Bob Swan, Intel’s CFO and interim CEO, on Friday issued an open letter to the company’s customers and partners addressing tight supply of some of the company’s products. The high-ranking executive admitted the issue and outlined the set of actions Intel is taking to tackle the problem.

The head of Intel noted that demand for the company’s chips for PCs and servers has been significantly exceeding expectations throughout 2018. In the first half of 2018 the company’s datacenter business grew 23% year-over-year, whereas Intel’s cloud business grew 43% YoY. Besides, demand for client PCs also grew in the second quarter, increasing demand for Intel’s products. As a result, the company upped its revenue forecast for the year by $4.5 billion in July.

The improved demand for processors has naturally increased pressure on Intel’s factory network, particularly because the company faced amplified demand for its high profile products, such as the Intel Xeon line, Core i9, or more recently as the modem in Apple's latest iPhone launch.

From a manufacturing perspective, it is naturally more difficult to produce large dies for servers with up to 28 cores, because they physically larger than dual-core or quad-core chips for client PCs. On a given wafer, you can fit more smaller CPUs than a few big ones. Also, the number of wafers a fab can process per month is limited. To make things harder, the company’s enthusiast-class client CPUs now also feature more cores than the first generation 14nm parts, so they are eating more wafer space (i.e., fab capacity) than they did a year ago.

In short, as a result of the market growth, physical increase of die sizes, and Intel’s capacity allocation, demand for Intel’s processors exceeded the number of wafers it can process at some point.

As a result, Intel had to prioritize production of its high-margin large-die Core and Xeon processors over other products in the recent months, which is why supply of entry-level products made using 14 nm process technology is tight right now. In particular, the company had to develop 22-nm new version of its H310C chipset in a bid to free up its 14 nm capacity, according to Tom’s Hardware.

Despite Intel's reassurances, there is a tight supply of even Intel’s Xeon processors, not just the company's entry-level CPUs or chipsets. In particular, we have seen stories claiming that its enterprise customers report concerns about supply, with HPE allegedly going to the extent of recommending AMD to fill stop-gaps.

In a bid to increase production of its 14-nm chips the company is investing an additional $1 billion in its manufacturing sites in Oregon, Arizona, Ireland, and Israel that produce chips using on said node. Intel originally planned to spend $14 billion in CapEx this year, but then allocated another billion to boost production capacity of its 14 nm fabs. Intel naturally does not detail how it plans to upgrade the facilities, but $1 billion can buy you many step-and-scan systems to process wafers. One thing to note here is that fab investment is usually on the scale of months, so any investment now is unlikely to increase fab throughput until end of Q1 next year.

In addition to installing new/additional scanners to produce more chips using its 14 nm manufacturing technologies, Intel continues to invest in its 10 nm fabrication process and appropriate capacities. 10 nm yields are improving and Intel expects its next-gen CPUs to be in volume production in 2019. Meanwhile, some of the capacities used to fab chips using Intel’s 14 nm technology today will be used to process wafers using its 10 nm tech next year (e.g., we believe that Intel’s Fab 28 in Israel can be used to make both 14 nm and 10 nm chips). Therefore, to increase its global output of CPUs when its 10 nm capacities come online next year, Intel will have to ensure that its yields are high enough and its die sizes are low enough.

Intel deserves credit for being open about the ongoing short supply issues, though it is evident that the company simply could not ignore multiple reports about shortages, some of which were inaccurate. The chipmaker did acknowledge the issue and outlined solutions. What remains to be seen now is how Intel plans to meet demand for its Whiskey Lake CPUs during the holiday season and how the short supply of its processors in general affects plans of PC makers for late 2018.

The full Intel news item is reposted below.

An Open Letter from Bob Swan, Intel CFO and Interim CEO

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:

  1. 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.
  2. We’re making progress with 10nm. Yields are improving and we continue to expect volume production in 2019.
  3. 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.

Sincerely,

Bob Swan
Intel Corporation CFO and Interim CEO

Source: Intel

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  • HStewart - Friday, September 28, 2018 - link

    "counteless troubles meeting their own demand"

    That not always a bad thing, this mean that demand for Intel CPU's is a lot more than what people on the web believe.
    Reply
  • V900 - Friday, September 28, 2018 - link

    And prices are higher!

    Isnt it interesting, that we're seeing the dream scenario for many followers of the Church of AMD: Intels manufacturing failures mean a shortage of chips available.

    In their fevered dreams, this would be the moment where desperate customers decided to give AMDs Zen a chance. Stunned by the performance and price, they promptly swear to only use AMD CPUs from now on. And finally, AMD gets their revenge and vanquishes the Blue giants evil reignof profitable terror.

    Of course instead of that happening, most of Intels customers just shrugged when faced with a shortage.

    And decided to either wait or pay extra for a CPU now, rather than buying from AMD.
    Reply
  • V900 - Friday, September 28, 2018 - link

    The fact that you think that going from TSMC to Samsung is as easy as you going from Walgreens to Kroger, tells me that you don't really know a whole lot about the topic.

    And no: AMD cant just say: "Welp, Ill just call Samsung and have them make my CPU instead!"

    Aside from the technical difficulty involved, its also important to remember that most of TSMCs 7nm production is already booked a long time into the future. (Apple alone is taking up 70% of it)

    And hey: Neither TSMC or Samsung have actually shipped a high density 7nm chip yet. Latest word is that theyre both delayed.
    Reply
  • Wilco1 - Sunday, September 30, 2018 - link

    So the iPhone X in the shops with a density of 83 million transistors per mm^2 isn't 7nm?!? Or are you just an Intel fan-boy making stuff up? Reply
  • NirXY - Thursday, October 04, 2018 - link

    The iPhone X uses Apple A11 CPU which is Manufactured on a 10nm Reply
  • shabby - Friday, September 28, 2018 - link

    Intel's 7nm isn't even on the horizon, their 10nm is comparable to others 7nm but they took a gamble in some spots in it and lost. Reply
  • HStewart - Friday, September 28, 2018 - link

    Intel is not out - it not just the node that makes a product success - maybe the gamble was making technology that was significant more advance than other technologies and they did more work. But the node size is only one part.

    Keep in mind CPU's and especially just Desktop Gaming CPU is not the only business they are into.
    Reply
  • V900 - Friday, September 28, 2018 - link

    How so? Intel and TSMC are roughly neck and neck.

    Intel 10nm=TSMC 7nm. Intel has shipped a high density 10nm chip (though in limited numbers.)

    TSMC haven't even shipped a chip made by their high density 7nm process, though they are shipping a chip made in their low density/low power 7nm process. (The A12 in the iphone)

    Nobody is in the lead here yet, though we will see what the situation looks like in a year.

    And of course, the really tricky node where both TSMC, Samsung and Intel could fail, will be the 5nm node (Intels 7nm)
    Reply
  • Wilco1 - Sunday, September 30, 2018 - link

    TSMC has been shipping 7nm for quite a while now given that the new iphone is in the shops. And yes this is the densest process in the world, so TSMC quite obviously has taken the lead. Next year they will do a 7nm+ process using EUV which will be even denser (far more dense than Intel 10nm). Reply
  • FunBunny2 - Friday, September 28, 2018 - link

    may be we'll finally see 450mm lines??? that was supposed to happen, what, a decade or two ago? Reply

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