Sat, Jul 25, 2020 page10

• Intel mulls not manufacturing its own chips

  • Bloomberg
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  Intel Corp CEO Bob Swan on Thursday spent almost an hour discussing an idea that would once have been unthinkable for the world’s largest semiconductor company: not manufacturing its own chips.

  Outsourcing is the norm in the US$400 billion industry, but for 50 years Intel has combined chip design with in-house production. Until recently, Intel was even planning to churn out processors for others.

  “To the extent that we need to use somebody else’s process technology and we call those contingency plans, we will be prepared to do that,” Swan told analysts on a conference call, after the company warned of another delayed production process.

  “That gives us much more optionality and flexibility. So in the event there is a process slip, we can try something rather than make it all ourselves,” he said.

  Pursuing this option would represent a huge shift in the industry and the end of Intel’s biggest differentiator, Cowen & Co analyst Matt Ramsay said.

  Design can only do so much for semiconductor performance. The manufacturing step is crucial to ensuring these components can store more data, process information faster and use less energy. Combining the two helped Intel improve both sides of its operation for decades.

  However, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has succeeded by just focusing on production and leaving the design to other companies. Its factories have passed Intel in capabilities, and that has helped Intel rivals, such as Advanced Micro Devices, Inc catch up on performance.

  Intel’s current best technology — 10 nanometer — was scheduled to appear in 2017 and is only now making it into high-volume production. When the company on Thursday reported results, it said the next iteration — 7 nanometer — would be delayed by a year.

  “You didn’t need to read any more,” Sanford C. Bernstein analyst Stacy Rasgon said. “Whatever little credibility they had is out of the window.”

  That sent Intel shares down 10 percent in extended trading and left Swan fending off a barrage of questions from frustrated analysts on the conference call.

  They all asked about the manufacturing delay, its financial consequences and what Intel plans to do.

  Swan’s answers were sometimes disjointed and vague.

  “What’s different is we’re going to be pretty pragmatic about — yes if, and if and when we should be making a step inside or making it outside and making sure that we have optionality to — yeah build internally mix and match inside and outside or go outside in its entirety,” he said at one point.

  Intel’s backup plan means it might tap TSMC to make its chips, but that would not be easy, Ramsay said.

  TSMC’s other customers, who compete with Intel, would likely oppose the Taiwanese company prioritizing Intel’s designs, he said.

  TSMC would probably be reluctant to build lots of new production capacity for Intel when there is a chance the US company might switch back to its own factories later.

  “They can’t go to TSMC because it doesn’t have the capacity,” Rasgon said.

  Outsourcing to another company might mean Intel never catches up again.

  Swan tried to put a positive spin on the challenge when he wrapped up the conference call.

  The flexibility is “not a sign of weakness,” he said.
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