Processor maker apologizes for continued struggles to keep up with demand
Intel is expanding its use of third-party chip makers to address a stubbornly tight PC processor market that’s making it difficult for the company to keep up with rising demand for personal computers.
The Lowdown: The giant chip maker is continuing to struggle with a shortfall in processor production that dates back to last year, and that comes as a resurgent AMD pushes more PC chips into the market.
The Details: In a letter posted on the company’s website this week, Michelle Johnston Holthaus, executive vice president and general manager of Intel’s Sales, Marketing, and Communications Group, apologized to customers and partners for the impact the production issues and shipping delays are having. “Despite our best efforts, we have not yet resolved this challenge,” Holthaus wrote.
To address the challenges, Intel is investing “record levels of Capex” to both increase the company’s 14-nanometer wafer capacity this year and ramping up production of upcoming 10nm processors. In addition, the company is increasing its use of third-party foundries to help get more chips into the market more quickly.
The changeover in some Intel manufacturing facilities from 14nm to 10nm – and production issues of the 10nm chips – has put pressure on production and the increase in PC demand is continuing to haunt Intel. Intel representatives are contacting customers and partners to talk about the challenges and revised shipment schedules.
The Impact: Intel has long been the dominant player in the PC chip space, holding more than 85% of the market. However, it has been struggling to keep up with demand since last year. Not only is the company making the painful transition from 14nm to 10nm, but it continues to see rapid growth in its data center business, which also is putting a strain on capacity. Couple all that with AMD’s rollout of its Ryzen processors and Intel is facing challenges on multiple fronts.
Along with ramping up capacity, Intel this year also has cut prices on some PC chips with the idea of holding AMD and its 7nm processors at bay. Still, the smaller rival has been able to gain some market share, particularly in the low end of the market, something Intel has admitted.
Background: Demand for PCs isn’t likely to slow anytime soon. According to IDC analysts, OEMs shipped more than 70.4 million units in the third quarter, a 3% year-over-year increase. Helping to drive the growth are ongoing trade issues between the United States and China, and the analysts are predicting that demand in the commercial space will likely rise as enterprises continue to migrate to Windows 10 as the Jan. 14, 2020, end-of-service date for Windows 7 looms.
The Buzz: “The added capacity [from ramped Intel production and foundry use] allowed us to increase our second-half PC CPU supply by double digits compared with the first half of this year,” Holthaus wrote in the letter. “However, sustained market growth in 2019 has outpaced our efforts and exceeded third-party forecasts. Supply remains extremely tight in our PC business where we are operating with limited inventory buffers. This makes us less able to absorb the impact of any production variability, which we have experienced in the quarter. This has resulted in the shipment delays you are experiencing, which we appreciate is creating significant challenges for your business.”