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Rumors: Intel Could Outsource Some of Its CPU Production to TSMC

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Cause of Intel’s supply shortage

Intel (INTC) is facing supply constraints for its 14nm (nanometer) chips as the company transitions to the 10nm node. The company is believed to have replaced some of its 14nm production lines with 10nm, but poor yields forced the company to delay the launch of 10nm products to the 2019 holiday season.

Some analysts stated that the delay in the launch of 10nm products shifted the demand for the 14nm products, which created a supply shortage. Some analysts stated that the supply shortage resulted from the high demand for 14nm products, and others stated that it resulted from poor yields of 14nm.

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A September 10 DigiTimes report stated that Intel’s supply shortage is as high as 50.0% of demand. Its 14nm H310 chipsets have been in short supply since May. The availability of Intel’s non-K SKUs (stock keeping units) and Core i7-8700K CPUs (central processing units) could be weak at major retailers.

Outsourcing: An option for Intel

This supply shortage created rumors that Intel might outsource some of its production to TSMC (TSM) to meet demand. Citing unnamed industry sources, a DigiTimes report stated that Intel might outsource production of its entry-level H310 chipsets, as well as several other 300 series Coffee Lake processors, to TSMC. This would allow Intel to focus its manufacturing facilities on the production of high-margin server CPUs.

These sources stated that outsourcing makes business sense, as it isn’t feasible for Intel to build or expand its 14nm manufacturing capacity. TSMC appears to be the right choice, as it already manufactures Intel’s FPGAs (field-programmable gate arrays) and baseband modems, which are used in Apple’s (AAPL) iPhones. This would help TSMC diversify away from smartphones to other computing markets.

Although outsourcing has its advantages, it also has its disadvantages. In the final part of this series, we’ll see whether it would be wise for Intel to consider outsourcing as an option to deal with the CPU supply shortage.

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