Intel Slumps After 7nm Chip Production Process Delayed Again

Ian King (Bloomberg) -- Intel Corp. shares slumped after warning about another production delay, sparking concern the world’s largest chipmaker will fall further behind rivals in a crucial area it once dominated.

At issue is a new method for cranking out smaller, more powerful chips, the timing of which “is shifting approximately six months relative to prior expectations,” the company said as it reported quarterly results on Thursday.

Intel shares fell 10% in extended trading. Advanced Micro Devices Inc., a rival, jumped 7%.

Intel’s first 7-nanometer chips will go on sale at the end of 2022 or early 2023, Chief Executive Officer Bob Swan said on a conference call. That’s a year behind schedule. AMD is already selling 7-nanometer-based processors.

Competitive pressure has been building on Intel in recent years. The company designs and manufacturers its own processors, while many rivals focus on design and tap Taiwan Semiconductor Manufacturing Co. to make their chips. That’s helped TSMC improve production faster than Intel, and given companies such as AMD a new chance to compete.

Major Intel customers, including Amazon.com Inc., are also increasingly supplying themselves with server chips manufactured by TSMC.

Swan, the Intel CEO, said he will be flexible about outsourcing production. That’s a big change from the in-house manufacturing approach the company has used for decades.

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New production techniques in the chip industry are measured by nanometers. The advancements help companies make semiconductors that have smaller circuits on them. This allows the components to count faster, store more information or use less electricity. It also makes them cheaper to produce.

Intel suffered delays in 2018 on its 10-nanometer initiative, too. The company’s comments on Thursday reveal that the new 7-nanometer production process isn’t good enough because it is creating too many chips that must be thrown away. Semiconductor companies need to have a high yield, or percentage of usable chips from each production run, to support new manufacturing plants that cost more than $5 billion to build and must be run 24 hours a day.

A high-end server chip can sell for $10,000. It doesn’t cost that much to make but if companies throw away a lot of these components at the production stage, that cuts into profitability.

For now, the production woes have damaged Intel’s reputation rather than it’s finances. Second-quarter revenue jumped 20% to $19.7 billion from a year earlier. Net income was $1.19 a share. Both topped analysts’ estimates.

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Intel Chief Financial Officer George Davis said the company will gain market share in personal computer chips and server chips this year.