Foundry production continues to be a problem for Intel (INTC, Financial) as it has yet again delayed the launch of its Cannon Lake chips. The company has been promising the 10-nanometer chip's rollout since 2017, only to announce delays later on.
In the most recent earnings report, management dropped the bomb that while "yields are improving," the rate of improvement is slower than expected. As a result, the chip won't ready for mass production until 2019.
Yield issues relate to the amount of multi-patterning required and associated defects at 10nm. Note that Intel is not using extreme ultraviolet lithography (EUV) at 10nm. The company also reduced its density improvement target from 2.7 times to 2.4 times. The industry average stands at around 1.5 times to 2 times per node transition.
To make up for the delay, Intel is launching yet another iteration of its 14-nanometer chips, dubbed Whiskey Lake.
In other news, Intel reported an almost perfect quarter as revenue was up 16% year over year. Regardless, the growth was nothing compared to industry rival Advanced Micro Devices (AMD, Financial), which posted approximately 39% growth for the quarter.
Intel is turning to AMD talent to regain design dominance
After bringing former Radeon Technologies head Raja Kaduri on board last year, Intel has now managed to attract engineer Jim Keller, who was working for Tesla (TSLA). Keller, who along with Kaduri previously worked at AMD, has designed successful silicon chips in the past, including Apple’s (AAPL, Financial) A4 and A5 and AMD’s Athlon and Ryzen.
While having this dynamic duo at Intel is a potential threat to AMD, it could take some time for the chipmaker to catch up, which means AMD has time to get ahead.
Industry watchers see Intel losing its process lead
Linley Group’s lead analyst, Linley Gwennap, has voiced his concern regarding Intel’s process technology. He noted the company has started to fall behind Taiwan Semiconductors (TSM, Financial), Samsung (SSNLF, Financial) and GlobalFoundries in process technology development. As Intel's sales are tied to its lead in this business, a failure on this front can have a devastating impact on sales.
10-nanometer chip is denser than competition
Intel claims its 10-nanometer chip is denser than other processors on similar nodes. However, competitors are looking to launch 7-nanometer chips, not 10. In addition, 7-namometer chips from some of its rivals are at the same level as Intel's 10-nanometer chips.
Density argument aside, the delay in the launch of Intel's chips means Advanced Micro Devices has a chance to get ahead; sampling for 7-nanometer chips is expected in late 2018, with mass production in 2019. Given Intel hasn’t been delivering on its promises, its 14-nanometer chips won’t stand a chance.
Intel has reduced its guidance for server revenue in second half of year
Although the company posted 24% year-over-year growth in data center revenue, it has reduced its server-related revenue guidance, citing “tougher competition,” which is good news for AMD.
Takeaways
Intel’s process technology slip-up provides Advanced Micro Devices with an opportunity to gain market share. As 7-nanometer chips from AMD are expected in 2019, 14-nanometer improvements from Intel won’t provide much competition. Intel can’t afford any more delays.
Things are not looking good for Intel as management failed to provide specific details on the launch of 10-nanometer chips. Moreover, the yield problem may be the result of other defects in multi-patterning as competitors are not reporting such problems at similar densities.
What’s more alarming for Intel is the company has been losing market share to Advanced Micro Devices on the server front, despite touting the superiority of its 14-nanometer process technology. The launch of AMD's 7-nanometer products will only accelerate Intel's market share loss..
The only positive takeaway for Intel currently is the addition of Keller. If he delivers again, the company could gain design superiority in a couple of years.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
