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Intel says new chip technology is six months behind, shares drop 9%

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Intel says new chip technology is six months behind, shares drop 9%

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Intel Corp said on Thursday its new seven-nanometer chip technology was six months behind schedule, sending its shares down 9 percent in extended trading.

The new delays are a blow for the Santa Clara, California-based chipmaker, which struggled with years of delays for its current 10-nanometer chips.

Intel’s seven-nanometer manufacturing delays extend the lead in the smaller, faster chip technology held by Taiwan Semiconductor Manufacturing Co Ltd and will likely benefit rivals Advanced Micro Devices Inc and Nvidia Corp which outsource their manufacturing to TSMC.

Shares of AMD rose 6 percent in extended trading.

Intel is the top supplier for processors for PCs and data centres, but rivals such as Nvidia and TSMC are challenging the logic of Intel’s business model as both a designer and manufacturer of its own chips.

Chief Financial Officer George Davis said in an interview that Intel had discovered a “critical defect mode” in part of the seven-nanometer chipmaking process technology and was making adjustments.

Intel will focus on bringing high-performance products to market, regardless of what chipmaking process is used, he said. “Our design methodology and architecture allow us to bring these types of products to the market with a little less direct correlation to the state of the process technology.”

In recent years, Intel has relied on booming growth in data centres that power cloud computing as PC sales declined, though both segments have expanded as the pandemic forced increased technology spending to facilitate working from home.

The company estimated third-quarter revenue of about $18.2 billion on adjusted earnings of $1.10 per share, compared with analysts’ average forecast of $17.9 billion and $1.14 per share, according to IBES data from Refinitiv.

It updated its full-year 2020 revenue guidance to $75 billion versus analysts’ consensus estimate of $73.86 billion, according to Refinitiv data.

For the second quarter ended in June, Intel said overall revenue and adjusted profits were $19.73 billion and $1.23 per share, compared with analysts’ estimates of $18.55 billion and $1.11 per share, according to Refinitiv.

Revenue for its data centre segment was $7.1 billion compared to estimates of $6.61 billion, according to data from FactSet. Sales for PC chips were $9.5 billion, compared to analyst estimates of $9.10 billion, according to FactSet data.

Nvidia, which designs but does not make its own chips, earlier this month overtook Intel as the most valuable U.S. chip supplier, thanks to strong sales to data centres using Nvidia chips for artificial intelligence work.

In the PC market, longtime Intel rival Advanced Micro Devices this week announced new PC chips that analysts expect to be powered by TSMC’s manufacturing processes. Last month, Apple Inc said it would end its reliance on Intel chips for Mac computers after nearly 15 years.

The challenges come as Intel is spending heavily to ramp up production of its “Tiger Lake” PC chip, which analysts believe will be announced in September as the first to use its 10-nanometer manufacturing process.

Davis said Intel’s third-quarter profit forecast was affected by a tax item and strong demand for its 10-nanometer chips made with newer technology.

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