Thanks to a mix of greater than expected demand coupled with unexpected delays in transition to their 10nm manufacturing process, Intel is experiencing some shortages in its chip supply prompting frustration from both Intel partners and end users. In order to alleviate some of this frustration and provide a bit of transparency, Intel CFO and Interim CEO, Bob Swan, recently posted an open letter to the Intel Newsroom addressing the processor shortage.
According to the letter, Intel is aware that it has a processor shortage. As a result, it will be prioritizing Xeon and Core processors above those in the entry level. These are the highest revenue and profit generating chips, so it makes quite a bit of sense. Intel is also investing an additional $1 Billion on capital expenditures in order to increase capacity at its manufacturing sites in Oregon, Arizona, Ireland and Israel. While it’s unclear how much capacity this will add to each of the sites, Intel is confident that they will be able to hit revenue targets announced in July this year.
The letter also briefly mentions Intel’s 10nm process transition, but simply states that the yields are improving and volume production is expected in 2019.
To our customers and partners,
The first half of this year showed remarkable growth for our industry. I want to take a moment to recap where we’ve been, offer our sincere thanks and acknowledge the work underway to support you with performance-leading Intel products to help you innovate.
First, the situation … The continued explosion of data and the need to process, store, analyze and share it is driving industry innovation and incredible demand for compute performance in the cloud, the network and the enterprise. In fact, our data-centric businesses grew 25 percent through June, and cloud revenue grew a whopping 43 percent in the first six months. The performance of our PC-centric business has been even more surprising. Together as an industry, our products are convincing buyers it’s time to upgrade to a new PC. For example, second-quarter PC shipments grew globally for the first time in six years, according to Gartner. We now expect modest growth in the PC total addressable market (TAM) this year for the first time since 2011, driven by strong demand for gaming as well as commercial systems – a segment where you and your customers trust and count on Intel.
We are thrilled that in an increasingly competitive market, you keep choosing Intel. Thank you.
Now for the challenge… The surprising return to PC TAM growth has put pressure on our factory network. We’re prioritizing the production of Intel® Xeon® and Intel® Core™ processors so that collectively we can serve the high-performance segments of the market. That said, supply is undoubtedly tight, particularly at the entry-level of the PC market. We continue to believe we will have at least the supply to meet the full-year revenue outlook we announced in July, which was $4.5 billion higher than our January expectations.
To address this challenge, we’re taking the following actions:
- We are investing a record $15 billion in capital expenditures in 2018, up approximately $1 billion from the beginning of the year. We’re putting that $1 billion into our 14nm manufacturing sites in Oregon, Arizona, Ireland and Israel. This capital along with other efficiencies is increasing our supply to respond to your increased demand.
- We’re making progress with 10nm. Yields are improving and we continue to expect volume production in 2019.
- We are taking a customer-first approach. We’re working with your teams to align demand with available supply. You can expect us to stay close, listen, partner and keep you informed.
The actions we are taking have put us on a path of continuous improvement. At the end of the day, we want to help you make great products and deliver strong business results. Many of you have been longtime Intel customers and partners, and you have seen us at our best when we are solving problems.
Intel Corporation CFO and Interim CEO