On Jan. 25, chip giant Intel (NASDAQ: INTC) will report its financial results for the fourth quarter of 2017 and, by extension, for the full year of 2017. Intel repeatedly increased its financial guidance through the end of 2017 thanks in large part to better-than-expected performance from its Client Computing Group (CCG), which primarily sells processors and related components into the personal computer market.
While I expect Intel to easily meet expectations for the quarter and the full year, there are some tough questions that the company's top brass needs to answer about the company's products and technologies in the years ahead. Here are two such questions.
Intel CEO Brian Krzanich. Image source: Intel.
1. Tell us about chip manufacturing
One of the key enablers of Intel's business is its chip manufacturing technology. For years, Intel has tried to sell investors on its supposed superiority in terms of chip manufacturing. That superiority, Intel has often claimed, affords the company benefits in terms of product capability and cost compared to its competitors.
Unfortunately, Intel appears to have had significant difficulty in transitioning to its next-generation chip manufacturing technology, known as 10-nanometer. The company was originally supposed to start production on this technology in late 2015 for product launches in 2016, but the technology has faced delay after delay.
Image source: Intel.
Intel recently announced that it managed to shipped its first 10-nanometer processors at the end of 2017, but every available piece of information points to Intel keeping the vast majority of its product volumes on 14-nanometer derivatives throughout the entirety of 2018.
Realistically, Intel's 10-nanometer technology is a 2019 technology.
What I'd like to hear from Intel management, then, is an honest update on the health of the company's 10-nanometer technology and a timeline about when it expects to migrate a significant portion of its product volumes to some derivative of the technology.
Additionally, I would like to hear management explain how it intends to compensate for the significant delays across its entire portfolio that the issues with 10-nanometer production have caused. How does Intel plan to make up for lost time? And, finally, I'd like to hear Intel explain how it intends to make sure that the issues that plagued 10-nanometer won't torpedo future manufacturing technologies (e.g. 7-nanometer, 5-nanometer).
2. Spectre/Meltdown damage
Two security exploits, known as Spectre and Meltdown, recently became public. Spectre affects virtually every high-performance processor in the market, so while Intel is affected, everybody else is, too. This means that any software workarounds that degrade performance on Intel's processors will probably degrade performance on everyone else's processors.
That said, it was revealed that Intel's chips, unlike some competitors' chips, are affected by the exploit known as Meltdown. To the extent that software is redesigned to work around this vulnerability, Intel's processors stand to lose performance while some competing chips won't.
Intel claimed on a recent conference call intended to address the Spectre/Meltdown exploits that it doesn't expect "any financial impact" or "any change in acceptance of [Intel's] products" as a result of these exploits.
On Intel's upcoming earnings call, I'd like to hear company management talk about the kind of feedback it is getting from its customers about all this, and whether there seems to be increased interest in competitors' products as a result. Additionally, if customers aren't shifting to competitors' products, I'd like to know if Intel is making any price concessions on its processors (particularly to data center customers), and what kind of impact this could have on Intel's sales/profitability in 2018.
And, finally, I'd like Intel to be clear about when it expects to launch processors that have been reworked and are not vulnerable to Meltdown, without any significant performance degradation.
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