Who else benefits from Intel - TSMC partnership?

Intel (INTC) and Taiwan Semiconductor (TSM) announced an agreement this week where TSMC would gain the rights to use Intel Atom processors as part of custom "system-on-a-chip" devices. These devices would be customized by TSMC according to individual customers requirements. The expectation is that the chips would be used in everything from netbooks to handheld gadgets. This is a good deal for both companies. TSMC has a new solution to offer its customers and Intel will more easily be able to get its processors in new devices such as smartphones.

This seems to be an extension of Intel's strategy of moving into new markets. The company has been trying to push into "mobile Internet devices" or MIDs. These MIDs are intended to be based on the Atom chip and Intel is working on a smaller, lower-powered version tailored to use in cellphones, smartphones, automotive systems and other yet to be determined devices.

Intel's work is cut out for it. ARM processors, made by the British company ARM Holdings Plc (ARMH), are currently the market leaders and are used in many well-known devices made by Apple, Palm and others. They have attained this status by being highly customizable and by being very power efficient. And also because small, lightweight operating systems can run on them.

Apparently, Intel is looking to use Linux as their lightweight operating system on MIDs and the company has been hiring top Linux developers to jumpstart the programming effort.

So if the various versions of the Atom processor find their way into popular devices, and that is a big "if" given Intel's less than stellar performance in the mobile space thus far, the next battle will be over software. Intel is committing to Linux but what about long-time partner Microsoft?

Microsoft's Windows operating system already runs on Atom chips. I can't imagine Microsoft not trying to push Windows Mobile or some stripped down version of the upcoming Windows 7 onto some of these devices. As much as Microsoft must be irritated that Intel is committing to Linux, I suspect that Microsoft is hoping Intel's push into new markets will be wildly successful. Where the Atom goes, Microsoft can follow.

Disclosure: none