By Max A. Cherney and Stephen Nellis
SAN FRANCISCO (Reuters) -Intel warned investors on Thursday that it may have to get out of the chip manufacturing business if it does not land external customers to make chips in its factories.
New CEO Lip-Bu Tan said on Thursday the company’s engineers were busy working with customers to jump-start its next-generation contract manufacturing process, or foundry, as the company announced big layoffs alongside a wider-than-expected third-quarter loss outlook.
Those customers for the company’s so-called 14A manufacturing process are crucial to the success of the technology – so much so that if it fails to secure a big one, it could shut down its cutting-edge manufacturing business altogether, according to Intel’s quarterly filing on Thursday.
The possibility that Intel could drop out of the cutting-edge manufacturing business would be a historic shift for a company that has described itself as a steward of Moore’s Law – an observation by Intel co-founder Gordon Moore about the fast rate of development of the chip industry that held true for decades.
Intel is the only U.S. chipmaker capable of making advanced computing chips.
Intel has struggled for years due to management missteps, missing out on the AI race and losing market share to its longtime rival AMD.
Former CEO Patrick Gelsinger poured money into Intel’s foundry business, aiming to compete with chip manufacturing giant TSMC. Tan, who has already taken steps to right the ship, said on a post-earnings call on Thursday that he was personally reviewing all chip designs and investments.
“We’re developing Intel 14A … from the ground up in close partnership with large external customers,” Tan said in a memo released with the results. “Going forward, our investment in Intel 14A will be based on confirmed customer commitments.
“We will build what our customers need, when they need it, and earn their trust through consistent execution.”
Intel said that without a significant customer, it would consider cancelling or pausing development of 14A and subsequent technologies. Should the company take the step, it planned to continue to manufacture chips with its 18A technology and a variant through 2030, according to the filing.
In a post-earnings conference call, Tan said on Thursday that he is focused on working with customers to ensure 14A is a success and that tight collaboration with external customers is something that was absent from the company’s 18A, which is set to go into high-volume production later this year.
Tan said bringing those prospective customers in and gaining their feedback during 14A’s development has already made it more promising than 18A.
“That gave me a lot more confidence that this time, we have customers (that) are engaging early enough in the inception” of 14A, Tan said. “We learn from our mistakes, and we can learn quicker and then get a better result.”
The consequences of a decision to halt internal manufacturing would be significant for Intel, the filing said. It would mean that over time, Intel would become dependent on Taiwan’s TSMC for contract manufacturing, or foundry, services.
Doing so would also put it at a competitive disadvantage to competitors such as AMD, which has longer relationships and experience working with TSMC.
Intel had roughly $100 billion of chipmaking equipment as of June 28. If the company halted its 14A manufacturing line, the company expects “significant material impairments” related to the company’s foundry assets, the company’s filing said.
(Reporting by Max A. Cherney and Stephen Nellis in San Francisco; Additional reporting by Arsheeya Bajwa in Bengaluru; Editing by Sayantani Ghosh and Stephen Coates)
