Is the Intel-TSMC agreement smoke and mirrors?

NEW TRIPOLI, USA: On March 2, Intel and TSMC announced they had reached an agreement to collaborate on technology platform, IP infrastructure, and SoC Solutions for the Atom CPU cores. According to Intel’s release, “the collaboration is intended to expand Intel’s Atom SoCs availability for Intel customers for a wider range of applications through integration with TSMC’s diverse IP infrastructure.”

On January 7, 2009, The Information Network initiated a release “Did Intel Misjudge Success of the Netbook Asks The Information Network” suggesting that the $1 billion loss by Intel reported in the previous quarter was due to manufacturing of 5 million low-end Atom processors, a loss in revenue of $200 per CPU, instead of the more profitable Penryn Core 2 processor used in notebooks.

“We need to weed through the rhetoric and hyperbole to ascertain why, during the depths of the worst downturn in semiconductor history, Intel would forgo the opportunity of utilizing some of the capacity at their expensive 300mm fabs dotting the worldwide landscape to manufacture processors for netbooks that The Information Network forecasts will reach 21.5 million units sold in 2009, a growth of 189 percent, noted Dr. Robert Castellano, President of The Information Network. “Our press release of January 7 suggested that Intel stands to lose another $2.16 billion in 2009 on the Atom processor.”

The strategy begs the question, why would Intel, which has been in the system on a chip (SoC) and embedded markets for a long time, need TSMC?  Intel refers to TSMC’s “technology platform” which to us implies manufacturing. This leads to another question. Are Intel’s manufacturing costs so high that they lose money on manufacturing a $29 chip and that is the only reason they signed this agreement with TSMC?