Intel has entered into talks with Samsung and Taiwan Semiconductor Manufacturing Co. (TSMC) to discuss outsourcing its processor fabrication, according to a Bloomberg report citing anonymous sources familiar with the situation.

But despite entering into talks with the Asia Pacific fabricators, Bloomberg writes that Intel is holding out hope it can improve yields of its next generation manufacturing process. Any components sourced from either fab would not come to market until 2023 at the earliest and would be based on the currently available manufacturing processes — likely 4-nanometer — Bloomberg reports.

The report comes amid intense competition from AMD and a growing cohort of Arm chipmakers as well as pressure from its own investors to make strategic changes.

But while it’s easy to draw a connection between activist investor Third Point LLC’s letter to Intel imploring the company to investigate third-party fabrication, the news isn’t all that surprising. During Intel’s second-quarter 2020 earnings call, CEO Bob Swan revealed that the company’s 7-nanometer manufacturing process had been delayed by about 12 months, and that external fabs were being considered as a contingency.

It’s also worth noting that while Intel has kept the bulk of its high-end CPU manufacturing in house, the company is no stranger to external fabs. The company’s first data-center GPU, announced late last year, was built using an external fab.

Patrick Moorhead, principal analyst at Moor Insights and Strategy, said that these talks are likely the first steps in the contingency plan Swan alluded to during the company's Q2 earnings call.

“I believe Intel is looking to both TSMC and Samsung to serve as backup and augmentation plans in the future. This is pragmatic and doesn’t take away from its [integrated device manufacturer] strategy,” he wrote in an email to SDxCentral. “Intel has a much more diverse set of silicon now with now CPUs, GPUs, FPGAs, and ASICs in addition to its upcoming disaggregated architectures.”

Moorhead adds that this is a positive, if pragmatic, step forward for the company. And Moorhead isn’t alone in this line of thinking.

“Bob Swan is taking a pragmatic approach to how Intel should do business,” wrote Wayne Lam, senior director of research, Americas at CCS Insight,  in email to SDxCentral.

Lam argued that until now, many of Intel’s CEOs had been groomed from the manufacturing side of the business and thus had a deference toward keeping fabrication in house. Swan breaks that mold.

“Once Swan decided that it was time to slaughter the sacred cow — Intel’s fabs — and outsource the manufacturing, it created a seismic shift within the company,” he wrote. “Now, the manufacturing capability comes under more competitive pressure whereas they had for decades been insulated from it since it was internal and only producing chips for Intel processors.”

According to Lam, successive delays due to challenges with Intel's fabrication technologies like extreme ultraviolet lithography (EUV) meant it was only a matter of time before Intel’s competition surpassed the chipmaker rolling out 10 nanometer, 7 nanometer, and now 5 nanometer chips long before Intel.

“Once Intel fell behind, it became increasingly difficult to catch up since all CPU manufacturing was dependent on a network of Intel’s own fabs,” he wrote, adding that with Swan at the helm, Intel is open to leveraging external fabs to overcome these challenges.

Moving forward, Lam expects Intel will begin scaling back production of its own silicon and shift production over to TSMC.

“Tapping into TSMC will give them the ability to overcome their manufacturing hurdles with their own [extreme ultraviolet lithography] process and gives these new processors the improvements necessary to make them competitive,” he wrote.

It should also be noted that Intel is far from the first chipmaker to look to external fabs. AMD was forced to make a similar decision not too long ago, Lam noted in his email, adding that the company was ultimately better for it.

TSMC is preparing to offer Intel chips manufactured using a newly minted 4-nanometer process. The fabricator could convert a new facility in Baoshan, China, which is expected to go online by the end of the year, to production status if Intel moves forward with external fabs, Bloomberg reports.

Intel declined to comment on the rumored talks. “We do not comment on rumors or speculations,” an Intel spokesperson wrote in an email to SDxCentral.