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Intel's new roadmap draws skepticism from analysts who say new strategy needed

Intel Corp. is redrawing its product roadmap to fill in gaps left by delays in the development of its next-generation processors, but analysts are still unclear on how it plans to catch up to rivals Advanced Micro Devices Inc. and NVIDIA Corporation.

Intel's recent three-hour Architecture Day briefing focused on plans to increase the performance of chips it is currently able to produce by enhancing the software, security, data interconnections, memory and architecture of its chips. The briefing day followed the company's July announcement that manufacturing problems would keep it from upgrading in its usual way, by shrinking its best designs from a 10-nanometer fabrication process to one at 7-nanometers.

Leading chips from AMD and Nvidia are built on a 7-nm process created by contract chipmaker Taiwan Semiconductor Manufacturing Co. Ltd., which just completed testing of an even smaller 5-nm process and is working to develop a 3-nm process that it hopes to make available in about two years.

Intel said the improvements should give it as big a performance boost as shrinking down a full process size. Analysts are not so sure.

"We will have to see how the performance improvements at 10nm turn out, though Intel has said from a cost standpoint that 10nm will never be the process 14nm was," said Stacy Rasgon, managing director and senior analyst at Sanford C. Bernstein & Co. LLC.

The cost of the smaller process is pressuring Intel's margins, but the company seems to have developed 10nm enough to make it economically viable for high-volume production, Rasgon said. "They had no real choice. AMD is pushing ahead," he added.

Intel has already revealed that it is outsourcing the fabrication of parts of the data-center edition of its upcoming Xe line of GPUs to the 7nm and 5nm processes of TSMC, though the base of the product will be made at Intel, Rasgon said.

Even a high-performing 10-nm chip is more limited than one that can pack twice as many 7-nm transistors into the same chip size, said Matthew Bryson, a senior vice president of equity research at Wedbush Securities. That makes it difficult for Intel to compete on the basis of performance rather than market dominance with AMD or Nvidia, especially in critical data-center or cloud markets, he noted.

SNL Image

Intel Chief Architect Raja Koduri holds an example of Intel's
upcoming Xe-HP GPU.

Source: Intel Corp.

Some suggest the bigger issue is to what extent manufacturing — long a key differentiator for Intel — will remain part of its future.

Intel is facing big choices, according to Paul Teich, principal analyst at market-research firm Liftr Insight, who spent 20 years as an executive at AMD. Manufacturing its own chips historically has been a critical competitive advantage for Intel, but now it may be holding it back, he said.

"Intel was always ahead because it could deliver a new chip every two years and every two years shrink it down to a smaller size and get double the compute power for half the size," Teich said. "It designed the chip and the fabrication process together, so that made it easier. But they still think of themselves as a manufacturing company first, and that's not true anymore. This is Intel's watershed."

While exiting its manufacturing operation is one option, spinning off the consistently profitable Data Center Group could lighten Intel's cost load and create a $30 billion-per-year business with 8% to 10% CAGR and the potential to reach $225 billion in market capitalization, according to an Aug. 11 note from Nikko Securities America analyst Srini Pajjuri, who is one of many analysts suggesting Intel should go "fabless."

Intel has not suggested it is weighing such a strategy itself, though at the Architecture Day briefing, executive Raja Koduri — senior vice president, chief architect and general manager of Intel Architecture, Graphics, and Software — acknowledged that the company is undergoing a transformative period.

"We are going through a massive cultural and mindset change in order to shift to a software-first approach to hardware architecture and design," Koduri said Aug. 13.

However, the question is not hardware versus software, said Bernstein's Rasgon. The question is how to deal with a change that turned Intel's manufacturing advantage into an anchor around its neck.

"It feels like an existential crisis," the analyst said.