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Don't Be Ridiculous. Of Course Intel Is Innovating.

By Ashraf Eassa – Apr 18, 2018 at 8:34AM

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But Intel's engineers are being held back by chip manufacturing issues.

Vlad Savov, a founder of The Verge, recently published a scathing criticism on that site of chip giant Intel (INTC -2.31%), saying that Apple'srumored move away from Intel chips inside of its Mac personal computers toward in-house developed processors is "obvious and unavoidable."

He accuses Intel of stagnation and even goes so far as to claim that the company has a "total absence of a future road map. Savov argues that "without the power efficiency gains that come from building smaller chips" -- referring to Intel's woefully delayed 10-nanometer chip manufacturing technology -- "Intel just can't compete with ARM processors designed for efficiency first."

While I don't think that Savov's criticism is entirely off the mark (I criticize Intel's execution in certain areas quite often), the heart of the argument, which seems to be that Intel simply can't deliver meaningful chip innovations anymore, appears flawed.

An Intel Core i5 processor.

Image source: Intel.

Intel's secrets

I can tell you right now that Intel has a very long pipeline of new processors and related technologies in development (I've even written a lot about them!). The company has historically employed, and continues to employ, many of the world's best chip designers and Intel does fund those teams well.

The problem is that Intel's innovations have been held back by the company's manufacturing organization time and again. This means that even though Intel's processor, graphics, and other architects are churning out new innovations at a rapid pace, the company can't bring those innovations to market because its manufacturing group simply can't build those chips (or, if it can, it can't do so economically).

What Intel has been forced to do is to try to make low-risk enhancements to the products that it originally designed to be built using its currently in-production manufacturing technologies. Those low-risk enhancements include things like modestly upgraded media engines and more processor cores. Intel also makes slight enhancements to its more mature manufacturing technologies to wring out a bit more performance.

Sadly, the end result is that Intel's product innovation is a lot slower than it has been in the past and it's slower than what we're seeing from major mobile chip makers, such as Apple. This isn't because Intel can't innovate, but because Intel's chip designers targeted their innovations to be built on new Intel manufacturing technologies that simply aren't arriving as planned.

If Intel can fix manufacturing, innovation will return

Once Intel can bring its 10-nanometer manufacturing technology into mass production, and as long as it can ensure that future manufacturing technology generations don't suffer significant delays, then we should see the company's pace of innovation in processor technology quicken substantially.

That increased pace of innovation should allow Intel to improve its competitive positioning in the marketplace (something that the delays of its 10-nanometer technology have unquestionably eroded) and bring more compelling products to consumers and businesses alike.

More compelling products, of course, should mean potentially higher market share and more revenue as people buy the products and upgrade sooner.

Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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