Delay of Intel’s 7nm chip production signals change of founding principle strategy

In a significant development, Intel Corp stated, its new 7-nanometer chip technology is running six months behind schedule and that it may considering outsourcing more work to other semiconductor foundries, eroding a founding principle that manufacturing is key to its success.

With the news reaching the market, Intel’s shares fell by 9%. Although the setback will have minimal impact in the coming next few quarters, it is however likely to have years-long domino effect and is likely to delay its chips to counter those of its rivals, including ones from Advanced Micro Devices Inc and Nvidia Corp until late 2021 or even 2023.

The delay extends Taiwan Semiconductor Manufacturing Co Ltd’s lead in the smaller, faster chip technology and is now expected to remain at least one generation of technology ahead for years to come. Intel’s rivals including Nvidia and AMD are likely to gain from it.

“We’re going to be pretty pragmatic about if and when we should be making stuff inside or making outside, and making sure that we have optionality to build internally, mix and match inside and outside, or go outside in its entirety if we need to,” said Intel’s CEO Bob Swan on a call with investors.

Swan told investors, Intel’s “Ponte Vecchio,” a data center graphics chip designed to compete with Nvidia, will be released in late 2021 or early 2022 and that Intel could potentially outsource the job to other chip foundries. He went on to add, Intel’s first 7nm chip, designed for PCs, will come only in late 2022 or early 2023. Intel’s first 7nm data center processor will ship only in the first half of 2023.

According to IBES data from Refinitiv, Intel has estimated third-quarter revenues to touch $18.2 billion on adjusted earnings of $1.10 per share, compared with analysts’ average forecast of $17.9 billion and $1.14 per share. It has updated its full-year 2020 revenue guidance to $75 billion against analysts’ consensus estimate of $73.86 billion.

As for the second quarter ended June 30, Intel said its overall revenue and adjusted profits were $19.73 billion and $1.23 per share; in comparison, analysts had estimated its revenues to be $18.55 billion and $1.11 per share.

“The delay of its 7nm roadmap timing will create even more headwinds for Intel as its risk increased probability of further share loss to AMD and to other architecture like Arm in both its client and data center markets in the next two to three years,” said Kinngai Chan, an analyst at Summit Insights Group.

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