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Intel server chip shortages continue to bite: HPE warns of Xeon processor supply drought for the whole of 2020
Traditional IT titans take backseat behind cloud giants
Exclusive Hewlett Packard Enterprise has warned the industry-wide 18-month-plus shortage of certain Intel Xeon server-class processors may continue all the way through 2020.
There are "supply constraints" on Intel Cascade Lake parts until at least April, and the chip manufacturer "recommends steering" customers to Skylake, HPE told its staff in a document seen by The Register. In other words, order Skylake Xeon CPUs to avoid delays; folks will have to wait for next-gen Cascade Lake chips.
In a statement to The Register late last week, HPE confirmed it is "experiencing the industry-wide supply constraints with Intel 2nd Generation Xeon (Cascade Lake) processors." It continued:
Based on demand, we are expecting supply will remain constrained through 2020. Server platforms which use these processors are affected. In order to minimise customer impact as a result of these supply constraints with Cascade Lake processors, HPE urges customers to consider alternative processors, which are still available. We are in constant dialogue with our partners at Intel and have a strong relationship with them, and we know they are working on the issue.
Right now, Xeon Silver processors beginning with 42xx series are the worst hit. This affects HPE server platforms including ProLiant DL360, ML350 and BL460; Apollo 4200; and Synergy 480, among others that use the CPU line. Customers can, of course, as indicated above, try to sidestep the supply constraints and use Skylake server SKUs.
For those unaware, the 14nm Cascade Lake family was launched in 2019. The 14nm Skylake Xeon line goes back to 2017. Cascade Lake is an optimization of Skylake.
HPE is far from alone in dealing with Intel processor challenge: El Reg has spoken to numerous senior figures at larger resellers, integrators, and distributors, who all said Dell and Lenovo are similarly affected, too.
"Dell, Lenovo and HPE all have the same problem: it's an Intel problem," said one. Another told us they thought HPE had been transparent about the shortages while other server makers had "stuck their heads in the sand."
A PR person for Dell told us they had to "route [The Register's] enquiry through the appropriate channels but haven't received anything yet." Lenovo has yet to reply to our request for comment.
In a conference call in November with Wall St analysts to discuss Dell's third fiscal quarter, CFO Thomas Sweet revealed $1bn had been lopped off the computer maker's estimated revenue for the 2020 financial year due to a softer Chinese economy, worsening enterprise customers' spending, and Intel shortages. Dell promised to provide clear guidance for fiscal 2021 when it next reports its financial numbers.
Word of Intel's processor shortages emerged in summer 2018, and despite Chipzilla promising to get things back on track by the middle of last year, the demand for x86 CPU cores is still outstripping supply.
As best as we can tell, the shortages are a result of Intel gradually bringing up to speed its 10nm node factories (that's the 10nm that actually works after years of setbacks and delays) while keeping as many high-margin, high-end server chips rolling off its 14nm fabrication lines as possible, to the detriment of desktop and mobile parts. And even then, it's still not making enough server processors to go around.
Intel told us in a statement:
We continue to focus on improving supply for our customers. We have invested record levels of CapEx the last two years to expand our capacity and increase our supply, but customer demand has outpaced these improvements. We continue to prioritise the production of our highest performance processors as we also continue ramping volume on 10nm and working closely with customers to align our available supply to their demand.
Rising customer demand isn't coming from the traditional server makers: sales haven't exactly been flying of late. IDC stats show that market's global revenues declined 11.6 per cent, year on year, in the second calendar quarter of 2020 to $20bn, and dropped 6.7 per cent in Q3 to $22bn. So who is snapping up all these Intel server chips? The hyperscalers. Intel cannot make enough processors fast enough for Amazon, Microsoft, Google, Facebook, and others of similar size that are constantly expanding their data center operations. With Intel effectively auctioning off its Xeons to the highest and largest bidders, smaller IT suppliers, such as HPE, have to wait in line.
As Intel prioritized the fabrication of its high-margin Xeon chips over desktop parts, PC land was hit hard. HP and Lenovo bemoaned the situation in October 2018 at the Canalys Channels Forum, and Microsoft was grumpy about it when the choked supply dented its quarterly financials in 2019.
In October last year, again at the annual Canalys event, we heard the shortages were still ongoing for PC makers: Alex Cho, president of HP's Personal Systems Business, claimed Intel's supply woes were spread across a portfolio of products, "not just specific CPUs."
Cho wins a prize, since Intel seems to be having difficulty supplying even fat-margin Xeons across the board, as cloud-scale giants continue gulping down enormous amounts of its silicon for their bit-barns. Hungry for more, the hyperscalers are also looking to other CPU architectures. Amazon, Google, Microsoft, and others, continue to make noises about using AMD, Arm, Power, and RISC-V designs in their operations.
The Intel server CPU dearth was also discussed by HPE CEO Antonio Neri in December at the company's Discover More conference in Munich, as we previously reported.
Blame Silicon Valley
The scarcity of server silicon isn't helped by forecasting from hyperscalers described as "rubbish" by a source close to the situation. "And then they land huge orders on Intel," they added, meaning the cloud giants aren't very helpful at predicting their chip needs until they place significant orders for parts.
While HPE and other traditional IT suppliers are given a ticket and told to get in line, Intel continues to prioritize the hyperscalers to the front of the queue. Competition between the internet giants is incredibly fierce: all insist they must have the largest server farms, and they have the deep pockets to fund it all. They are not customers Intel wants to lose.
Just look at the numbers. Amazon, Microsoft, Google, and similar cloud builders, are enjoying impressive data center growth: they accounted for one-third of the $38bn spent on data center kit and software in the first nine months of 2019, and have hogged much of the data center growth in the past five years.
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Amazon has a sprawling retail business and also houses the largest public cloud provider in the industry. Microsoft is snapping as AWS's heels with its own infrastructure-as-a-service operation, Azure. Google Cloud lags behind, though the Chocolate Factory has billions of people logging into YouTube each month as well as billions of Android devices connecting to its systems for updates and services. And then, of course, there is its core business: ads. Oh, and search. The Facebook empire has bonkers numbers, too.
As operators squabble over scarce Intel CPUs, buyers are looking elsewhere. AMD's share price is at a record high, and has more than doubled in a year from less than $20 to almost $50. This is down to AMD overhauling its CPU offerings, using its new Zen-branded architecture and TSMC's factories, and delivering good affordable chips. Intel's predicament will also have contributed.
And as for the server vendors like HPE? Well, it may be that they are no longer quite so tier-one as they once were. This looks to be the new normal for them: standing in a queue while larger consumers of components get priority. HPE's memos indicate that Intel is having to make some tough choices as it decides between the warhorses of last century and the hyperscalers of today.
Microsoft refused to comment on Intel chip availability. AWS has been unable to find the requisite spokespeople to talk and Google has yet to respond. We will update this article if and when they do find their voice. ®
Updated to add on January 24
Now that Intel is out of its quiet period, following the release of its full-year 2019 financial results, a spokesperson for the x86 giant told us it thinks its Xeon server processors are not in short supply, contrary to the messaging HPE shared with its staff and customers – and contrary to what industry sources have told us. It also conceded that some orders take longer to fulfill than expected.
"Overall, we are not supply constrained in our server business," the Intel PR person said.
"When demand is very strong like in Q4, it can sometimes take a little longer to fulfill orders and support each customer’s desired product mix. However, we believe we have supply to meet market demand in Q1 and the full-year."