Intel engineering head to depart after product delay; stock falls 16%

intel sign
Intel's chief engineer will depart Aug. 3 after the company announced a delay in its 7-nanometer chip by at least six months.

Intel’s delay in producing 7 nanometer chips, announced last Thursday, has been nothing short of devastating for the world’s largest chipmaker.

On Monday, the company announced a reorganization affecting seven high-level technology personnel including the departure of Chief Engineering Officer Murthy Renduchintala, effective Aug. 3.

Intel’s stock dropped 16% after the 7nm delay was announced Thursday and stood at $49.57 at market close on Monday.  Intel said the delay for the 7nm line would be at least six months because of a ”defect mode.”  Initial production shipments for 7nm client CPUs will now be late 2022 or early 2023.

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Perhaps more significant long-term for Intel was CEO Bob Swan’s comment to analysts that the company may seek a third-party chip fabricator to make the chips.

 The stock price for competitor AMD, which already makes 7 nm chips, has soared by 15% since Intel’s disclosure to reach $68.97 at Monday’s market close.

In making the changes to the Intel technology personnel and executive team, Swan said the purpose was to “accelerate product leadership and improve focus and accountability in process technology execution.”  Effective immediately, the company’s Technology, Systems Architecture and Client Group will be separated in five teams, with the leaders reporting directly to Swan. 

Technology Development will be led by Ann Kelleher, replacing Mike Mayberry, who will consult and assist in the transition until his planned retirement at the end of the year after a 36-year career at Intel.  Manufacturing and operations will be led by Keyvan Esfarjani, recently the head of Intel’s non-volatile memory solutions group manufacturing.

Design Engineering will be led for the interim by Josh Walden as Intel conducts an accelerated search for a “permanent world-class leader,” Intel said.

Architecture, software and graphics will continue under the leadership of Raja Koduri and Supply chain will continue under the leadership of Randhir Thakur.

Swan thanked Renduchintala “for his leadership in helping Intel transform our technology platform.” Renduchintala has been chief engineering officer since May 2017 and president of the Client and Internet of Things and Systems Architecture Group since late 2015.  He serves on the Accenture Board of Directors and was previously an executive at Qualcomm from 2004 to 2015.

Market analysts have been critical of Intel for the delay and an assortment of problems stemming from its earlier problem producing 10 nm chips, including past resistance to using third party fabs to make chips.  “The Q2 results were strong in many ways but the narrative about the future told investors that the company was in deep trouble,” wrote an unnamed investor/analyst in the Beyond the Hype column in Seeking Alpha.

“In any major corporation heads will roll when there’s a major slip and I think we are seeing this here,” said Patrick Moorhead, an analyst at Moor Insights & Strategy. ”The biggest issue was the market with the company’s value declining 16%, which is unprecedented in the company‘s history.”

 “Intel is going to be fine in the long run but it really needs to figure out its challenges with its fab. it’s also important for people to realize that winning with semiconductors is not just about nanometers. Platforms, business relationships and marketing matter a lot. These are advantages that Intel has,” Moorhead added.

In describing the 7 nm delay, Swan last week said the defect mode posed “no fundamental roadblocks” and said Intel is making improvements in design.  Swan also said that Intel is planning to continue to make its own chips through 2022 but is evaluating what will happen in 2023 and beyond.  “We will be pretty pragmatic if we make stuff inside or outside. It could be building internally, mix and match or go outside if we need to,” he said.I

Intel does already use third-party fabs to manufacture some of its products but "no one really noticed," said Jack Gold, an analyst at J. Gold Associates."It may be in greater numbers now than it was before and with more key products."

With the 7 nm setback, Intel is now two years behind the state-of-art production capabilities of foundries such as  TSMC when  years ago Intel was two to three years ahead of all competition, Gold said. 

"It's not surprising that some executive changes had to be made," he added. "This slipping has been gradual and has been in process for a while.  Murthy was brought in to right the ship and make Intel excel. It's clear his mission wasn't successful, so he is being replaced. This with other key personnel defections at Intel means they have a difficult road ahead." 

Gold said Intel still has great strengths, however, "Yes, Intel has messed up [with 7nm] but I wouldn't count them out.  It's very likely Intel will be able to get back to its former leadership status. They still produce a great many chips that people want to use and their performance and dominance in some markets is not equaled."

RELATED: Intel reports 7nm delay amid strong 2Q revenues

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