Intel falls on chip production delay
INTEL said yesterday manufacturing snags will delay a new line of processors, denting confidence in its ability to roll out advanced technology that can win orders in the tablet and smartphone market.
The new Broadwell design for chips will begin production in the first quarter of next year, about three months later than planned, CEO Brian Krzanich said. The stock slipped on the news, erasing an initial gain in extended trading after Intel reported third-quarter earnings that topped estimates.
Intel’s processors, which dominate the personal computer (PC) market, have failed to attract interest from tablet and smartphone makers, leaving the company on the sidelines of a growing business.
While Broadwell is designed for PCs, any perceived weakness in the company’s manufacturing may fuel investor concerns about whether Mr Krzanich can win orders in mobile and lessen Intel’s dependence on computer sales.
“Every delay or slight disappointment is going to get magnified because of the crossroads they’re at,” said Pat Becker, a fund manager at Becker Capital Management in Portland, Oregon, which owns Intel stock. “Any push-back gets dissected by the street and rightly so. There’s no proof that they’ve been able to execute in mobile in the past.”
Broadwell, which will be made using 14-nanometer manufacturing technology, will go into production in the first quarter of next year, Mr Krzanich said.
“We have our arms around what the issues were,” chief financial officer Stacy Smith said.
Intel declined 1.2% to the equivalent of $23.11 in German trading yesterday morning. The shares fell 2% in extended US trading after the firm announced the production delay, after closing at $23.39 in New York. The stock is up 13% this year, less than half of the gains in the Philadelphia semiconductor index.
The company also said fourthquarter revenue will be $13.2bn to $14.2bn. That compared with the average analysts’ projection of $14bn, according to data compiled by Bloomberg. Gross margin, or the percentage of sales remaining after deducting production costs, will be about 61%, Intel said, in line with estimates.
Mr Krzanich, who took over the top job at the world’s largest chip maker in May, has said the company needs to speed up the delivery of new products for mobile devices.
Intel, which has struggled to cut into Qualcomm’s lead in the mobile-chip market, is scaling down its PC processor designs to make them capable of running on the limited battery life available in phones and tablets. To do that, it plans to build them using more advanced production techniques.
Intel shrinks the size of the circuit lines that give processors their function with new manufacturing techniques to improve the performance and lower the cost. That is the key to fielding products that the company said will help it win orders in mobile devices.
Mr Krzanich said the company has already corrected the problem with Broadwell.
Cellphone shipments are projected to increase by 7.3% this year, fuelled by demand for smartphones, while tablet unit sales will grow an estimated 59%, according to researcher IDC. In the meantime, PC shipments are forecast to drop 9.7% worldwide, IDC said in August.