Intel’s manufacturing problems came to a head as the company announced a delay of up to one year in a critical new technology and removed the executive who was leading that initiative.
Unconfirmed reports indicate the chip giant will shift a large portion of its processors to an outside manufacturer as early as next year, an unprecedented move for Intel. If the company that produces more than 90% of the world’s processors for PCs and servers can’t solve its manufacturing problems, customers are likely to face some combination of supply constraints, product delays and uncompetitive products that could last for years.
Intel’s manufacturing woes began three years ago when the company fell behind schedule on a new transistor known as 10 nanometer (10nm). This delay caused shortages of PC processors during 2019, as Intel had to reconfigure its chipmaking fabs to add more capacity for an older technology. At that time, Intel assigned Murthy Renduchintala, an executive vice-president, to ensure that even-smaller 7nm transistors would debut as planned in late 2021. But the recent announcement indicates that 7nm requires a retrofit that will delay it by a full year.
When 10nm encountered a similar problem, the company needed three tries to fix it, suggesting that the 7nm delay could also stretch out longer than it hopes. Investors indicated their lack of confidence by dropping Intel’s stock price 18% after the announcement. CEO Bob Swan quickly reshuffled his technology leaders and showed Renduchintala the door.
The 7nm delay could lead to a repeat of last year’s processor shortages. Intel needs to periodically shift to smaller transistors in order to fit new features into its chips. When this transition is delayed, the chips instead get bigger and bigger, eventually limiting the output of each fab. Delays have other negative effects too. The smaller transistors also use less power and enable processors to run faster. Without these benefits, Intel’s products could stagnate in performance and battery life.
In the meantime, rival AMD continues to improve its PC and server processors. It has no fabs, instead outsourcing production to Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC). While Intel stumbled at 10nm, TSMC zoomed forward and is already producing chips using transistors similar to Intel’s delayed 7nm. By working with TSMC, AMD can use transistors that are more than two years ahead of Intel’s, helping it deliver more capable processors.
To avoid falling further behind, Intel has reportedly been working behind the scenes on Plan B. It reportedly placed a large order with TSMC for next year—big enough to build about 70 million PC processors according to estimates from my company, The Linley Group. That’s the equivalent of nearly a third of its total output last year.
If the reports are true, this sizable shift to outsourcing should help alleviate supply shortages, but it raises other concerns. TSMC has never built an Intel processor before, so the new team-up could cause delays. TSMC’s leading-edge capacity was already fully booked, so Intel is reportedly using a previous-generation transistor. The risk is that this transistor might not be as good as Intel’s in-house technology, and it will certainly fall short of what TSMC provides to AMD.
In summary, Intel’s chipmaking operation is in considerable flux, facing disruptive management changes and technology delays of uncertain duration. A possible new outsourcing project offers hope but also creates additional uncertainty. In the longer term, the company must either whip its fabs into shape or, like rival AMD, outsource all of its manufacturing.
For CIOs, this uncertainty complicates purchasing cycles, requiring backup plans in case of product delays, and presents an opportunity to consider systems based on alternative processor suppliers. In a few years, Intel could emerge from this crisis stronger than ever, but in the meantime don’t bet the farm on it.
Disclosure: The Linley Group, a provider of research services, receives revenue from most of the technology companies named in this article.
I am the president and principal analyst at The Linley Group, a Silicon Valley-based technology consultancy that focuses on semiconductors. Over the past 25 years, I have
I am the president and principal analyst at The Linley Group, a Silicon Valley-based technology consultancy that focuses on semiconductors. Over the past 25 years, I have tracked this industry through the rise of minicomputers, PCs, smartphones, the cloud, the Internet of Things, and now AI. For much of that time, I have been editor-in-chief of Microprocessor Report, the leading trade publication for the processor industry. I’ve written hundreds of articles for that and other technical publications as well as dozens of book-length reports analyzing various types of processors. I’m often quoted in business publications and have appeared on CNN, CNBC, Fox News, and other global media outlets. I started my career as a chip design at Hewlett-Packard after learning both engineering and writing at Yale University.