Intel_Manufacturing_Promo
(Image courtesy of Intel).

Intel Adds $1 Billion in Capital Expenditures to Combat Chip Shortages

Intel announced that it would add $1 billion in capital expenditures to release some pressure from its network of factories, which have been struggling to meet booming demand for chips powering personal computers and data centers. In the meantime, Intel plans to prioritize the production of 14-nanometer chips used in the high-performance segments of both markets.

Despite delays with its latest manufacturing process, Intel has been on a rocket ship trajectory. In the first half of this year, Intel’s data center sales increased 23 percent year-over-year while its cloud business ramped up 43 percent, according to chief financial officer and chief executive Robert Swan. The personal market market has also turned around over the last year.

“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,” Swan explained, adding that “supply is undoubtedly tight, particularly at the entry-level of the PC market.” He added: “Together as an industry, our products are convincing buyers it’s time to upgrade to a new personal computer.”

“While I’m sure Intel would want to have 10-nanometers online now, most of the current challenges stem from upside demand for 14-nanometer parts,” said Patrick Moorhead, principal analyst at Moor Insights and Strategy. Increasing the number of cores inside lower-end PC chips may have compounded the shortage over the last year because they take up more wafer space. But that was “not the primary reason,” he said.

Feeding into the shortage is the reanimation of the PC market. Worldwide shipments totaled 62.1 million in the quarter ending in July, representing slightly more than one-percent growth over the last year, according to market researcher Gartner. Intel’s focus on corporate computing has also strained its factories. The server market ramped up 43.7 percent to $22.5 billion from last year’s to this year's second quarter, according to IDC.

Intel announced that the new $1 billion would be invested in 14-nanometer factories located in Oregon, Arizona, Ireland and Israel. The company projected in January that it would spend $14 billion on capital equipment, up from $11.8 billion last year. Intel’s Swan said that the company would have enough supply to meet its estimated annual revenue of $69.5 billion, which Intel raised from $65 billion at the end of the second quarter.

The announcement raises questions about the status of Intel’s investment, say industry analysts. “If Intel had outstanding orders with equipment suppliers, it would have meant something. The tools could be installed and released to production in the fourth quarter and running by the first quarter,” said Len Jelinek, senior director of semiconductor manufacturing at IHS Markit. “Customers could see some relief by early next year.”

The Santa Clara, California-based company could be slowed down depending on the tools needed to ramp up manufacturing. Tools that transfer the integrated circuit’s pattern onto silicon can take many months to install. Others can be ready for production in less than a month. “The unanswered question is where they are in that process,” Jelinek told Electronic Design. “Worst case scenario, new capacity comes out in the third quarter of 2019.”

There has been fallout from the microprocessor shortage. Last month, Micron Technology said that sales of long-term storage and short-term memory chips would be impaired in the current quarter as some computer makers await parts. Operating profit in the latest quarter is projected to be $2.95 per share versus $3.07 estimates. The Boise, Idaho-based company predicts the shortage of chips to last into next year.

The shortage is the latest challenge for Intel, which is trying to prevent computer makers from substituting chips from rival Advanced Micro Devices. The company is also responsible for supplying the wireless modem used in every new Apple smartphone as opposed to being in half of previous iPhones. As it continues to delay 10-nanometer production, Intel is also looking to permanently replace former chief executive Brian Krzanich.

Intel’s issues are opening the door for competitors to take advantage of TSMC’s 7-nanometer technology, which rivals Intel’s 10-nanometer node. Intel has been plagued with manufacturing issues for years, slowing down volume production of its latest chip technology. But Swan struck a positive tone in last week’s statement: “Yields are improving and we continue to expect [10nm] volume production in 2019.”

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish