It's little secret that microprocessor giant Intel (NASDAQ: INTC) has faced increasing difficulties in transitioning to new chip manufacturing technologies. The company saw delays and manufacturing yield difficulties with its 14-nanometer technology, and it is looking as though it is facing very similar issues with its upcoming 10-nanometer technology as it did with its 14-nanometer technology.
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Intel hasn't given a satisfactory explanation for why so many problems occurred with its two most recent manufacturing technologies, but it looks like it is stepping up its research and development efforts with respect to its 7-nanometer manufacturing technology, perhaps to try to avoid experiencing similar issues again.
Higher spending aimed at 7-nanometer technology
In its most recent form 10-K, Intel says that in 2016 it boosted research and development (R&D) spending year over year by $612 million, or about 5% compared to what it spent back in 2015.
Image source: Intel.
The company attributed that increase to "the addition of [Programmable Solutions Group] expenses from the acquisition of Altera, higher investment, net of 2016 restructuring program savings, in strategically important areas such as servers, Internet of Things, new devices, and memory, as well as higher process development costs for our new 7nm process technology."
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Intel already spends substantially on chip manufacturing technology development -- it's likely that it spends, by far, the most R&D dollars here out of any of its competitors -- so it's interesting to see it upping its spending here by enough to call it out in the 10-K filing.
No guarantees, but...
To be blunt, just because Intel is spending more on 7-nanometer manufacturing technology development doesn't mean it will go any smoother for this technology than it did for either 14-nanometer or 10-nanometer.The increase in spending does seem to suggest that the company at least recognizes that for it to have a chance at getting its chip manufacturing technology development back on track, it'll have to throw more money and resources at the problem.
Why this matters?
Delays in manufacturing technology transitions have already put Intel in a position in which its leadership in chip manufacturing technology has gone from "clear" to "murky."
The company now has to perform a rather complicated song and dance to try to convince investors that it has a significant lead in manufacturing technology, though I believe that the company's claims aren't backed by convincing evidence and therefore remain skeptical of its claims.
If increased investment in its 7-nanometer (and beyond) technologies allows the company to accelerate the pace at which it brings innovative new manufacturing technologies to market, then that'll be a good thing for Intel as such technologies should lead to better products and/or better cost structures for a given set of products.
It will be many years before Intel sells its first 7-nanometer chips. If executed flawlessly, we could see the first such chips in the 2020 time frame. If at that time Intel commences mass production of chips on its first 7-nanometer chips, ships them, and reports that its yield rates and cost structures are good, then we'll know that the chipmaker's increased investments in 2016 (and beyond) were well worth it.
If in three years we're still seeing Intel tripping over itself to bring new manufacturing technologies into high-volume manufacturing at good yield rates, then we'll know that the problem with its manufacturing technology development groups isn't funding -- it's a fundamentally broken R&D organization.
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