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 underscored 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 the 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.
"Intel has gone through cycles before," Mr. Gelsinger said.
"Great companies are able to come back from periods of difficulty
and challenge, and they come back stronger, better and more capable
than ever. And that, I believe, is the opportunity at Intel."
The pandemic has helped Intel paper over some of its challenges.
Demand for PCs and the chips that go into them hasn't been this hot
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
The company said it rushed out its results because of
potentially unauthorized access to some earnings-related
information. It posted the earnings minutes before market-close
rather than after.
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.
CEO Bob Swan, whose replacement was announced this month, 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 long-term plans for outsourcing of chip production are
still taking shape. Mr. Swan said last year that Intel would decide
early this year whether to have its advanced chips made by a third
party after Asian rivals got a leg up 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 the official
arrival of Mr. Gelsinger, who has been chief executive of VMware
The company is considering outsourcing production of some of its
most prized chips to Asian competitors, in particular Taiwan
Semiconductor Manufacturing Co., the world's largest and
most-advanced contract chip maker, according to people familiar
with the matter.
Intel already has decided to recruit TSMC to make coming
graphics-processing chips, and the companies have been in talks
about deepening their relationship further. Mr. Swan visited the
Taiwanese company 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, who spent three decades at Intel
earlier in his career, was widely hailed. 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 Thursday's earnings
Mr. Gelsinger said he was pleased with the progress he had seen
as Intel tries to recover from production setbacks on its latest
Chip-development cycles are long and recovering from delays can
take years. Mr. Swan said the progress seen with its latest
technology, known as 7 nanometer -- a loose reference to the
minuscule size of transistors on chips -- would support on-target
delivery of the advanced products the company has scheduled for
Third Point, the activist 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
Mr. Gelsinger said Intel was committed to its integrated model
of designing and producing chips and called the company a "national
asset." He suggested Intel's success was crucial for the U.S. at a
time Congress has been weighing large incentives for domestic
chip-making following a decadeslong shift toward Asian
manufacturing. "This company needs to be healthy for the technology
industry and for technology in America," he said.
Intel is facing other pressures, including from domestic
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 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
Intel said it expects sales of $18.6 billion in the first
quarter, down from a year earlier but ahead of the $16.1 billion
analysts foresaw. The company said it would provide a full-year
outlook by the time it posts its first-quarter results in
The company, amid its production setbacks, also suffered turmoil
in its engineering ranks. Mr. Gelsinger said Glenn Hinton, a former
star Intel chip designer, was rejoining the company's ranks and
that others would also be returning.
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Write to Asa Fitch at firstname.lastname@example.org
(END) Dow Jones Newswires
January 21, 2021 19:59 ET (00:59 GMT)
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