Mr. Krzanich, who was forced out at Intel in 2018 for unrelated issues -- having what the company described as a consensual relationship with an employee -- didn't respond to requests for comment. Mr. Swan, then interim CEO, apologized to customers because of manufacturing delays that reverberated through the industry.

Intel has since ironed out difficulties with its 10-nanometer chips, but the company is continuing to deal with the aftermath of the repeated delays. Overcoming production problems was complicated by the tight linkage between Intel's chip design and manufacturing operations that had evolved over decades. Because Intel optimized designs for its own chip-making tools, it couldn't easily turn to outside manufacturers for help to catch up. That made it hard to swiftly recover from missteps.

Increased flexibility

Intel was taking technical steps to shift toward increasing its manufacturing flexibility. Meanwhile, engineers joined Intel from chip makers that relied on outsourcing and wanted to accelerate that shift. To them, constraining chip design because of the idiosyncrasies of the in-house factories made no sense, said an engineer familiar with Intel, even though they also saw the advantages that came with Intel's keeping its own factories.

Intel's acquisition of NetSpeed Systems Inc. and the arrival of NetSpeed CEO Sundari Mitra helped accelerate chip-design standardization that let chip architects more easily take advantage of any manufacturing process, whether internal or external, the company said.

By 2019, Intel engineers and executives were debating how to manufacture future 10-nanometer CPU chips that had been held up because of earlier engineering delays. The debates were sometimes fierce, with some engineers urging management to consider letting someone else fabricate the chips if in-house facilities couldn't, and some executives arguing that the factories could fix their problems.

Chief Engineer Venkata "Murthy" Renduchintala told analysts in May 2019 that Intel had learned lessons from earlier stumbles and that its 10-nanometer chips were on track. Intel's next generation -- 7-nanometer CPUs -- were on track to start production in 2021, he told them.

That didn't happen. The manufacture of the next generation of CPUs is now a year behind initial plans, which will delay the arrival of products on the market by six months, Intel said. Intel shook up its technical team and announced Mr. Renduchintala's departure. He declined to comment. Intel declined to comment on the departure, citing a statement at the time that he left amid a management shake-up aimed at improving the company's chip-technology execution.

Mr. Swan in the July call told analysts: "We're going to be pretty pragmatic about if and when we should be making stuff inside or making outside."

The company's new approach, Mr. Swan said, would be to make market-leading chips on schedule. Intel's factories would be the preferred manufacturing option, but, if needed, production could be outsourced. Intel still plans to invest heavily in its own factories and future cutting-edge transistor technology, Mr. Swan has said.

As part of its move toward more outsourcing, Intel is adopting for some chips what it calls "disaggregation" -- a process that lets it make a single chip using manufacturing processes in different places. Intel might start a chip in one in-house factory and then move it to another, or might start making a chip at an Intel plant and then ship it to an outside manufacturer to add elements Intel doesn't produce as well. The company said it is beginning that type of mixed manufacturing, but on a limited basis with chips including a coming graphics-processing unit.

"As you move to this disaggregated design or modular design approach," Intel's Mr. Shenoy said, "we can take various pieces of a chip and choose different foundries."

Mr. Swan said during the October analysts call that Intel would decide by early next year how to handle chips in 2023 and 2024.

If Intel had embraced the new design approach sooner, it would have spared itself problems with the 10-nanometer chips, said Raja Koduri, Intel's chief chip architect, in an August virtual presentation. Now it will be late 2022 or 2023 until its design flexibility will be in use in a wide range of chips, he told The Wall Street Journal that month.

Outsourcing poses risks, said François Piednoël, a former Intel engineer who left in 2017 after two decades, because it involves changes in the chip-design process that sacrifice performance. Mr. Piednoël, an Intel shareholder, is pushing for more chip-design expertise on Intel's board. The board includes just one semiconductor expert, although it does include people whose current or former employers have been major semiconductor consumers.

Mr. Piednoël ruffled feathers in August and September with YouTube videos that cast doubt on Intel's chip-design choices and critiqued its corporate culture, which he says has veered away from the combative yet collaborative ethos set under its longtime CEO, the late Andy Grove.

Intel still sees having chip factories as an advantage over rivals that must rely on others, said Intel's Mr. Shenoy. "Having advanced technology manufacturing in the United States," he said, "is a super important competitive advantage that is not lost on us."

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

11-06-20 1626ET