Intel announced its plans to turn around its chip manufacturing business earlier this year.
Courtesy Intel
Intel
has taken several bold steps under the new leadership of chief executive Pat Gelsinger to reimagine its future, but it will still be playing catch up for the foreseeable future, according to a Citi Research analyst.
In a Friday note, Citi analyst Christopher Danely wrote that Intel’s (ticker: INTC) plan to contract
Taiwan Semiconductor Manufacturing
to fabricate some components for its graphics chips is important, but not enough to catapult Intel back into a leadership position.
Intel’s plan is straightforward: As the company begins to use a modular approach to produce its new chips, it makes sense to outsource some portions of the semiconductors—graphics chips included. Intel then combines the silicon pieces, which it calls tiles, in its own packaging facilities
But Danley said it’s still going to take some time for Intel to regain the leadership it has lost to the likes of
Advanced Micro Devices
(AMD). Danley said he expects bumps along the way—hinting at potential future manufacturing issues—as well as continued pressure on Intel’s profit margins, especially because of AMD’s competition.
AMD has been gaining market share from Intel in the desktop and server markets in recent months. Intel has lost ground, in part, because of a series of manufacturing stumbles that set back production of its most advanced chips used for personal computers and in data centers.
Contracting its graphics chips to Taiwan Semi demonstrates Intel’s commitment to looking beyond its own factories to make chips—another sign it is doubling down on the company’s manufacturing prowess that it has spent billions improving, and moving other aspects of manufacturing to partners that can support its objectives.
“While the majority of our products will continue to be made internally, expect to see tiles from external foundries playing a bigger part in our modular products in the coming years—including core compute functionality on advanced nodes to serve emerging workloads in client, data center and other areas,” Intel senior vice president in the corporate planning group Stuart Pann said in a blog post.
Though the new graphics chips won’t be available until next year, J.P. Morgan analyst Harlan Sur said in a Friday note they may be powerful enough to compete with
Nvidia
(NVDA), and AMD in the videogame and visual creation markets. AMD and Nvidia hold a de facto duopoly in the graphics chip market.
Thursday’s announcement to contract Taiwan Semi to build portions of its forthcoming graphics chips is part of a strategy Intel announced earlier this year to turn around its manufacturing business. The plans include $20 billion in capital spending plans for new factory construction that will expand its U.S. production capacity. As part of the strategy, Intel also said it would launch its own contract manufacturing unit called Intel Foundry Services, that will license Intel’s tech and manufacture chips for other companies.
Intel closed down 0.8% to $52.01 in Friday trading, as the
PHLX Semiconductor index,
or Sox, gained 0.6%.
Write to Max A. Cherney at max.cherney@barrons.com
