Intel Still Can’t Meet Demand In-House, Increases Reliance On Third Party Foundries
Intel has been facing record levels of demand for their 14nm based processors for quite some time now and they have not been able to meet it owing to limited capacity of their in-house fabrication facilities. It was hoped that the company would be able to solve these issues going into 2020 but it seems that this is not going to happen anytime soon, as stated in a letter to customers and partners. Fortunately however, Intel states it will strive to meet demand by increasing reliance on third party foundries like TSMC.
Intel to increase reliance on third party foundries and caught in the process ramp dilemma
As Intel ramps up 10nm, it is still facing a ton of demand for its super mature 14nm process. It has already offloaded some non-critical chips (like the northbridge etc) to third party foundries like TSMC and while it had increased CAPEX in 2019, it looks like it is still not able to meet production. Intel states that it will be shifting more production to third party foundries but it remains unclear at this point just how much the company can outsource in terms of its non-critical chips. The actual CPU cores will always require to be manufactured on Intel's proprietary 14+++ process for them to have any semblance of consistency as far as performance goes.
This means that Intel can essentially outsource the entirety of its non-critical chips to TSMC or Samsung, but cores are something that will always be manufactured on Intels proprietary processes and this is something it can not wiggle itself out of.
Here's the thing however. The company is in a weird place as far as investing CAPEX goes. Putting too much CAPEX into 14nm right now does not make sense as the company is trying to transition to 10nm volume but at the same time if it does not meet demand for 14nm - it will lose market share to AMD. That said, putting CAPEX into 14nm would make the ramp to 10nm slower and *also* cause a market share loss to AMD. Call it the process ramp dilemma if you will. It seems that until the 10nm volume ramp (and if certain rumors are true, the 7nm EUV ramp) kicks in for desktop parts, Intel won't be out of the woods.
The full letter, which can be found over here, is given below:
To our customers and partners, I’d like to acknowledge and sincerely apologize for the impact recent PC CPU shipment delays are having on your business and to thank you for your continued partnership. I also want to update you on our actions and investments to improve supply-demand balance and support you with performance-leading Intel products. Despite our best efforts, we have not yet resolved this challenge.
In response to continued strong demand, we have invested record levels of Capex increasing our 14nm wafer capacity this year while also ramping 10nm production. In addition to expanding Intel’s own manufacturing capability, we are increasing our use of foundries to enable Intel’s differentiated manufacturing to produce more Intel CPU products.
The added capacity allowed us to increase our second-half PC CPU supply by double digits compared with the first half of this year. However, sustained market growth in 2019 has outpaced our efforts and exceeded third-party forecasts. Supply remains extremely tight in our PC business where we are operating with limited inventory buffers. This makes us less able to absorb the impact of any production variability, which we have experienced in the quarter. This has resulted in the shipment delays you are experiencing, which we appreciate is creating significant challenges for your business. Because the impact and revised shipment schedules vary, Intel representatives are reaching out with additional information and to answer your questions.
We will continue working tirelessly to provide you with Intel products to support your innovation and growth.
Michelle Johnston Holthaus
Executive Vice President
General Manager, Sales, Marketing and Communications Group