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What the hell just happened to Intel?

July 24, 2020, 1:23 PM UTC

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It was, as Yogi Berra used to say, deja vu all over again when Intel released its earnings last night. And not in a good way.

At first glance, the news looked good, even very good. Despite the coronavirus pandemic and low expectations from Wall Street, second quarter revenue jumped 20% to almost $20 billion and profits did even better, rising 22% to over $5 billion.

But hiding in plain sight at the top of the release, at the end of the fourth bullet point, was quite the line: “7nm product transition delayed versus prior expectations.”

That short sentence sent fund managers leaping to sell their shares, analysts pulling the rip cord on their ratings, execs at PC makers grabbing for their Tums and Rolaids, and likely more than a few folks at Advanced Micro Devices popping champagne corks. (This morning, Intel’s stock is down 14% in premarket trading and AMD’s is up 8%.)

Why such a reaction? Because it immediately brought back memories of another July earnings release. Back in July 2015, then-CEO Brian Krzanich announced that Intel’s move to 10 nanometers was running behind schedule and new products slated for 2016 would arrive in 2017, a slight delay of only six to nine months, he said. Flash forward to 2020 and we’re still awaiting some of those products and Krzanich is long gone, replaced by his former CFO, Bob Swan.

Swan promised such a short product delay on Thursday night. But as he was named CEO in part to clean up the mess of Krzanich’s delayed 10-nanometer, the news of today’s delay did not inspire confidence. And Swan upended 50 years of Intel strategy when he revealed that the company’s contingency plan, in case the delays worsened, was to outsource chip manufacturing to rivals, an unprecedented move with unknown impact on Intel’s finances.

The announcement also sheds light on other recent events, like Apple’s decision to dump Intel chips from its Mac computers and, possibly, the departure of star chip designer Jim Keller, who lasted just two years.

The success of the entire tech industry has relied on chipmakers’ ability to cram more and more transistors on a silicon wafer. First highlighted by Intel co-founder Gordon Moore in 1965, Moore’s Law says the industry should be able to fit twice as many transistors on the same size chip every two years or so. It’s what has enabled computers to go from the size of a house to tinier than a smartwatch and what has unleashed a thousand new industries.

But Moore’s Law has been slowing down for a while as companies like Intel, Samsung, and Taiwan Semiconductor have pushed the transistors to smaller and smaller scales. The 7-nanometer scale Intel was aiming for is about 1/10,000th the width of a human hair. Apple’s A13 Bionic processor in the iPhone 11, made at 7-nanometer scale by Taiwan Semiconductor, fits 8.5 billion transistors on a chip smaller than a dime.

Even if Intel can’t be the best chip manufacturer, it could still be the best chip designer. That outsourcing strategy, and some big decisions Keller pushed to compartmentalize chip design, may ultimately save Intel’s market share. Keller likes to quote Steve Jobs, whom he worked for a few years at Apple, and one quip he has repeated to me is this: “Why screw up two things when you can only get one thing right?”

Intel, its investors, and the rest of the industry are probably wondering the same thing right about now.

Aaron Pressman

@ampressman

aaron.pressman@fortune.com

NEWSWORTHY

I've only sad stories to tell this town. Put your popcorn popper back on the shelf, people. Monday's blockbuster tech hearing in Congress has been postponed due to memorial services for the late Rep. John Lewis. Instead, the CEOs of Apple, Amazon, Facebook, and Google will appear before the House Judiciary Committee's antitrust subcommittee likely in another week or two. But will anyone ask to add Microsoft CEO Satya Nadella? The software giant has been skating past all of the recent scrutiny of tech giants, but scrappy messaging app maker Slack called out Microsoft for unfair competition this week.

An expensive look. Illinois's law regulating facial recognition apps is hitting Facebook in the wallet. The company agreed to pay Illinois residents $200 to $400 each if their picture appeared on Facebook after 2011, as Facebook failed to ask for permission to scan their faces. Speaking of not asking permission, a long investigative piece by the Wall Street Journal claims Amazon meets with cloud and A.I. startups and then copies their products. Amazon denied using confidential information improperly. And in fresh lawsuit news, Apple co-founder Steve Wozniak and others are suing YouTube claiming the site is permitting bitcoin scammers to use their images in videos that should be banned.

L’appel du vide. In the scooter wars, Lime beat out Bird in Paris. Lime and two much smaller rivals, Tier and Dott, got permission to each put up to 5,000 rental electric scooters in La Ville Lumière for the next two years. Bird got le rien. (Full disclosure: I do not speak a lick of French. All hail Google Translate.)

That's a very respectable neighborhood. Under fire from U.S. authorities, TikTok is pulling out all the stops to make itself indispensable to U.S. users. Earlier this week it pledged to hire 10,000 more U.S. workers and Thursday the service unveiled the $200 million "TikTok Creator Fund" designed to "encourage those who dream of using their voices and creativity to spark inspirational careers." Need a quick primer on what sells on TikTok? YouTube has you covered.

The tracks of my tears. I am sad there were no good Quibi stories this week—fare thee well, Kberg and the Whit—and I hope I have not failed you loyal Data Sheet readers. But Elon Musk has been doing his best to stay in the news, what with announcing he'd build a new Tesla factory in Austin and dissing California, while again promising fully self-driving cars are just months away. On Thursday came news that Musk's SpaceX is seeking to raise another $1 billion of private backing in a deal valuing the startup at $44 billion, 25% more than its last round raised in March.

FOOD FOR THOUGHT

As everyone knows, the Internet arose out of a Defense Department project to create a robust communications network. Now the Energy Department has a new project that could lead to a similar breakthrough. Washington Post reporter Jeanne Whalen has the story of the government's new "quantum Internet." What is that?

Quantum technology seeks to harness the distinct properties of atoms, photons and electrons to build more powerful computers and other tools for processing information. A quantum Internet relies on photons exhibiting a quantum state known as entanglement, which allows them to share information over long distances without having a physical connection.

David Awschalom, a professor at the University of Chicago’s Pritzker School of Molecular Engineering and senior scientist at Argonne National Laboratory, called the Internet project a pillar of the nation’s quantum-research program. “It’s the birth of a new technology. It’s becoming a global competition. Every major country on earth has launched a quantum program … because it is becoming clearer and clearer there will be big impacts,” he said in an interview.

FOR YOUR WEEKEND READING PLEASURE

A few long reads I came across this week:

Airbnb Was Like a Family, Until the Layoffs Started (New York Times)
What happens when a kumbaya office culture meets the business realities of a pandemic?

How Harvard’s Star Computer-Science Professor Built a Distance-Learning Empire (The New Yorker)
CS50 is one of Harvard College’s most popular courses; it’s also the only one that students can watch live, in high definition, from their dorms.

Special Report: Drug cartel ‘narco-antennas’ make life dangerous for Mexico’s cell tower repairmen (Reuters)
“I was so nervous...Seeing them armed in front of you, you don’t know how to react,” the worker told Reuters, recalling the 2018 encounter. “Little by little, you learn how to coexist with them, how to address them, how to make them see that you don’t represent a threat.”

The Parrot King (Audubon)
Over the past 14 years, Martin Guth has built a monopoly on some of the world’s rarest birds. Will his secretive organization ultimately help put more parrots in the wild, as he says—or push them closer to extinction?

IN CASE YOU MISSED IT

These big companies have cut the most daily ad dollars during the Facebook boycott By Danielle Abril

Who will Bill Ackman’s blank check company buy? By Lucinda Shen

AT&T’s 5G prices come down as carriers get more competitive By Aaron Pressman

5 hotly anticipated games Microsoft detailed during its Xbox Series X event By Jonathan Vanian

A breathalyzer for the coronavirus gives instant results, but don’t expect a widespread rollout By David Meyer

As plastic waste in world’s oceans continues to soar, efforts to stem the pollution are falling short By Katherine Dunn

(Some of these stories require a subscription to access. Thank you for supporting our journalism.)

BEFORE YOU GO

Taylor Swift got a brief mention in yesterday's newsletter, but maybe you missed it. Her new album, Folklore, is getting a lot of play in the Pressman household from listeners of various ages. It's more low key than some of her more pop anthem-filled releases, but still a good play in these socially distant, shut-down times. As Variety notes: "She’s celebrating the masked era by taking hers off again." Have a good weekend.