Intel Corp.’s stock took a beating in after-hours trading today after the company announced during in its second-quarter earnings call that its next-generation of computer chips will be delayed by six more months.

The company said that it’s pushing back the launch date of its first central processing units built on a seven-nanometer process by approximately six months, and will instead focus on ramping up its transition to a 10nm process.

Intel’s first 7nm product, a client CPU, is now expected to ship in late 2022 or early 2023, Chief Executive Bob Swan (pictured) said in a conference call with analysts. Meanwhile, it will ship its first 7nm data center CPUs in the first half of 2023, he said.

The 7nm process involves squeezing smaller transistors onto a computer chip. By fitting more transistors onto a piece of silicon, it’s possible to make those chips more powerful and complex.

“The company’s 7nm-based CPU product timing is shifting approximately six months relative to prior expectations,” the company said in a statement. “The primary driver is the yield of Intel’s 7nm process, which based on recent data, is now trending approximately 12 months behind the company’s internal target.”

Swan explained that Intel had come across a problem in its 7nm manufacturing process that caused lower yields of flawless chips. The company had first intended to launch its first 7nm chips in 2021, but last year said it would be unable to meet that target.

“We’ve root-caused the issue, and believe there are no fundamental roadblocks,” Swan said. “But we’ve also invested in contingency plans to hedge against further schedule uncertainty. We’ve mitigated the impact of the process delay on our product schedule by leveraging improvements in design methodology, such as die disaggregation and advanced packaging.”

Now, Swan said, Intel is focused on ramping up production of its 10nm chips to meet demand for those products. Intel’s move to a 10nm process had also faced delays, and in recent months it has struggled to keep up with customer demand. But Swan said the company was now in a position to keep pace, and would use external foundries from competitors if necessary.

“What’s different” this time, Swan said, is “we’re going to be pretty pragmatic about if and when we should be making stuff inside or outside, and making sure we have options to build internally, mix and match… or go outside entirely if we need to.”

Analyst Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE that many of Intel’s new products were dependent on the 7nm process, but said he wasn’t too concerned just yet.

“Knowing Intel, it always has backups for its backups and I am sure we will be hearing about enhancements to 10nm to increase its competitiveness,” Moorhead said. “The company has done well financially, particularly well in the data center, notebook and commercial product lines, on 14nm when the rest of the world was on TSMC 10nm.”

Nonetheless, the news comes at a challenging time for Intel as it has fallen behind its longtime rival Advanced Micro Devices Inc., which has already shipped its first 7nm products.

Intel’s stock fell more than 10% in after-hours trading, while AMD gained 8%.

The announcement of the delay undermined a solid quarterly financial performance by the chipmaker, which reported a profit of $1.23 per share on revenue of $19.7 billion, up 20% from a year ago. Wall Street was expecting a profit of just $1.11 per share on $18.55 billion in revenue.

Intel’s biggest business unit, its Client Computing Group, which sells chips for PCs, reported $9.5 billion in revenue, up 7% from a year ago. The company benefited from a jump in PC sales that came about thanks to the coronavirus pandemic, which has caused enterprises to invest in more hardware to support people working from home.

However, Constellation Research Inc. analyst Holger Mueller noted that Intel took a much smaller portion of the coronavirus-related PC growth than its rival AMD, and said this could be a cause for concern, especially if its 7nm problems persist.

“Intel may catch a break here, but it is still a risky and remarkable delay for a company that once had a reputation for always delivering on time,” Mueller said.

Meanwhile, Intel’s Data Center Group, which sells chips for cloud computing providers and server makers, reported $7.12 billion in revenue, up 43% from a year ago. The Non-Volatile Memory Solutions Group added another $1.66 billion in revenue, up 76% growth.

“The DCG showed significant strength with a baseball-blistering 43% growth, demonstrating continued growth from cloud and carriers,” Moorhead said. “NSG had its biggest revenue increase ever at 76% growth which represents how well the unit is doing and how industry pricing has stabilized if not increased.”

Charles King of Pund-IT Inc. said the results show that the bumps in the road regarding Intel’s 7nm process do not appear to be inhibiting Intel’s customers to any great degree. He said the company’s second-quarter numbers were solid, and that the Data Center Group’s performance was great.

“If Intel’s problems transitioning to 7nm continue, they could be problematic,” he said. “But at the same time it’s worth remembering that AMD is still driving revenues that are less then a tenth of Intel’s. If the company is floundering as critics suggest, competitors seem slow to take advantage of the situation.”

During the quarter, Intel made a key acquisition, buying Israeli mobility startup Moovit Inc., which makes a public transit application, for $900 million.

Intel also provided guidance for the next three months, which came as a surprise after it declined to do so during the previous quarter. For the third quarter it’s expecting a profit of $1.10 per share on $18.2 billion in revenue. Wall Street analysts had earlier modeled a profit of $1.14 per share on revenue of $17.9 billion.

Photo: Fortune Brainstorm TECH/Flickr