By Asa Fitch
Intel Corp.'s incoming Chief Executive Pat Gelsinger said the
semiconductor giant would outsource more chip production as it
posted pandemic-fueled full-year results that also underscore the
breadth of challenges the new CEO will face.
Mr. Gelsinger on Thursday said Intel would have other chip
companies make more of its products, even if the bulk of its new
chips in coming few years would be made in house. The shift marks a
break from Intel's traditional reliance on its own factories to
make its most-advanced chips -- effectively an acknowledgment that
it has fallen behind chip-making rivals.
The report for 2020 caps a challenging yet lucrative year for
the semiconductor giant that saw it surpassed in market valuation
by rival Nvidia Corp., dropped by Apple Inc. as a supplier for Mac
chips, suffer market-share losses and face a push by activist
investor Third Point LLC for strategic changes.
The pandemic has helped Intel paper over some of its challenges.
PC demand hasn't been this hot in years
Intel posted record annual sales of $77.9 billion, up from $72
billion in 2019 and ahead of the $75.4 billion Wall Street
expected. While Intel has benefited from booming demand for PCs in
the work-from-home economy, much of the added buying involved
lower-cost laptops that aren't as profitable. And growing
competition is weighing on its bottom line. Net income for 2020
came in at $20.9 billion, down from $21.1 billion a year
earlier.
Intel shares rose more than 6% late Thursday after the company
also boosted its cash dividend -- though they subsequently gave up
some of those gains.
Departing CEO Bob Swan said, "Intel is in a strong strategic and
financial position as we make this leadership transition and take
Intel to the next level."
Intel's complete longer-term strategy around the outsourcing of
chip production is in flux ahead of the arrival of Mr. Gelsinger.
Mr. Swan said last year that a decision was forthcoming by early
this year on whether to have the company's advanced chips made by a
third party after Intel fell behind Asian rivals in the development
of the next generation of superfast semiconductors. On Thursday's
call, Mr. Swan said a decision on whether to outsource production
of Intel's latest central processing unit would await Mr. Gelsinger
formally joining.
The company is considering outsourcing production of some of its
most prized chips to those Asian rivals, and particularly to Taiwan
Semiconductor Manufacturing Co., the largest and most advanced
contract chip maker in the world, according to people familiar with
the matter.
Intel already has decided to send out production of coming
graphics-processing chips to TSMC, and the companies have been in
talks about deepening their relationship further. Mr. Swan visited
TSMC to discuss potential options in December, according to a
person familiar with the trip.
TSMC last year announced plans to build a chip factory in
Arizona, its second in the U.S. And the company last week said it
planned record capital expenditures of as much as $28 billion this
year, a huge increase from last year and an indication, in some
analysts' eyes, that new business from Intel is on the way.
The selection of Mr. Gelsinger, the chief executive of VMware
Inc., who spent three decades at Intel earlier in his career, was
widely hailed. Intel's stock is up 10% since his naming last week.
But analysts expect the turnaround in an industry where
product-development cycles are measured in years, not months, to
take time.
"It's a good thing to bring in someone new, and particularly
someone who has worked at Intel and has a tech background, but
whatever path they follow, it will take time to implement," Wedbush
Securities analyst Matthew Bryson said ahead of earnings.
Mr. Gelsinger said he was pleased with the progress he had seen
as Intel tries to recover from production setbacks on its latest
chips.
Third Point, the activist hedge fund led by Daniel Loeb, took a
position of about $1 billion in Intel's shares and advocated in a
December letter for the company to consider an even more
foundational change: splitting up its chip-design and manufacturing
operations. Such a move would end Intel's decadeslong run as the
leading U.S. integrated chip manufacturer. On Twitter, Mr. Loeb
praised Mr. Swan for stepping aside for Mr. Gelsinger.
Intel is facing other pressures, including from competitors such
as Nvidia and Advanced Micro Devices Inc. Amid Intel's
manufacturing setbacks, AMD has gained market share quickly in
central processors for PCs and servers.
Intel said its fourth-quarter sales, while down 1% from a year
earlier, topped its expectations on strong demand for laptops and
chips used in data centers. Its Mobileye unit, which makes
technology for autonomous vehicles, also logged a jump in
sales.
Sales for the company's data-center business fell 16% from a
year earlier, but the result was matched against one of the
strongest periods in the unit's history, Intel finance chief George
Davis said. The company, he added, had boosted manufacturing
capacity to resolve a shortage of PC chips that had contributed to
market-share losses.
Intel said it expects sales in the first quarter of $18.6
billion, down from the year prior but ahead of the $16.1 billion
analysts foresaw. The company said it would provide its full-year
outlook by the time it posts its first-quarter results in
April.
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Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
January 21, 2021 18:15 ET (23:15 GMT)
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