Intel Issues Update on Supply Problems at 14nm
Intel has been having supply issues at 14nm related to the delayed ramp of its 10nm production and (the company claims) increased demand for its enterprise and data center products. Intel’s Bob Swan, current CFO and interim CEO, has released a statement in which he assigns blame for Intel’s production trouble to surging data center and cloud revenue. Data center revenue grew 25 percent in the first six months of the year, while cloud revenue grew 43 percent.
There’s undoubtedly truth to some of this. According to Gartner, server revenues and shipments both rose sharply in the first part of the year. Increased demand for server hardware means increased demand for the largest-core count CPUs, which puts pressure on Intel’s manufacturing capacity by requiring the company to build larger dies that result in fewer wafers per die. But Intel has also been stuck in the middle of a 10nm transition that has sapped its manufacturing capacity by effectively idling significant amounts of its overall production capability.
But Swan’s attempt to blame the shortfall on an upturn in the PC industry — which he does — is simply laughable. Writes Swan:
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… 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.
Why is this claptrap?
Because the consumer PC market grew by 2.7 percent in Q2 2018 after declining roughly 30 percent from 2011-2018. Intel blaming its issues on an unexpected growth in the consumer PC market after a near-30-percent decline over seven years is absurd. The PC market growth might be the straw that broke the camel’s back, but it’s not the proximate cause of Intel’s production shortfall. The company made strategic decisions as far as 2014 to idle Fab 42 rather than bringing it up on 14nm. It later opted to convert Fab 42 to 7nm directly back in 2017 rather than ramping it as a 10nm facility. The industry also canceled the push for 450mm wafers several years ago (such technology wouldn’t be online to offset increased silicon demand yet, but avenues that could have increased production at Intel and other foundries long-term were not pursued due to the downturn in PC sales several years ago). But the growth in server and data center sales (where much larger chips are used) and 10nm’s failure to ramp (the node, by introduction, will be at least three years behind schedule) are responsible for Intel’s shortfalls, not some single-digit uptick in consumer PC sales.
The reason Intel is likely putting its emphasis on the impact in the low-end consumer PC market is simple: The company can choose, to some extent, where it takes this hit. It’s going to shove the impact into the lower-end of the space, where any share it cedes to AMD will do its own competitor as little good as possible. AMD, of course, has its own ideas about gaining market share from Intel in data centers and cloud installations; the company is expected to take approximately 5 percent of the server market by the end of 2018.
Intel’s letter also states that it will increase an additional $1B into 14nm facilities in Oregon, Arizona, Ireland, and Israel to boost 14nm capacity and that its 10nm production remains on-track for volume insertion in 2019. No updated date was given, which means Q4 2019 is still the official expected introduction date.
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