Please ensure Javascript is enabled for purposes of website accessibility

How Intel Corporation's Execution Issues Have Helped Qualcomm, Inc.

By Ashraf Eassa - Mar 13, 2017 at 6:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Chipzilla's manufacturing stumbles have led to an opportunity for this relative newcomer to the data center chip market.

It's no secret that wireless chip giant Qualcomm (QCOM 1.66%) is making all sorts of noise about its efforts to become a major player in the market for data center processors. Not only has the company made public its plans to push into this market, but the chipmaker recently announced that it is working closely with software giant Microsoft (MSFT -1.05%) to "accelerate next generation cloud services on its 10 nanometer Qualcomm Centriq 2400 platform" and that "this collaboration will span multiple future generations of hardware, software and system."

You'll notice that Qualcomm loves to highlight the fact that its Centriq 2400 is manufactured on a 10-nanometer technology. This is intentional, as the market leader that Qualcomm is trying to compete with -- Intel (INTC 0.05%) -- won't be shipping server processors based on its own 10-nanometer technology anytime soon.

A wafer of chips with a penny on top to illustrate scale.

Image source: Intel.

Now, Intel will argue that its 14-nanometer technology is roughly equivalent in terms of apples-to-apples chip area to the 10-nanometer chip manufacturing technology that Qualcomm is using for its chips (though Intel admits that the foundry 10-nanometer technologies are ahead of its own 14-nanometer technologies in this respect).

That's a reasonable argument, but here's the uncomfortable implication that comes from that: Qualcomm's upcoming Centriq 2400 processors will still be built on a denser manufacturing technology than Intel's upcoming Skylake-based server processors will.

It's clear that Intel's execution problems with respect to both product development as well as manufacturing technology have helped Qualcomm. Let me explain why.

Intel's fighting with the wrong chips

Had Intel's manufacturing and product development roadmap not gotten off track, it would have launched the Skylake server parts in the fall of 2016 and would possibly be preparing its first 10-nanometer server processors for launch in the second half of 2017.

In that case -- if Intel's claims that its 10-nanometer technology is significantly denser than competing 10-nanometer technologies are accurate -- Intel would have been time-to-market with Qualcomm's Centriq 2400 server processor with its own 10-nanometer server processor family.

This would have meant that Intel would have a higher-performing, more power efficient family of products with which to fend off the potential threat that Qualcomm poses to its lucrative data center business.

No 10-nanometer for a while for Intel

It is unlikely that Intel will bring to market server processors based on its 10-nanometer technology in 2018, at least based on a leaked road map from Dell that's been circulating around the Web.

So, if we assume that the first 10-nanometer Intel server processors arrive in the first half of 2019, then it's very likely that Qualcomm will have moved past the 10-nanometer Centriq 2400 and will compete with such a part using foundry 7-nanometer technology.

Since the foundry 7-nanometer technologies are likely to be like Intel's 10-nanometer technology in terms of transistor density, it's unlikely that Intel will be able to claim a substantial manufacturing technology density lead when it comes to data center chips. 

Conversely, Qualcomm will be able to market having the "world's first" 7-nanometer server chips. 

The first step is admitting you've got a problem

It's bad enough that Intel's execution problems have allowed a relative newcomer to the data center chip market to start bringing to market chips using denser technologies than Intel's use. What makes it worse, though, is that Intel management simply refuses to publicly acknowledge that there might be a problem with its execution that needs to be addressed.

Indeed, the company still tells investors that it has a three year lead in terms of the density of the manufacturing technologies that it brings to market!

As long as Intel remains convinced that it has a "three year lead" in terms of chip area over its competitors, despite the serious execution problems, schedule slips, and trail of cancelled products left by virtually all of its business units, then it's unlikely that the company is going to take the actions necessary to correct whatever organizational flaws that led to this situation in the first place.

The first step is admitting you have a problem, and when it comes to manufacturing technology, Intel simply isn't ready to do that yet. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$38.63 (0.05%) $0.02
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$127.18 (1.66%) $2.08
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$264.89 (-1.05%) $-2.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.