An Intel (INTC) PC CPU shortage that many once expected to wind down by mid-2019 is now set to extend into 2020.
HP and Dell's Commentary
HP, which is still in an M&A tug-of-war with Xerox (XRX) , said on its call that it expects "industry-wide CPU constraints" to continue through the first half of its fiscal 2020, which in turn implies that they'll last at least until April. The company also said it expects these constraints to be more pronounced during its January quarter than they were during its October quarter, albeit while adding that their bottom-line impact will largely be offset by a mix shift towards "more profitable" PCs.
For its part, Dell said that Intel CPU shortages "have worsened quarter-on-quarter," and (notably) are now impacting its expected January quarter shipments for both commercial PCs and "premium" consumer PCs. Dell also noted that Intel CPU shortages were one of several reasons why -- against a backdrop of soft enterprise server and storage demand -- it's now "slightly more cautious" about expected growth for its fiscal 2021, which ends in January 2021.
While it's hardly a surprise that PC OEMs are still dealing with Intel CPU shortages, the comments made about 2020 shortages and commercial and "premium" consumer PC sales being affected are eyebrow-raising, given what Intel had previously disclosed.
Intel's Recent Remarks
During its Oct. 24 earnings call, Intel CEO Bob Swan admitted that his firm's PC CPU business will remain supply-constrained in Q4 amid stronger-than-expected PC demand. However, Swan also said Intel "[expects] to be able to rectify things" in 2020, as it continues boosting capacity for both its older 14-nanometer (14nm) manufacturing process node and its newer 10nm node.
Swan also indicated at the time that the shortages it witnessed in Q3 generally involved low-end PC CPUs. This fits with prior remarks Intel has made about prioritizing sales of server CPUs and high-end PC CPUs.
Separately, Intel last week took the unusual step of releasing a public letter for customers and partners in which it apologized for ongoing CPU shortages caused by "sustained market growth in 2019," and said it's stepping up its use of chip contract manufacturers (foundries) to free up internal capacity for CPU production. However, the company made no mention of the situation continuing into 2020.
In addition, whereas Intel previously talked about supply constraints only involving 14nm products, the company hasn't specified in its most recent comments whether that's still the case, or if the 10nm notebook processors it recently launched are also affected. When I asked about whether Intel is seeing 10nm constraints, a spokesperson simply referred me to last week's letter and said a prior comment made by Swan about Intel's 10nm manufacturing yields being better than expected remains true.
A Bigger Opportunity for AMD?
It's worth noting that a surge in business PC demand ahead of Microsoft's (MSFT) ending of Windows 7 support in January 2020 has a lot to do with the Intel shortages. As a result, there's a good chance that PC demand will cool after January, and that this, together with Intel's capacity growth, will help supply constraints ease.
Indeed, HP and Dell both hinted that such a scenario could unfold. HP said that while it expects CPU shortages to continue through the first half of its fiscal 2020, it expects a bigger impact during its January quarter than during its April quarter. Dell, meanwhile, forecast that "tailwinds from the Windows 10 refresh cycle" will fade during the first half of its fiscal 2021, which runs from February through July.
Nonetheless, CPU shortages are clearly a bigger headache right now for Intel -- and by proxy, many other PC industry firms, from Microsoft to OEMs to chip and component suppliers -- than was generally expected four to six months ago. And with Dell indicating the shortages are now affecting sales of business and high-end consumer PCs (two areas with above-average CPU average selling prices), the shortages might create a bigger opening for AMD (AMD) .
In the past, AMD CEO Lisa Su has downplayed the impact of Intel shortages on her company's sales, noting that the shortages are on the low end and that AMD's PC CPU growth is being driven by costlier desktop and notebook offerings.
However, Dell's comments raise the possibility that AMD, which has launched third-gen Ryzen desktop CPUs that are very competitive with Intel's desktop offerings and is expected to launch third-gen Ryzen Mobile notebook processors in early 2020, could gain some mid-range and high-end share thanks to shortages. So does the fact that HP CEO Enrique Lores made a point of stating (following a question about the Intel shortages) that his firm is "working with other [CPU] vendors."
There are a couple of important qualifiers here. One is that even if major PC OEMs respond to the Intel shortages by launching more AMD-powered systems and more aggressively promoting existing ones, their customers still have the final say on whether or not they're purchased. And in the corporate PC market, there are a lot of major buyers who have historically been quite loyal to Intel.
The other qualifier is that if AMD sees much stronger-than-expected PC CPU demand thanks to Intel's shortages and/or other factors, it could face supply constraints of its own. There have been a number of reports stating that Taiwan Semiconductor (TSM) is seeing stretched lead times for its 7nm process node, which is used to manufacture (among many other things) AMD's third-gen Ryzen PC CPUs.
To date, Su and other AMD execs have expressed confidence that they'll have adequate 7nm supplies, both for third-gen Ryzen CPUs and for AMD's 7nm GPUs and server CPUs. But with one recent report indicating that chip developers placing new 7nm orders with TSMC won't see them fulfilled at least until mid-2020, there might not be a big margin of error here.
These qualifiers aside, the fact that Intel's PC CPU shortages have both continued and apparently grown in scope is a positive for AMD -- particularly given that this is happening at a time when AMD's PC CPU lineup looks more competitive than it has in over a decade.
And both Intel and TSMC's manufacturing constraints are a positive for chip equipment makers such as Applied Materials (AMAT) , KLA (KLAC) and Lam Research (LRCX) , which (amid weak demand from memory makers) have already gotten a lift from the capex budget hikes that Intel and TSMC have carried out this year.