Why is Intel Still Short on Chips?

Intel is again apologizing to customers for 14nm chip shortages. As a result PC makers are revising down revenue expectations for 2020. Something does not smell right here. I have also read that due to the continued shortages Intel will be second sourcing CPU chips to Samsung 14nm. This smells even worse, absolutely.

First and foremost, the Intel 14nm process is by far superior to Samsung 14nm. If the rumor was Intel 22nm moving to Samsung 14nm that would be much more believable. Do you remember when Apple dual sourced the A9 SoC to Samsung and TSMC (chipgate)? That did not end well and the Samsung 14nm and TSMC 16nm processes have much more in common than Intel 14nm.

Second, Intel has significantly increased 14nm capacity this year (25%?) and from what I have been told 14nm yield is excellent. Intel is also in production at 10nm which should free up some 14nm capacity. Unless of course Intel borrowed 14nm equipment for 10nm which is highly unlikely.

Third, what about AMD eating up Intel’s market share? Intel chips are more expensive than AMD and now there are long lead times? AMD revenue numbers should be spiking?

Fourth, PC makers have no shame so Intel could be the scapegoat for missed revenue numbers. We will know more after the Q4 reports but I’m not 100% convinced either way here.

Fifth, the Samsung rumor started from the Korean press which is the least reliable for semiconductor news, my opinion.

This is a copy of the letter Intel sent customers with the paragraph highlighted that is probably the source of the false outsourcing rumors. Clearly it says Intel is freeing up capacity so they can build more CPUs using Intel fabs, right?

November 20, 2019

To our customers and partners,

I’d like to acknowledge and sincerely apologize for the impact recent PC CPU shipment delays are having on your business and to thank you for your continued partnership. I also want to update you on our actions and investments to improve supply-demand balance and support you with performance-leading Intel products. Despite our best efforts, we have not yet resolved this challenge.

In response to continued strong demand, we have invested record levels of Capex increasing our 14nm wafer capacity this year while also ramping 10nm production. In addition to expanding Intel’s own manufacturing capability, we are increasing our use of foundries to enable Intel’s differentiated manufacturing to produce more Intel CPU products.

The added capacity allowed us to increase our second-half PC CPU supply by double digits compared with the first half of this year. 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. Because the impact and revised shipment schedules vary, Intel representatives are reaching out with additional information and to answer your questions.

We will continue working tirelessly to provide you with Intel products to support your innovation and growth.

Sincerely,

/s/ Michelle Johnston Holthaus

Michelle Johnston Holthaus

Executive Vice President

General Manager, Sales, Marketing and Communications Group

Forward-Looking Statements: This letter includes forward-looking statements based on expectations as of November 20, 2019, which are subject to many risks and uncertainties that could cause actual results to differ materially from those anticipated. Important factors that could cause actual results to differ materially are set forth in Intel’s Q3 2019 earnings release and our most recent reports on Forms 10-K and 10-Q, available at intc.com.

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