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Intel stock drops on manufacturing shock

Analysts say the chip-maker's potential move to outsource more manufacturing is like a significant admission of failure.

Intel Corporation - Intel stock drops on manufacturing shock

Intel Corporation (NASDAQ:INTC) stock pointed down ahead of Friday’s open despite a 20% increase in 2Q revenue and chief executive Bob Swan calling it “an excellent quarter”.

Whilst financial metrics were positive - at US$19.7bn revenue was up 20% and earnings (GAAP EPS) rose 29% to US$1.19 - the processor producer also flagged it is mulling a move outsource manufacturing amid manufacturing delays.

In its statement, Intel said it is accelerating its transition to 10nm class chips this year as it is seeing strong demand though at the same time it is delaying the transition 7nm-based CPU product six-months behind expectations.

Moreover, Intel cautioned that the 7nm process is now trending approximately twelve months behind the company's internal target.

“Intel, which has led the industry for the last twenty years has announced a significant admission of failure; disclosing that it is considering contracting out more of its manufacturing to companies such as TSMC to make up for delays and to ensure their products remain competitive in the long-term,” said Ben Barringer, analyst at Quilter Cheviot.

“For many investors, this is like watching Ferrari announce that they have chosen to use Mercedes’ engines – unimaginable.”

Intel also cautioned that the second half of 2020 will be more competitive than the first.

On Wall Street, Intel stock fell US$7.70 or 12.75% in Friday’s premarket deals to change hands at US$60.40.

Quick facts: Intel Corporation

Price: 57.58 USD

Market: NASDAQ
Market Cap: $235.96 billion

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