Intel outsourcing – US chip stalwart looks to Asian firms for help

• Intel’s share prices plummeted last week after CEO announced a departure from inhouse chip manufacturing
• The firm announced delays to its latest chip technology, of at least one year
• The company is ready to work with other chipmakers in Asia to get back on track

A statement by the CEO of Intel was credited for lopping off $US40 billion from the world-leading semiconductor firm’s market value last week. 

The shock drop came as helmsman Bob Swan said the firm would consider reversing its long-held commitment to inhouse chip design and production. That marks a significant departure from a production process that has served as a competitive differentiator for around 50 years, and comes as the firm begins to lose its grip on the US$400 billion global semiconductor market. 

In the conference call that saw Intel’s share price dip by 18% Friday, Swan told analysts that Intel would be prepared to “use somebody else’s process technology” as part of “contingency plans”.

“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.

The statement followed confirmation of delays to production processes, that will see the roll-out of its 7-nanometer chip technology backed up by a year, probably more. Intel’s current best technology – 10-nanometer – was supposed to appear in 2017, but is only just creaking its way into wide scale production now.

If production of 7-nanometer chips is delayed by 1 – 2 years, Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung would already be fabricating 5-nanometer chops, with higher density and lower energy use.

However, since Swan’s words, Taiwan’s Commercial Times has reported the first stage of Intel’s contingency plans are in effect. The firm has allegedly ordered 180,000 wafers from TSMC to produce its own 6-nanometer chips for next year. However, it was not clear who would be manufacturing the much delayed, 7-nanometer chip.

TSMC focuses on production alone, and its factories now outperform Intel’s, allowing more direct rivals such as Advanced Micro Devices (AMD) to catch up with Intel on performance.

And while TSMC is already providing the likely choice, Intel will be competing with TSMC’s own customers for attention, including Apple, Qualcomm, AMD and Nvidia, and that’s only if the Taiwanese firm is prepared to expand its production facilities.

Intel on the back foot

Intel’s announcement – pretty simply, that it’s struggling to produce chips, and the technology it’s working with is already obsolete compared to Asian market rivals – calls into question the United States’ efforts to bring critical manufacturing back to the country, including successful lobbying by US semiconductor technology companies themselves to secure subsidies for chip production on home soil.

Two days before Swan’s announcement, the US House of Representatives passed an amendment to the National Defense Authorization Act providing federal subsidies for semiconductor manufacturing.

On the amendment, the Semiconductor Industry Association said: “Congress has a strategic opportunity to strengthen US semiconductor manufacturing and research, two crucial drivers of America’s economic strength, national security, and supply chain resilience. Today’s votes are important steps in the right direction and show there is broad, bipartisan support in Congress for bold semiconductor manufacturing incentives and research investments.”

Days after Swan said Intel’s plants were not currently up to the task, Intel cut loose chief engineering officer Murthy Renduchintala, the executive in charge of its chip design and manufacturing operations. A statement read that changes were to “accelerate product leadership and improve focus and accountability in process technology execution.”

Renduchintala was poached from Qualcomm in February 2016 and put in charge of design, engineering and manufacturing of Intel’s chips, under the firm’s Technology, Systems Architecture and Client Group. That arm will now be split up into multiple teams, all reporting directly to Swan.

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