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Despite flat year, Intel remains optimistic

Posted: 26 Nov 2013 ?? ?Print Version ?Bookmark and Share

Keywords:Intel? capex spending? capex spending? FinFET? smartphone?

Intel has revealed to analysts that 2014 will be another flat year for the company accustomed to outpacing chip industry growth. However, it is maintaining historically high capex spending, seeing the need for a new 450mm fab on the horizon.

Intel, on a positive note, claims it will have an edge over the rest of the industry in lower cost with its 14nm process that's now ramping. The bad news is it doesn't appear to have any hot smartphone products to make in the process next year, and it's not clear to what extent it will let high volume competitors use its fabs.

Costs per transistor are expected to remain flat for TSMC as it moves to its first FinFET process at about 14nm. Intel said it will have an edge in more dense wafers at the node that will be its second-generation with the vertical transistors.

That's potentially a huge benefit, but it's not clear how Intel will harvest it. The company is gaining some share in tablets, but is going nowhere in smartphones. Intel is not expected to have until 2015 the kind of integrated LTE applications processor rivals such as Qualcomm are selling now.

Brian Krzanich, named CEO in May, said Intel is stepping on the gas in foundry services. However, the signals he sent were not clear about the extent that might include direct rivals such as Qualcomm. It's not clear Intel could strike and deliver on profitable, high volume deals with competitors even if out of desperation it became willing to do them.

High volume foundry is a very different business model than the "copy exact" strategy Intel has had in place for decades. The signs from yesterday's meeting are Intel still very much wants the lion's share of 14nm chips it makes to be ones it designs.

Interestingly, Intel said it will make its next-generation integrated 3G smartphones chips at a foundry for faster time-to-market. It aims to build the follow-on LTE devices in its own 14nm fabs.

Wall Street analysts remained upbeat on the strength of Krzanich's aggressive stance.

"We believe Intel can return to growth in 2H14/15 as the PC market stabilizes and share gains emerge in tablets, phones, foundry etc.," said Ross Seymore of Deutsche Bank, though he shaved $2.2 billion of his estimates for Intel's 2014 revenues. "Even incremental success in these areas should yield above consensus rev/EPS and a rising share price," he added.

For 18 months Intel has dabbled in making 22nm chips for small companies such as Achronix, Tablua and Netronome. Intel said its goals were to get some outside feedback on its process technologies and experience offering foundry services, but under former CEO Paul Otellini foundry was a limited offering.

Late last year, rumors emerged Intel struck a billion-dollar deal to make 22nm ASICs for Cisco—neither side confirmed them. Others said Intel was trying to win away from Samsung the business of making Apple's A-series SoCs. More silence.

The first clear sign of a shift came in February when Altera announced it struck a deal to have high-end FPGAs made in Intel's 14nm process. In October Altera said those parts would be its Stratix 10 chips using four ARM Cortex A-53 cores—not exactly competing, high-volume parts but a big step in that direction.

There's a crossroads ahead for Intel. Krzanich clearly wants the company to find a killer smartphone/tablet design it can make at a cost advantage at 14 and 10nm. If it cannot create such a killer design he may have to figure out whether he can pivot to becoming a killer foundry for an Apple or Qualcomm.

That would indeed be what former boss Andy Grove would call an inflection point.

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