Ian King (Bloomberg) -- Investors want to know one thing when Intel Corp. reports results Thursday: Will the world’s largest chipmaker outsource more production? We may already have an answer, judging by recent comments from other parts of the industry.
On Tuesday, ASML Holdings NV, a key provider of chipmaking equipment, said it is shifting orders for some of its most advanced machines from one customer to others. It didn’t say who, but the company was likely referring to orders moving from Intel to other chipmakers, such as Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co.
These two companies produce semiconductors for others. If Intel were outsourcing more, it would need fewer ASML machines, while TSMC and Samsung would need more gear to handle the extra work.
Intel will likely address its manufacturing strategy after it reports fourth-quarter results. Investors and analysts have criticized the company for falling behind and failing to deliver a concrete plan during previous earnings reports.
“Beyond the financials, investors will be looking for more clarity on Intel’s long-term strategy and manufacturing game plan,” Christopher Rolland, an analyst at Susquehanna Financial Group, wrote in a recent research note. “We would be encouraged if the plan included outsourcing of at least some of the core PC/server products.”
Last week, TSMC dropped more clues. It unveiled plans to increase 2021 capital spending to as much as $28 billion, a record and a huge jump from $17.2 billion in 2020. That fueled speculation it’s putting capacity -- ASML machines and other gear -- in place to fill large orders from Intel.
The Taiwanese company’s executives declined to comment on customers. However, Intel has talked with TSMC and Samsung about the Asian companies making some of its best chips, Bloomberg reported recently.
TSMC and Samsung have production technology that’s now more advanced than Intel, which has always made its best products in-house and previously led the industry. Manufacturing is one of the key factors in making chips that can crunch information faster, store more data and use less electricity.
Intel may not deliver its final answer on Thursday, though. The company just replaced Chief Executive Officer Bob Swan with former executive Pat Gelsinger, who will take over next month. Swan said he would announce whether to outsource production, and by how much, during the first quarter, but Gelsinger may need more time to develop his own strategy.
While investors focus on Intel’s future plans, it has been racking up record earnings on demand for personal computers as large chunks of the population work and study from home. The increasing use of cloud services has also bolstered sales of its Xeon server chips, which are the heart of data centers run by companies such as Google and Amazon.com Inc.
When it announced the appointment of Gelsinger, Intel said fourth-quarter earnings would exceed its forecasts and had made “strong progress’ on its latest manufacturing process, known as 7 nanometer. In July, Intel shares slumped 16% when the company warned this technology would be a year late.
Analysts expect Intel revenue fell 13% in the fourth quarter to $17.5 billion and they see sales declining 18% year-over-year to $16.18 billion in the current period. For 2021, sales are projected to fall 7%, the first annual contraction since 2015, according to average analysts’ estimates compiled by Bloomberg.