf of other companies is a major departure for Intel, which for decades has based its business on using its manufacturing prowess to offer its own PC chips superior to rival products. As PC sales contract and Intel's fabrication plants operate at less than full capacity, the chipmaker sees an opportunity to fill idle production lines while earning new revenue. Such a move may also offer a backdoor of sorts into large-scale production of chips for mobile devices, where Intel has made little headway after underestimating the impact of the iPhone and iPad and falling behind more nimble rivals.

Intel said last week it will open up its prized manufacturing technology to make chips designed by fellow chipmaker Altera -- snagging its first sizeable customer in a contract manufacturing, or "foundry", business expected to grow.

That has spurred talk of an Apple deal. A source close to one of the companies says Intel and Apple executives have discussed the issue in the past year but no agreement has been reached. "If you can have a strategic relationship where you're making chips for one of the largest mobile players, you should definitely consider that. And for Apple, that gets them a big advantage." said Pat Becker Jr, of Becker Capital Management, which owned about $39 million worth of Intel shares at the end of last year.

Intel's plan entails heavy capital spending, even as it struggles in its core market and has yet to find enough new demand to fill future fabrication plants. It would also mean getting into a foundry sector that, because it depends on volume to drive business, is highly vulnerable to economic swings and could compress Intel's industry-leading margins.