Intel has signed up Taiwanese smartphone chip designer MediaTek as a major ally in its effort to reclaim its chipmaking leadership and ultimately restore the United States' processor manufacturing prowess.

The partnership, revealed Monday, is important for the establishment of Intel Foundry Services, an effort to dramatically expand and transform Intel's chipmaking business by making chips for other companies. Intel lost its lead with years of manufacturing problems that stalled it during the ascent of two Asian foundries, Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung.

"MediaTek has been a close partner with TSMC, so it is a pretty big deal," Tirias Research analyst Kevin Krewell said of Intel's MediaTek partnership.

The deal comes at an opportune time for Intel. It could help draw attention to the importance of US semiconductor manufacturing, the issue at the heart of the $52 billion in CHIPS Act spending that Intel is trying to persuade Congress to pass. Intel has been lobbying for the subsidies, postponing a groundbreaking ceremony for a new Ohio manufacturing site where Intel is investing at least $20 billion.

If Intel Foundry Services succeeds, new customers will significantly expand Intel manufacturing volume, helping it catch up to TSMC's enormous scale and justify the gargantuan price tags of new chip fabrication facilities, called fabs.

"Scale matters in our business," division President Randhir Thakur said. "One key benefit of us having other products running into our factories is it gives us scale."

The geopolitical calculus of chipmaking is changing, too. TSMC is in Taiwan and Samsung is in South Korea, two countries with good trade relations with US companies. But last week, analyst firm TechInsights dismantled a processor made by the top Chinese foundry SMIC and concluded it's made with the company's new 7nm manufacturing process. That's major progress for Chinese chipmaking, which despite massive government investment has trailed technologically.

"China's SMIC is shipping a foundry process with commercially available chips in the open market which are more advanced than any American or European company," industry watcher Dylan Patel concluded from TechInsights' analysis.

President Joe Biden is a strong CHIPS Act proponent, but congressional wrangling has held up any actual funding for months despite some bipartisan support and intense chip industry lobbying. Last week, a pared down CHIPS Act funding bill progressed in the Senate, making it more likely that a federal subsidy could knock about $3 billion off the $10 billion price tag for each new fab Intel wants to build.

Biden touted the new CHIPS Act at a meeting with leaders from defense, transportation and medical industries. "The CHIPS Act, in my view, is going to advance the nation's competitiveness and our technological edge," he said. Rising auto prices accounted for a third of 2021 inflation, Biden said, and that happened because the semiconductors shortage meant automakers couldn't actually build the vehicles.

About 12% of chips are made in the US today, down from 37% in 1990, according to a 2021 Semiconductor Industry Association report.

One big Intel foundry ally is the US military, which doesn't like the idea of being beholden to foreign countries for the electronic brains in every fighter jet, loitering missile and set of night-vision goggles. In November, the US Defense Department announced a partnership with Intel and other US semiconductor companies to foster a chip ecosystem based on Intel's upcoming 18A manufacturing process, due to arrive in late 2023 thanks to an accelerated timeline.

Qualcomm also declared its Intel 18A enthusiasm in 2021, but that partnership remains at a more evaluative phase as that technology develops.

Intel has a lot of catching up to do. TSMC is by far the largest foundry and has been investing aggressively, including a new plant near the Intel stronghold of Phoenix. And Samsung beat Intel and TSMC in the race to advance chips with a redesign to transistors, the core electronic data processing element on a chip. In June, it said it's begun producing transistors with a design called gate all around that stands to lower power consumption and improve performance.

MediaTek competes against companies like Qualcomm and Samsung that make smartphone processors and modem chips for wireless networking. It picked Intel in part to have more chip sourcing options.

Intel manufacturing will help "create a more diversified supply chain," said N.S. Tsai, a corporate senior vice president at MediaTek. "We look forward to building a long-term partnership."

A persistent, global chip shortage triggered in 2020 by the COVID pandemic has focused acute attention on supply chain issues. Scarce processors hobbled delivery of everything from Ford F-150 pickup trucks to Sony PlayStation 5 gaming consoles.

MediaTek will use a spruced-up version of Intel's decade-old 16-nanometer manufacturing process to make chips for home electronics and other devices for the internet of things. In contrast, TSMC builds MediaTek's premium product, the new Dimensity 9000 smartphone chip, with a much more modern 4nm manufacturing process.

But IFS faces many challenges. Intel has historically had its own chip design tools and manufacturing processes tailored to its own chip products. Accommodating outside chip designs requires a profound business and operational transformation. And the chip foundry's biggest customers are direct Intel competitors like AMD, Nvidia, Apple and Qualcomm that might well be leery of relying on Intel.

MediaTek, an "anchor" for IFS, is helping Intel learn now to set up the business to compete with Samsung and TSMC, Thakur said.

For example, instead of relying on Intel's own chip design tools, the company has wholeheartedly embraced the software the rest of the industry long ago embraced. It's physically partitioned fab floor space for foundry customers and has a similarly separated computer system. Intel also has begun simplifying its own processes so outsiders can understand them better and hired more than 70 people from rival foundries, he said.

"Our ability to sit across from our customers and talk in foundry language has increased tremendously," Thakur said. "The folks we brought from outside are helping us to work as a foundry, not as an Intel."