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IBM to produce Nvidia chips

The graphics chipmaker inked a manufacturing deal with Big Blue so it could avoid putting all of its graphics chips in one basket.

Nvidia has signed a pact with IBM Microelectronics to help it avoid putting all of its graphics chips in one basket.

The chipmaker on Wednesday will announce an agreement in which IBM will serve as an additional manufacturer for the GeForce family of graphics chips. Nvidia's current manufacturer is Taiwan Semiconductor Manufacturing Co. (TSMC).

Nvidia wanted more manufacturing capacity and was looking to avoid the pitfalls of working with just one producer, said Nvidia spokesman Derek Perez.

As previously reported, Nvidia had to delay the introduction of the top-of-the-line GeForce FX processor in part due to TSMC, its only manufacturer at the time, making a transition from a 180-nanometer manufacturing process to a new 130-nanometer process. The change to a new process allows chipmakers to produce smaller, faster and less power-hungry chips.

When looking for an additional foundry, Nvidia also sought out technology that would help it boost performance, Perez said. This gave IBM a leg up on the competition.

IBM is rivaled only by Intel in its chipmaking technology and research and development prowess. The Microelectronics division, working with IBM Research, has introduced a number of new chip-manufacturing technology breakthroughs over the years. IBM also recently opened a new chip plant in East Fishkill, N.Y.

"I think (IBM) wowed us with a lot of things," Perez said. "Having all of its technology expertise in our back pocket was a no-brainer for us."

The chipmaker plans to continue its work with TSMC, even for its highest-performance chips, said Perez, who noted that the manufacturer has produced more than 200 million Nvidia graphics chips over the last five years.

Analysts believe it's in Nvidia's best interest to be able to shift production between two different foundries.

"I suspect what Nvidia is doing is diversifying its foundry base a little bit so it doesn't get trapped in a situation where it only has one foundry to deliver a product," said Dean McCarron, analyst with Mercury Research. "That changes its manufacturing situation pretty significantly, as when dealing with more than one foundry, you have the ability to start partitioning your manufacturing. It gives you more flexibility."

IBM Microelectronics will be qualified to build any future GeForce graphics processors, Perez said.

The IBM chip division will begin manufacturing unspecified Nvidia GeForce chips next summer using its 130-nanometer process, Perez said. The graphics chipmaker will not use IBM's more exotic manufacturing technologies--such as the silicon-on-insulator technique, which helps reduce power consumption and boost performance--at first, but may use them in the future.

The new contract is a big win for IBM. Nvidia is one of IBM's first manufacturing customers after a reorganization of the IBM Technology Group. The restructuring, which took place last summer, sought to expand the Microelectronics chipmaking division into a manufacturing and design services arm.

Since then, IBM has opened the Fishkill plant as a chip foundry, put in place a program to license its PowerPC processor and begun to license various chipmaking technologies to outside companies, including Sony. IBM has also teamed with Singapore's Chartered Semiconductor to share technology and manufacturing capacity.

One of IBM's first chip technology licensees since the reorganization is Advanced Micro Devices.

IBM also builds chips for cell phone makers Qualcomm and Xilinx.

The terms of the Nvidia-IBM agreement were not disclosed, but it is expected to be worth hundreds of millions of dollars over several years, a source familiar with the deal said.