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Update: We have added Intel's statements regarding the increase in investment spending on manufacturing 14 nm.
Intel Chief Financial Officer and Chief Executive Officer Bob Swan today addressed an open letter to his customers and partners, outlining the steps being taken to address the persistent and growing shortage of 14-nm processors.
The shortage has exploded in the public eye as several Intel partners have publicly described the impacts on their own business. Some processors are becoming scarce as prices rise simultaneously, especially in regions outside the United States, such as EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific).
This shortage affects almost every aspect of Intel's business, from desktops, laptops, servers and even chipsets. Intel therefore makes the right business decision to prioritize high-margin products. The company has also expanded its test capacity by transferring some of its work to a facility in Vietnam.
Intel has already communicated many of the statements contained in the letter, whether through its results calls or in response to requests from Tom's Hardware. Several reports during the previous week have also been reported that Intel's rival, AMD, could gain market share due to the 14-nm shortage. Swan's update today is probably an attempt to appease the fears of customers and investors.
Intel's statement also assures us that processors based on its 10-nm manufacturing will arrive in volume in 2019. Intel had previously indicated that 10-nm processors would be available in 2019, but had not made the distinction that They would arrive in volume. This is a positive sign, since the often delayed production of 10 nm is certainly a contributing factor to the shortage. Intel also cited the burgeoning desktop market, which exceeded the company's initial estimates earlier this year, as a catalyst.
In both cases, Intel concedes that "the offer is undoubtedly limited, especially at the entrance of the PC market", but does not provide precise timing for the moment when the processors will become fully available. Intel's letter also claims its $ 1 billion investment in 14-nm manufacturing plants this year, but half of this investment spending was expected before its first public recognition of the shortage. Given Intel's forecast of production problems, the previous $ 500 million investment was probably due to increased demand and the impending production gap. Intel has provided us with more details:
Capital Expenditure Outlook: Our gross forecast for gross expenditures in 2018 was $ 14 billion (source: Jan's presentation). In April 2018, the gross capex outlook increased to $ 14.5 billion (source: presentation of April results). In July 2018, the gross capex outlook increased to $ 15 billion (source : presentation of the results of July). As a result, total capital spending is $ 1 billion between January and July (increasing our capacity by 14 nm, as specified in Bob's letter).
Intel's statement follows the speculation of several giants in the industry that the shortage could last until next year.
You can read the full press release below:
An open letter from Bob Swan, Chief Financial Officer of Intel and Interim CEO
To our customers and partners,
The first half of this year has seen remarkable growth for our sector. I want to take a moment to remember where we are, offer our sincere thanks and recognize the work in progress to help you with Intel's cutting-edge performance products to help you innovate.
First, the situation … The continuing explosion of data and the need to process, store, analyze and share it drives industrial innovation and the incredible demand for compute performance in the cloud, network, and network. 'business. In fact, our data-driven business grew by 25% in June, and cloud revenue grew by 43% in the first six months. The performance of our PC business was even more surprising. As an industry, our products convinced buyers that it was time to switch to a new PC. For example, according to Gartner, PC shipments in the second quarter increased for the first time in six years. We now expect modest total addressable market (TAM) growth for PCs this year for the first time since 2011, driven by strong demand for games and business systems – a segment in which you and your customers have confidence and confidence. relies on Intel.
We are delighted that in an increasingly competitive market, you continue to choose Intel. Thank you.
Now the challenge … The surprising return to PC TAM's growth has put pressure on our network of factories. We prioritize the production of Intel Xeon and Intel Core ™ processors so that we can collectively serve the best-performing segments of the market. That said, the supply is undoubtedly tight, especially at the entry-level PC market. We continue to believe that we will at least have the offer to meet the full-year sales outlook we announced in July, $ 4.5 billion higher than our January expectations.
To meet this challenge, we take the following actions:
- We are investing a record $ 15 billion in investment spending in 2018, up about $ 1 billion from the beginning of the year. We are investing $ 1 billion in our 14-nm production facilities in Oregon, Arizona, Ireland and Israel. This capital and other efficiencies increase our offer to meet your increased demand.
- We are progressing with 10nm. Yields are improving and we continue to expect volume production in 2019.
- We take a customer-centric approach. We work with your teams to align the demand with the available supply. You can expect us to stay close, listen, partner and keep you informed.
The actions we take have led to continuous improvement. At the end of the day, we want to help you create good products and achieve strong business results. Many of you have been long-time Intel customers and partners and have seen us better when we have solved problems.
Regards,
Bob Swan
Chief Financial Officer of Intel Corporation and Interim CEO
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