When Intel warned on earnings last week, we noted how odd it was for the company to issue a general supplier update telling the entire industry that it was still facing a challenging production environment. It’s now at least partly clear why Intel did that — Dell told Wall Street during its Q3 earnings call that it would report lower than expected full-year revenue due to Intel’s supply challenges.
Dell’s executives did not want to comment on the overall supply conditions as they will exist in 2020 (Dell’s FY 2021) at this point in time, but the phrasing of the warning was interesting. Jeffrey Clarke, CEO of Dell, said: “Intel CPU shortages have worsened quarter-over-quarter the shortages are now impacting our commercial PC and premium consumer PC Q4 forecasted shipments.”
Up until now, Intel has taken the brunt of the impact on its product shipments at the low end of the market. When we’ve heard about proposed foundry agreements between Intel and TSMC, they’ve focused on chipsets and supplementary products. Intel has now said it will increase its use of third-party foundries. Put it all together, and you’ve got a situation in which the supposedly-improving supply crunch appears to have become worse relatively quickly.
Intel is shipping 56-core solutions now, like Cascade Lake-AP. Those didn’t exist when 14nm was new.
My theory is that what we’re seeing today is the combined impact of several issues. In 2014, Intel delayed bringing Fab 42 online. It restarted the bring-up process in 2017, but the fab won’t be fully online until 2020. Second, Intel had to increase die size to compete against AMD’s Ryzen and Epyc CPUs. Third, Intel has faced difficulty and challenges ramping up its 10nm process. It continues to work through these issues, but Intel set a target for itself that it absolutely had to hit: 10nm would be on store shelves by Holidays 2019.
But hitting that target with 10nm in volume production meant that Intel would have had to dedicate an increasingly large percentage of its foundry space to 10nm, even though 10nm yields aren’t going to be nearly as good as 14nm yields are at this point in time. Smaller process nodes offer the opportunity to build more CPUs per wafer, but low yield percentages steal back the gains. Tool installation at Fab 42 is supposed to be finished by early 2020 and the new plant will produce 10nm and eventually 7nm CPUs, but Intel hasn’t given a firm date for when it will commence volume production out of this factory.
It’s not clear how much longer these conditions will persist or whether they will funnel more business to rival AMD. HP has indicated it expects them to continue through at least the first half of 2020.
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