Intel’s manufacturing delay sends shockwaves through the chip industry

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An astonishing shift in Intel’s manufacturing development reverberated on Wall Street on Friday, as the chip industry envisioned a decisive shift in leadership in the world’s most advanced manufacturing technology.

The U.S. chipmaker had warned the day before that it was a year behind in the process technology required for its next generation of chips, although design changes in the chips themselves would limit the time it takes to launch new ones. products at six months.

After a rare hiatus in the switch to the previous generation of chipmaking technology, the latest slide clearly ended Intel’s long-standing lead in global chipmaking, while also giving the Taiwanese chipmaker TSMC a significant advantage.

Intel’s chip manufacturing plants have long been the pinnacle of advanced manufacturing in the United States and were a sign of the country’s dominance in a key technology, said Ambrish Srivastava, analyst at BMO. “This is no longer the case,” he added.

The shock sent Intel shares down 16% on Friday morning, wiping out $ 40 billion from its market value. TSMC’s market value jumped $ 45 billion, or 13.5%. Samsung is the only other company to come close to the technological pace of the Taiwanese producer, although it serves a much smaller slice of the industry with its own chip-making factories.

Other people affected by the fallout from Intel’s slide include AMD, which has also long been in the Intel chip manufacturing market, based on the x86 architecture for PCs and data centers. AMD chips are made by TSMC, and its shares have jumped 10% on expectations that it will now have a lasting advantage.

Mobile chip company Qualcomm and graphics processor maker Nvidia, which designs chips and primarily rely on TSMC for manufacturing, will also benefit in the long run, analysts said. Apple announced last month that it was ditching Intel’s chips in favor of internal designs for its Macs – a move that means it is now less likely to fall behind in the future.

Until recently, the American chipmaker was almost synonymous with Moore’s Law, which described the steady shrinking of feature sizes that grouped more transistors in the same space on a chip, increasing computing power. Intel’s mastery of extremely complex process technology has kept it one step ahead of the rest of the industry for decades.

The gap between each generation of technology, known as the “node”, is typically 24 to 30 months. With its latest slippage, Intel could now be a full-fledged node behind TSMC, having squandered a lead of the same magnitude – which equates to a four- to five-year change in leadership, Srivastava said.

To make up for the delay, Intel said it plans to look to outside manufacturers from 2023 for some of its production – a plan that seemed to leave little choice but to outsource its most manufacturing. advanced to TSMC. The shift raised the prospect of a shift in Intel’s business model, some analysts say, forcing it to consider shifting away from manufacturing more to focus on design.

Speaking to analysts the day before, CFO George Davis said Intel had been considering outsourcing more manufacturing for some time and that such a change would increase its return on capital. This represented a complete reversal of the strategy set out by Brian Krzanich, CEO of Intel until two years ago, who wanted to use the company’s manufacturing advantage to produce chips for many other companies, which made it a competitor in the “foundry” sector. by TSMC.

Outsourcing key manufacturing was a strategy that “many long-time Intel enthusiasts previously considered unthinkable,” given the advantage the company had for years of following the Moore’s Law curve. ahead of its competition, said Matt Ramsay, analyst at Cowen.

Bob Swan, CEO of Intel, said the company could retain an advantage in its products, even if it loses its manufacturing lead, through design changes and the use of some outside manufacturers. Many of the new markets that Intel is targeting by moving away from its traditional business of manufacturing microprocessors for PCs and servers are also less dependent on the ability to control the more advanced manufacturing processes.

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