INTC Intel Corporation

By Michael Dabaie

Intel Corp. shares were down 14% to $51.90 in late morning trading.

After the market close Thursday, the company reported second-quarter revenue of $19.7 billion, up from $16.5 billion and above FactSet consensus for $18.5 billion. Adjusted EPS was $1.23, beating FactSet consensus for $1.11.

The company said it shifted its seven-nanometer-based CPU product timing about six months relative to prior expectations. The primary driver is the yield of Intel's 7nm process, which is now trending about 12 months behind the company's internal target.

"We have identified a defect mode in our 7-nanometer process that resulted in yield degradation. We've root caused the issue and believe there are no fundamental roadblocks, but we have also invested in contingency plans to hedge against further schedule uncertainty," Chief Executive Robert Swan said in the company's conference call.

"Based on management's commentary and tone on the call, and the facts indicated by the stated timeline, we think a move to outsource to [Taiwan Semiconductor Manufacturing Co. Ltd] is all but inevitable," Raymond James said in an analyst note.

SunTrust Robinson Humphrey said in a note that it believes TSMC would be the likely beneficiary of Intel's potentially expanding use of foundry partners "owing to TSMC's leading manufacturing capabilities."

Taiwan Semiconductor ADRs were up 11% to $75.08 in morning trading.

"INTC's manufacturing struggles create opportunities for TSMC whether from competitors taking share or INTC outsourcing product," Wedbush said in an analyst note.

"By outsourcing leading edge technology, presumably to TSMC, INTC would give up what has been its main source of competitive advantage for 50 years and compete only on architecture, which we don't think is enough to maintain the dominant market share and premium margins that are now expected," Raymond James said in its note.

J.P. Morgan said that although the announced delay in Intel's 7nm process was a disappointment, it believes the executive team has made a strategic decision that it will no longer hold back its product leadership, roadmaps and new product introductions on manufacturing delays and that it already has a strong contingency plan in place to move to an outsourced manufacturing model.

Oppenheimer said it sees Intel's manufacturing mix "increasingly favoring external supply over time as a solution to INTC's bleeding/leading edge production struggles as well as an affective buffer against rising capital intensity."

Write to Michael Dabaie at michael.dabaie@wsj.com

(END) Dow Jones Newswires

July 24, 2020 11:25 ET (15:25 GMT)

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