Intel's 14nm Delay More Complex Than Process Technology

| About: Intel Corporation (INTC)

Ashraf Eassa asks, is it true that Intel (NASDAQ:INTC) has delayed 14nm process technology and thus the rollout of its next processor for the mobile PC market? The answer is likely to be a much more complex business question and not just based on the yield of 14nm alone. There are two other questions that need to be answered. Is Intel delaying 14nm for profit reasons, and is the company making an adjustment to its product line to be more competitive with its Client Processors in both the PC space and in tablets? This is what needs to be monitored over the next six months.

It is unlikely in Intel's history to hold back from launching new processors on a new process technology, regardless of the yield. The ASPs of the new processors typically are very high, and deliver gross margins that pay off even when the yield is low. Also, it was always necessary to launch a new CPU in a timely fashion to keep the treadmill running in order to stay ahead of AMD (NYSE:AMD).

The threat of AMD, however, is gone. AMD is now orienting itself as a design house for graphics-driven solutions to the PC market and especially to the gaming market. It will also attempt to make a foray into the server space with 64-bit ARM solutions. This too may be at the behest of a sponsor who consumes lots of server chips (e.g.,Google) (NASDAQ:GOOG).

With the PC threat eliminated and 22nm offering stellar yields, the question becomes one of when the appropriate time is to ramp the 14nm Broadwell. Intel could very easily stretch out its current 22nm Haswell for quarters and not see a downturn in PC market share, all the while increasing manufacturing margins, which could offset the 40M low-margin Atom processors targeting the tablet space. In addition, Capex could be stretched out to increase cashflow and perhaps redirect investments to 10nm.

Internally, I believe there is a turf battle brewing between the Client Processor Group and Atom. I don't know for a fact, but having worked in the x86 market for years and reading the dynamics, there are two interesting points to consider. First, the Atom group is seen as not turning the product wheel quick enough to match Qualcomm (NASDAQ:QCOM) on its ARM (NASDAQ:ARMH)-based snapdragons. And second, Intel can address the high-end tablet market much more effectively and quicker with a derivative version of its PC mobile processors. It is not as integrated as Atom, but it is much higher in performance and simplifies the branding strategy for the corporate world.

Intel has shown off a version of its 14nm Broadwell that analysts estimated had a die size roughly in the 120mm range. It's a good start, however, it would not surprise me if there is in the works a chopped-down version of Haswell or Broadwell that is even smaller and could be the low-cost processor to slot into the tablet space.

Apple's (NASDAQ:AAPL) introduction of its 64-bit A7 processor has shifted the mentality of the mobile market. Intel cannot lose the crown as highest performing 64-bit processor in any space. If 14nm Atoms don't appear until 2015, then there is a risk Apple introduces an even faster A8 processor that surpasses Atom and can only be blocked by a true Intel PC mobile processor.

In the case of Intel, we are witnessing for the first time in a long time, a calculated gamble where resources are not unlimited. Pulling back on 14nm ramp in order to build the right set of processors that maintains PC dominance and brings a profitable uplift to the tablet space is what it is looking at, and mobile Atom could be on the chopping block in order for development of the 4G LTE baseband to continue and for CFO Stacy Smith's Financial model to hold together.

Disclosure: I am long AAPL, QQQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.