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Intel Says Chip Shortages Will Spill into Second Half

In October, Intel said it would spend $1 billion in an effort to combat a shortage of computer chips used in data centers and personal computers. In December, Intel said that it planned to invest another $500 million in its production plants. But the Silicon Valley company has struggled to alleviate the constraints: its supply problems are set to continue into the second half of 2019.

"We have increased capacity to improve our position in the second half, although product mix will continue to be a challenge in the third quarter as our teams align available supply with customer demand," Robert Swan, the chief executive of Intel, said on an analyst conference call last month. The constraints have pinched global shipments of personal computers in 2019, industry analysts say.

The Santa Clara, California-based company moved to combat the chip supply shortage last year, boosting its capital spending budget from $14 billion to $15.5 billion. In the second half of 2018, Intel started pumping up its production of chips based on the 14-nanometer node and destined for data centers and premium PCs.  But that had the effect of exacerbating a shortage of cheaper PC chips with smaller core counts.

In the first quarter, global shipments of personal computers fell 3% annually to 58.5 million units, according to IDC. "We have added supply capacity and continue working closely with customers to align our available supply to their demand," Intel's chief financial officer, George Davis, said. "We had strong ASP growth in part due to small-core constraints," he added. "[But] constraints were responsible for the year-over-year decline in volume."

Intel, the world's No.2 semiconductor supplier, discussed the duration of the shortage during its first quarter earnings report in April. Intel also announced that it had shaved $2.5 billion from its 2019 sales forecast. The company said its sales would total $69 billion, down from $70.8 billion in 2018. Sales of Intel's personal computer chips came to $8.6 billion in the first quarter, an increase of 4% increase from the same quarter a year ago.

Intel, which holds more than 80 percent of the market for chips used in personal computers, is trying to prevent its customers from using AMD's competing chips. AMD has become a bigger threat to Intel as the shortage has persisted, taking bigger and bigger bites of Intel's market share, industry analysts say. AMD also plans to start selling 7-nanometer CPUs before Intel's 10-nanometer CPUs, further threatening Intel's dominance.

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