Samsung Electronics Co rose the fastest in nearly 10 months after Intel Corp considered asking the South Korean giant and Taiwan Semiconductor Manufacturing Co to make some of its most advanced chips, a major step for the Silicon Valley pioneer.
After successive delays in manufacturing chips, Intel, based in Santa Clara, California, has to make a final decision less than two weeks before a planned announcement of its plans, according to those familiar with the considerations. Any components Intel could source from Taiwan wouldn’t hit the market until 2023 at the earliest and would be based on established manufacturing processes already in use by other TSMC customers, people said, asking not to be identified as the plans are private are.
Intel still hopes for short term improvements to its own manufacturing capabilities. Talks with Samsung, whose foundry capabilities follow TSMC’s, are at a rather preliminary stage. TSMC and Samsung representatives declined to comment. An Intel spokesperson referred to earlier comments by Bob Swan, the company’s chief executive officer.
Swan has promised investors that it will lay out its plans to outsource and get Intel’s manufacturing technology back on track if the company reports profits on Jan. 21. The world’s most famous chip maker has in the past led the industry in advanced manufacturing techniques that are essential for maintaining the pace of performance enhancements in modern semiconductors. However, the company suffered years of delays that put it behind competitors who are developing their own chips and contracting TSMC to manufacture them.
Intel shares were down 1% on Friday. Samsung rose more than 9% to an all-time high in Seoul on Monday, the biggest daily gain since March. TSMC, which is already at full throttle and may not have spare capacity in the short term, remained largely unchanged in Taipei after a seven-day winning streak.
What Bloomberg Intelligence Says
Intel’s discussions with TSMC and Samsung confirm the expectation that the company will outsource part of the production. This move is unlikely to be easy, cheap, or quick in our view, and is likely to hurt Intel’s competitive gross margin. Intel’s semiconductor manufacturing has been integrated into the product design and delivery roadmaps since the company’s inception.
– Anand Srinivasan, analyst
Under the leadership of Jim Keller, Intel designers have taken a more modular approach to creating microprocessors. This gives more flexibility to either manufacture chips in-house or to outsource the work. But Keller left Intel last year, and competitors like Advanced Micro Devices Inc and Apple Inc have advanced their own powerful designs and TSMC’s more advanced production technology. This has put Intel in strong competitive pressure, forcing it to make last minute changes to product roadmaps, making decision making difficult, people said.
“We have another great line of products in 2022, and I’m increasingly confident that our 2023 products will deliver either Intel 7-nanometer or external foundry processes or a combination of both,” Swan said on an October conference call. Semiconductor manufacturing processes are measured in nanometers, with more and more microscopic transistors being packed onto silicon wafers with each new iteration.
At subsequent investor conferences, Swan stated that the timing of his decision will depend on the need to order chip manufacturing equipment to make sure he has enough factory capacity, or to give a partner enough heads-up to make similar preparations. The ability to predictably deliver leading products to customers on time and at the right cost will determine how much outsourcing Intel uses, he said.
TSMC, the largest manufacturer of semiconductors for other companies, is preparing to offer Intel chips made using a 4-nanometer process. According to the population, the first tests were carried out using an older 5-nanometer method. The company has announced that it will provide test production of 4-nanometer chips in the fourth quarter of 2021 and volume deliveries in the following year.
The Taiwanese company expects to have a new plant in Baoshan up and running by the end of this year, which can be converted to Intel production if necessary, said one of the respondents. TSMC executives previously said the new Baoshan unit would house a research center with 8,000 engineers.
Activist investor Dan Loeb has also voiced shareholder dissatisfaction with Intel’s perceived technological stagnation and urged the company to make aggressive strategic changes.
While Intel previously outsourced the production of lower-priced chips, it has kept manufacturing its best semiconductors in-house because of its competitive strength. The engineers have historically tailored their designs to match the company’s manufacturing processes and made a shift to outsourcing flagship products unthinkable in the past.
As the supplier of 80% of the PC and server processors worldwide, Intel produces hundreds of millions of chips every year. This order of magnitude dictates that every potential provider must create new capacities for Intel.
In July, the company announced that its 7-nanometer production would arrive a year later than previously planned. This followed a three-year delay in the introduction of the previous 10-nanometer generation, which is only now reaching mainstream use. These raids allowed TSMC and Samsung to lay claim to better technology for the first time, with TSMC already producing 5-nanometer silicon in large quantities for Apple and others. This timeline suggests that other customers, ahead of Intel, may move to better TSMC production.
The strategic changes at Intel are taking place at a time of booming demand and technological change in the chip industry. The traditional way of improving performance by shrinking and packing more transistors into each package is being replaced with more sophisticated techniques that include stacking processor and memory components into individual chips and introducing more tailored designs for tasks like artificial intelligence.
AMD and others have partially mitigated the risk of manufacturing advances not occurring at the expected rate by segmenting their designs and allowing various components of the processor to be assembled in stages. Intel has said that it is also heading in the direction of this modular approach.