Capital markets have questioned Intel's chip supply and 10nm process for some time. This not only affects Intel's market liquidity, but also its share price.
Today, Bob Swan, Intel's CFO and interim CEO, released an updated supply letter on the company's official website on Friday in response to a series of recent capital market queries about Intel.
Does it really mean that Intel is really out of trouble? We analyze in detail some of the clarifications contained in the open letter.
Why does Intel give priority to high-end market?
First, the letter reviewed Intel's chip supply capability. In the first six months of this year, Intel's data center business grew 25%, cloud computing revenue grew 43%, and PC business performed even more astonishingly.
Bob Swan acknowledges that the strong growth in the PC market has put pressure on Intel's supply chain and that Intel has had to give priority to producing Xeon and Core processors to meet the needs of both high-end markets. This leads to Intel's chip supply without doubt, especially in the entry-level PC market.
Is the performance and trend of the PC market really Intel?
In July, Gartner, a market research firm, reported 62.1 million PCs shipped worldwide in the second quarter of 2018, up 1.4% from the second quarter of 2007. This is the first quarter of global PC shipments growth since the first quarter of 2012.
PC shipments in all regions increased compared with a year ago. Although this result is a positive one for the PC industry, Gartner's analysts say the signs of market stability are not enough to signal that the PC industry is recovering.
However, Meiko Beichuan, Gartner's chief analyst, said the growth in PC shipments in the second quarter of 2018 was driven by rising corporate demand, which was offset by a decline in consumer shipments.
From this, we can see that the development trend of PC market can be summarized in two aspects.
First of all, the main driving force of the PC market comes from the demand of the enterprise market. In the United States and other markets, public sector demand for business PC is particularly strong.
Second, the PC market is still shrinking, especially three years after the launch of Microsoft Windows 10, the PC switching frenzy brought about by the new system has slowed down, and the future of the PC market is still unclear.
It was on both sides that Bob Swan moderately described the future growth of ordinary PC chips and said Intel would focus on high-end Xeons and core CPUs.
What's wrong with Intel's 10nm?
Intel has been trying to turn to more advanced production technology, 10 nm production technology.
But it is also because of the 10 nm production problem, Intel's CPU has to continue to use 14 nm technology, even this year due to capacity problems encountered shortages.
Chris Caso, an analyst at Ridger Financial Group, said Intel's biggest strategic problem is the 10-nm process delays, which are expected to take two years to see Intel's 10-nm server chips, while rivals are already moving into 7 nm and AMD will release the second-generation EPYC platform next year.
Intel said it has made some progress in turning to 10 nm production technology. However, some analysts say Intel's transformation has been delayed for two years.
In a report at the end of August, Rosenblatt analyst Mosesmann noted that Intel's troubles were not just a 10-nm process delay, but that Intel's technological weaknesses would continue over the next five years. Chris Caso said in its report that Intel's biggest strategic problem is the 10nm process extension.
In early September, prominent investment bank JPMorgan Chase questioned Intel's ability to meet this year's performance standards, saying that not producing enough processor chips to meet demand would be a major drag on PC sales for the holiday shopping season at the end of the year. The bank also expects Intel's shortage of processors and chipsets to hurt PC shipments by 5 to 7 percentage points in the fourth quarter of this year.
The rate of good products is improving. We expect to start mass production in 2019. Intel said.
Can Intel's solution solve the problem?
But Bob Swan says Intel's chip supply is enough to support the company's full-year outlook for revenue this year, at least enough to meet its revenue targets this year. At the end of July, Intel upgraded its non-GAAP revenue guidelines for the full year of 2018 to $695 billion, up $4.5 billion from the full-year revenue guidelines for early January.
At the same time, Intel also put forward three solutions:
1, adjusted capital expenditure in 2018 to a record $15 billion, an increase of $1 billion compared with the beginning of the year.
2. Invest $1 billion in 14-nm chip production lines in Oregon, Arizona, Ireland and Israel to boost supply;
3. In addition, Intel said that 10-nanometer Canon Lake production is increasing, and is expected to be mass-produced sometime in 2019. Smaller NanoChip fabrication processes allow chip manufacturers to produce faster, more energy-efficient chips.
From the above measures we can easily see that Intel on the one hand, to grasp the capacity to solve the problem of shortage of CPU, on the other hand, is also accelerating the production speed of 10 nm.
However, it is worth noting that the solution to the shortage of CPUs is also limited to the high-end commercial market, rather than the personal PC market.
As I said earlier, although the commercial PC market is growing fast, it's still unclear how long the growth effect will last as the air-conditioning boom is coming to an end.
On the other hand, it is noteworthy that, in addition to the high-end commercial PC market, the demand for education is still strong. Over the past two years, both Microsoft's Surface product line for the education market and Google's Chromebook line have achieved good results. This also confirms the prospect of the education market from the side.
In this case, Intel's preferential supply of high-end markets, not to mention the top of the education market, if the market turns to other solutions, Intel will not be good news.
On the other hand, Intel's 10nm process has been delayed since its launch, and although the emphasis will be on mass production in 2019, it is hard to believe that Intel will be delayed again until the market really sees the product.
Fortunately, however, Intel's share price rebounded after the clarification letter, rising as much as 3.8% to $47.75 a day; on Friday, U.S. stocks fell 1% to a daily low of $45.46; and ended up 3.07% at $47.29, the highest since September 5.
At least for Intel, this is good news. For the market, it remains to be verified!
