Intel, TSMC join forces on new Atom markets

"It's more of an acknowledgment that the way we hoped to do this is not going to work out."

But he added: "It's the right choice. Intel has to bow to the reality that they're not good at everything."

The deal might also offer a lift for TSMC, which gets to make the new chips that emerge from the partnership but is now struggling with crumbling global spending on devices.

"We're not changing our long-term strategy, our roadmap for the Atom," Anand Chandrasekher, general manager of Intel's ultra mobility group, told analysts on a conference call. "This is an additional market" expansion."

The firm wanted "to go after new segments."

Intel announced in January it would shut plants in Malaysia and the Philippines and its one surviving factory in Silicon Valley, cutting as many as 6,000 jobs. At the same time, the firm plans to spend $7 billion over two years to build next-generation, 32-nanometer chip manufacturing capacity.

Atom is the Intel chip used on low-cost, low-power laptops called netbooks, one of the fastest-growing electronics markets amid a deepening global recession.

Top global chip maker Intel has maintained it will manufacture its own microprocessors, though it had previously outsourced some processes, including chipsets and wireless devices, to TSMC and other foundries.

But as the cost of chip manufacturing has skyrocketed, many peers, including graphics chip maker Nvidia, have migrated to fabless or fab-lite strategies. A deepening recession is now curtailing tech spending while exerting pressure on companies to safeguard profit margins by shaving costs.