The CPU (central processing unit) supply market is heating up as we enter that time of year when seasonal demand picks up. CPUs power desktops, laptops, servers, and embedded devices. Intel (INTC) and Advanced Micro Devices (AMD) are the only two players with a material share in the CPU market. However, these two stocks are falling. Rumor has it that they are struggling to meet demand. And, Intel’s CPU supply shortage is not a new thing.
Rumor – Intel CPU supply shortage
Exactly a year ago, we wrote about Intel’s struggle to meet its 14nm (nanometer) chips demand. And we are back to where we started. DigiTimes reported that Intel’s 14nm manufacturing capacity is failing to meet demand. DigiTimes reported the news after talking to its supply chain sources. Also, they talked to Intel’s OEM (original equipment manufacturers) partners. According to the rumor, Intel’s capacity shortage is in the 14nm node and not the 10nm node. And, this means Intel has sufficient 10nm capacity to meet demand.
In the last year, Intel increased its 14nm manufacturing capacity. The company did this by spending an extra $1 billion capital on capacity expansion. In their Q2 earnings call, Intel CEO Bob Swan said, “We expect our PC CPU supply will be up mid-single-digits this year.” Another DigiTimes article said that Intel’s CPU supply improved in the early third quarter. However, as PC vendors prepare for the holiday season, even the chip giant’s increased supply fell short of demand.
Last year, Intel’s CPU supply aggravated in Q1 as seasonal demand picked up. This forced many PC and laptop vendors to delay their new model launches. This brings us to the question, where is all this demand coming from?
Where is the CPU demand coming from?
A July 2018 Gartner report said that global PC shipments rose 1.4% YoY (year-over-year) in Q2 of 2018. And this was the first YoY growth in PC shipments in six years. Gartner senior principal analyst Mikako Kitagawa said that the shipments were driven by “the Windows 10 refresh in the business market.” Also, she said that this PC demand momentum will last for two years until businesses complete their Windows 10 refresh.
Businesses are getting Windows 10 as Microsoft (MSFT) is ending Windows 7 support on January 14, 2020. So, Mikako Kitagawa’s June 2018 analysis proved right. The PC demand remained high despite the US-China trade war. However, Gartner data showed that global PC shipments fell more than 4% between October 2018 and March 2019. The decline came because Intel failed to meet PC CPU demand. And, as Intel owns more than 80% stake in the PC CPU market, its supply shortage impacted PC shipments.
There are signs that this cycle could repeat in Q4. This may be because Intel’s manufacturing capacity is failing to meet the holiday season demand. And Q4 could see significant growth in PC demand as businesses buy ahead to avoid upcoming tariffs. Additionally, on December 15, the US will impose a 15% tariff on $175 billion worth of Chinese imports, including laptops and smartphones.
Intel confirms the rough CPU supply environment
AnandTech talked to Intel to get clarification on the CPU supply shortage rumor. In response, an Intel spokesperson said, “While our output capacity is increasing, we remain in a challenging supply-demand environment in our PC-centric business.” Also, the spokesperson said, “We are actively working to address this challenge, and we continue to prioritize available output toward the newest generation Intel Core i5, i7, and i9 products that support our customers’ high-growth segments.”
The statement confirmed the rumor that Intel is facing supply shortages. The firm confirmed that it will focus on the production of its newest tenth-generation PC CPUs. Intel’s tenth generation CPUs comprise of 14nm notebook CPUs, codenamed Comet Lake, and 10nm notebook CPUs, codenamed Ice Lake. And, this means we could see a shortage of desktop and lower-end PC and notebook segments.
The industry struggles to meet CPU supply demand
The above news is positive for AMD, which has launched its 7nm Ryzen 3000 series desktop CPUs. The company is already seeing strong uptake of these CPUs. In fact, Tom’s Hardware article dated August 26 noted that AMD’s Ryzen 7 3700X and Ryzen 9 3900X are in limited supply, which has spiked their prices.
Amidst these issues, AMD didn’t launch its flagship Ryzen 9 3950X CPU until November. The company had planned to release it in September. In a community forum, AMD said, “We are focusing on meeting the strong demand for our 3rd generation AMD Ryzen processors in the market.” This could probably mean that AMD is focusing on increasing the supply of its Ryzen 7 and 5 CPUs, which are likely to sell more than the higher-end Ryzen 9 3950X.
AMD is going after the desktop segment. In Q2, Gartner’s Mikako Kitagawa said that strong growth in desktop PC shipments offsets declines in mobile PC shipments. There are rumors that AMD delayed Ryzen 3950X due to 7nm supply constraints at TSMC. Or the delay was due to overclocking issues.