Why Intel Corp. Won't Begin Mass Production of 10-Nano Chips Until Later in 2019

Chip giant Intel (NASDAQ: INTC) told investors back in January that it expected to start mass producing processors using its 10nm manufacturing technology in the second half of 2018. Just three months later, on the company's April 26 earnings conference call, management said that this technology is now slated for mass production sometime in 2019.

Management didn't provide any granularity as to when in 2019 it planned to begin mass production. What Intel CEO Brian Krzanich did say, though, was that the company would start the mass production ramp-up of this technology "as quickly as we can," depending on how quickly the company can work out the kinks in the technology.

Although management's vague timeline of "2019" leaves the door open for the technology to go into mass production in either the first or second half of 2019, I believe that production in the first half is unlikely. Here's why.

Intel can't leave partners in the dark

While Intel has a nasty habit of trying to keep investors in the dark when things aren't going well, the reality is that Intel can't be as opaque with its major partners, which include personal computer makers and major data center customers.

Intel's partners need to have a good idea when they can expect Intel to bring out its next-generation products so they can plan their own product launches and shipments, which depend heavily on Intel technology.

It's unlikely, then, that Intel expects it will go into mass production on 10nm during the first half of the year. It seems more likely that Intel's major customers have a much deeper knowledge of the issues plaguing the company's 10nm technology than what the chipmaker is willing to share with its stockholders, and they're probably planning for the worst -- a mass production start in the second half of 2019.

Now, if we assume that Intel's partners are cautious enough not to expect the chip giant to go into production on 10nm products during the first half of 2019, then it's probable that those same customers expect Intel to release new 14nm-based products during the first half of 2019 to hold the line.

Since Intel needs time to plan new products, the company would have needed to have been executing toward any backup plans well before the company hosted its earnings call on April 26.

This, unfortunately, leads me to believe that one of the following two statements is true:

  1. Intel already knows that it won't go into mass production on 10nm until the second half of 2019 and has contingency plans in place, meaning that Krzanich's statement suggesting the timing of 10nm mass production wasn't entirely accurate; or
  2. Intel has been completely blindsided by the continued 10nm delays and didn't have time to plan meaningful product refreshes for the first half of 2019.

Of these two possibilities, the second is clearly worse in terms of potential business impact (having modestly refreshed products to sell is better than having nothing new to sell). Yet the first would be problematic primarily because it would give the impression that Intel management isn't being entirely transparent with its shareholders (something that, in my view, would make Intel less attractive as an investment, as honesty and transparency on the part of management is critical to maintaining investor trust).

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.