On July 23, Intel CEO Bob Swan spent nearly an hour discussing ideas that no one would have thought of happening to the world’s largest chip maker: stop making chips yourself, outsourcing completely! On the morning of 24/7, Intel shares fell 18% because of this news.
Today outsourcing is a very normal thing in the technology industry, but for the past 50 years Intel has been doing both the design and the production of chips. It has even recently planned mass production for other companies.
“Maybe we need to use another company’s processing technology, and we call it a contingency plan, we will prepare for that.“Swan shared during the second quarter results, after warning the company will not once again implement the plan for the new chip line.”That plan will offer more options and flexibility. So if something goes wrong, we can try something else instead of doing all the work on our own“.
If Intel chooses to outsource, it will mark a huge move in the chip industry. The design process can only improve the performance of the chip, while the manufacturing process plays an important role to ensure the chip can store more data, process information faster and use less power. amount more. Over the past decades, working on both stages has brought great advantages to Intel.
Rival TSMC from Taiwan recently succeeded by focusing only on manufacturing, hiring other companies to perform the design stage. Therefore TSMC’s factories have surpassed Intel in capacity. Not only that, but it also helps rivals like AMD catch up to Intel in terms of chip performance. AMD shares rose 11% yesterday.
Intel’s best technology right now – the 10-nanometer chip – is expected to launch in 2017 but has been delayed until 2019. And in a meeting on July 23, CEO Swan announced the production process. The next generation of chips – the 7-nanometer chip – was delayed for another year. The announcement immediately made analysts and investors disappointed.
Intel can hire TSMC to produce chips, but that is not easy, according to Cowen & Co. analyst Matt Ramsay. Other TSMC customers, who are Intel competitors, will oppose the Taiwanese company to optimize the designs that Intel offers.
And most likely TSMC will not want to build too many new production facilities for Intel when Intel is under pressure to relocate manufacturing operations back to the US.
Swan is facing many difficult decisions. His predecessors have invested billions of dollars each year to catch up with the latest manufacturing technologies, and now if they decide to outsource, Intel can never catch up to its rivals.