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The Price of Intel Corporation’s 10-Nanometer Failure

For a while now, I've expressed my disappointment with Intel's (NASDAQ: INTC) management, and in particular the company's CEO, Brian Krzanich. I've followed Intel for many years, and the execution under Krzanich is some of the worst I've ever seen from the company.

Intel's efforts in mobile applications processors were costly and yielded nothing but late-to-market, sub-par products, and the company's execution in chip manufacturing technology -- arguably the company's core competency -- has gone from strong, with its successful 45nm, 32nm, and 22nm generations; to poor, with its 14nm generation; to downright abysmal with its 10nm technology.

Image source: Intel.

Let's consider, then, just how bad Intel's execution on its 10nm technology has been, how it has hurt Intel's product portfolio.

A full generation late

Intel used to aspire to release new chip manufacturing technologies every two years -- though Intel will concede that it's been more like two and a half years per generation. In any event, this is the cadence that Intel's product designers had traditionally planned their product designs around. 

Intel's 10nm technology was originally supposed to go into production by the end of 2015, but that ultimately didn't happen. Then, Intel told investors it expected to be shipping a substantial quantity of chips built using its 10nm by the second half of 2017.

That, too, didn't happen.

Intel is now claiming it will "introduce" its first 10nm products by the end of 2017, with serious volumes coming in 2018. Credible leaks have revealed that Intel is targeting availability more in the middle of 2018.

A delay in the mass-production start from the end of 2015 to the end of 2017 is a delay of two years, or roughly a full generation, at least back when an Intel generation was defined as roughly two years.

As if it couldn't get any worse, by Intel's own admission, its first- and second-generation 10nm technologies -- 10nm and 10nm+, respectively -- will offer worse performance than its upcoming 14nm++ technology . Intel says the company's 10nm technology won't open up a clear performance lead over its 14nm++ technology until its third iteration -- known as 10nm++ -- which should go into production sometime in 2020.

This is an extreme failure on the part of Intel's chip manufacturing group. It's the sort of execution one would expect from a third-tier chipmaker with a limited research-and-development budget, inexperienced management, and a short track record -- not from an organization that holds itself out as the "leader" in chip manufacturing.

The impact on the product portfolio

That Intel is late to transition to 10nm is itself a big failure, but the problem is that this transition has negatively affected the company's product portfolio and product pipeline through approximately 2019.

Since Intel's product planners had originally counted on having 10nm in production by the end of 2015 for mid-to-late 2016 product introductions, they seemingly didn't plan on having to bring further innovations to its Core processors manufactured on its 14nm technology.

Then, when it became clear that the company's 10nm technology wouldn't be ready in time, Krzanich admitted to investors that the company had "inserted" another generation of 14nm products onto its product road map that'd begin rolling out in the second half of 2016.

What Intel executives called the "third wave" of 14nm products, Kaby Lake, turned out to be little more than Intel's sixth-generation Core processors but implemented in a performance-enhanced variant of the company's initial 14nm technology, called 14nm+.

Intel made no significant changes to the underlying architecture of the processors.

Intel also recently admitted at its analyst day back in February that it would be adding a fourth wave of processors built on its 14nm technology. This time, Intel once again isn't making any changes to the underlying architecture of the chips, as they'll have the same basic CPU core and graphics from the sixth-generation Core, but it is expected to grow the number of cores in its products to try to achieve a performance boost.

And, naturally, Intel will be using a yet-again enhanced version of its 14nm technology, known as 14nm++.

Had Intel's 10nm technology come out on the original schedule, not only would Intel have enjoyed the benefits of transitioning to a fundamentally new manufacturing technology, but its products would also feature higher-performing, more efficient, and more feature-packed architectures.

Indeed, if Intel had stuck to schedule, its Cannon Lake family of products -- its first-generation 10nm parts -- would've arrived in either late 2016 or early 2017. And the company would probably be on the cusp of releasing its Ice Lake family of products -- its second-generation 10nm parts -- right around now, or perhaps in early 2018.

So Intel loses twice here. Not only have these delays hurt Intel's product pipeline today, but those very same delays also mean that products that were designed to be out today come out tomorrow

It's a domino effect, and it's going to take an exceptional management team to recover from this debacle. The problem is, the same team that got the company into this mess is now tasked with getting it out of it. 

Good luck, Intel. 

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.