Intel Corp will develop and make its low-cost Atom-based chips with Taiwan's TSMC for a range of electronic devices, marking a shift in Intel's strategy while helping both companies expand into new markets.

Intel has long insisted on making its own microprocessors, but is now prompted to bring in partners to help it tackle new markets and expand its product range. Analysts had speculated Intel would resort to more outsourcing to trim costs as demand dries up.

The world's top chip maker and biggest producer of made-to-order chips, Intel said on Monday it plans to put its Atom -- the brains of ultra-small laptops -- on single chips that behave like an entire computer, a computer on a chip.

But Intel stressed it will not transfer its highly prized manufacturing process technology to TSMC.

It will, however, let the contract chip maker make newly developed Atom-based chips for gadgets such as smartphones, set-top boxes and cameras, boosting volumes at the Taiwanese foundry at a time sales are shrinking in a downturn.

Neither company would divulge targets, specific products, or timeframes under their memorandum of understanding. Some analysts said Intel might be trying TSMC out before embarking on more full-fledged outsourcing.

"For them to come to the decision to outsource manufacturing of any product that they design is a monumental change in their mindset," said Patrick Wang, a Wedbush analyst. "Intel could be testing the waters with TSMC."    

Intel has wanted to expand beyond the PC into the rapidly shifting world of gadgets but it "has in the past been frustrated in its efforts," PiperJaffray analysts wrote in a note issued Monday afternoon.

Analysts said investors were holding off because of the lack of details. Piper Jaffray estimates Intel and TSMC won't begin to take in revenue from their collaboration till 2010.

Hans Mosesmann, an analyst with Raymond James, agreed: "We won't know the ramifications of this as a successful decision or not until 2010, 2011."    

Global chip sales plummeted 29 percent in January to $15.3 billion, according to the Semiconductor Industry Association.

Longer term, analysts said Intel -- lacking the requisite in-house technology to stake out a big footprint in fast-moving consumer electronics -- was making the right decision.

Roping in TSMC could open new markets for Intel much more quickly than the chip giant could do on its own. And the agreement validated TSMC's leading portfolio of intellectual property and manufacturing capability, they said.

"It's the right choice. Intel has to bow to the reality that they're not good at everything," Mosesmann said. - Reuters