(Intel ( INTC ) may exit chip manufacturing without external customers

CEO Tan emphasizes collaboration with customers for 14A success

Intel ( INTC ) risks reliance on TSMC if 14A fails)

By Max A. Cherney and Stephen Nellis

SAN FRANCISCO, July 24 (Reuters) - Intel ( INTC ) warned

investors on Thursday that it may have to get out of the chip

manufacturing business if it does not land external customers to

make chips in its factories.

New CEO Lip-Bu Tan said on Thursday the company's engineers were

busy working with customers to jump-start its next-generation

contract manufacturing process, or foundry, as the company

announced big layoffs alongside a wider-than-expected

third-quarter loss outlook.

Those customers for the company's so-called 14A

manufacturing process are crucial to the success of the

technology - so much so that if it fails to secure a big one, it

could shut down its cutting-edge manufacturing business

altogether, according to Intel's ( INTC ) quarterly filing on Thursday.

The possibility that Intel ( INTC ) could drop out of the cutting-edge

manufacturing business would be a historic shift for a company

that has described itself as a steward of Moore's Law - an

observation by Intel ( INTC ) co-founder Gordon Moore about the fast rate

of development of the chip industry that held true for decades.

Intel ( INTC ) is the only U.S. chipmaker capable of making advanced

computing chips.

Intel ( INTC ) has struggled for years due to management missteps,

missing out on the AI race and losing market share to its

longtime rival AMD.

Former CEO Patrick Gelsinger poured money into Intel's ( INTC ) foundry

business, aiming to compete with chip manufacturing giant TSMC

. Tan, who has already taken steps to right the ship,

said on a post-earnings call on Thursday that he was personally

reviewing all chip designs and investments.

"We're developing Intel ( INTC ) 14A ... from the ground up in close

partnership with large external customers," Tan said in a memo

released with the results. "Going forward, our investment in

Intel ( INTC ) 14A will be based on confirmed customer commitments.

"We will build what our customers need, when they need it,

and earn their trust through consistent execution."

Intel ( INTC ) said that without a significant customer, it would

consider cancelling or pausing development of 14A and subsequent

technologies. Should the company take the step, it planned to

continue to manufacture chips with its 18A technology and a

variant through 2030, according to the filing.

In a post-earnings conference call, Tan said on Thursday

that he is focused on working with customers to ensure 14A is a

success and that tight collaboration with external customers is

something that was absent from the company's 18A, which is set

to go into high-volume production later this year.

Tan said bringing those prospective customers in and gaining

their feedback during 14A's development has already made it more

promising than 18A.

"That gave me a lot more confidence that this time, we have

customers (that) are engaging early enough in the inception" of

14A, Tan said. "We learn from our mistakes, and we can learn

quicker and then get a better result."

The consequences of a decision to halt internal

manufacturing would be significant for Intel ( INTC ), the filing said.

It would mean that over time, Intel ( INTC ) would become dependent on

Taiwan's TSMC for contract manufacturing, or foundry,

services.

Doing so would also put it at a competitive disadvantage to

competitors such as AMD, which has longer relationships and

experience working with TSMC.

Intel ( INTC ) had roughly $100 billion of chipmaking equipment as of

June 28. If the company halted its 14A manufacturing line, the

company expects "significant material impairments" related to

the company's foundry assets, the company's filing said.