Intel: 'Another one to two years before the industry is able to completely catch up with demand'

CEO reassures punters that $40bn foundry spending will pay off

Intel boss Pat Gelsinger reckons global semiconductor shortages that continue to disrupt tech industry supply chains could last until 2023, around the time Chipzilla will at last release its first 7nm process CPU, Meteor Lake.

"We remain in a highly constrained environment where we are unable to fully support demand," the CEO noted last night on the company's earnings call for its Q2 of fiscal 2021, ended 26 June.

Gelsinger added that in client computing, Chipzilla continued to "see very strong demand for our client products and expect growth to continue. However, persistent industry-wide component in substrate shortages are expected to lower [client computing group] revenues sequentially.

"We expect supply shortages to continue for several quarters, but appear to be particularly acute for clients in Q3.

"On the other side of the equation, a strong demand environment continues to stress the supply chain. While I expect the shortages to bottom out in the second half, that will take another one to two years before the industry is able to completely catch up with demand."

He said Intel hopes IDM 2.0, a joint project with IBM which combines Chipzilla's internal manufacturing capacity with the use of third-party foundries, would help it "weather these challenges and work with our ecosystem partners to build a more resilient supply chain."

He also said Intel was now "manufacturing more 10-nanometer wafers than 14-nanometer" under the programme.

The numbers

Revenue: $19.6bn, -0.5 per cent year-over-year
Gross Margin: 57.1 per cent
Operating Margin: 28.3 per cent
Tax Rate: 11.9 per cent (down 2.1 ppt from 14.0 per cent)
Net Income: $5.546bn, down 1 per cent
Earnings Per Share: $1.24

Business unit revenue breakdown

Client Computing Group: $10.1bn, +6 per cent
Data Center Group: $6.5bn, -9 per cent

Internet of Things:

IOTG: $984m, +47 per cent
Mobileye: $327m, +124 per cent

Non-Volatile Memory Solutions Group: $1.1bn, -34 per cent
(Intel's NAND memory business is subject to a pending sale to SK hynix announced in October 2020)
Programmable Solutions Group: $486m, -3 per cent

Group revenues, which the firm described as "flat", exceeded market guidance and were ascribed to strength in Intel's Client Computing Group (CCG) and "strong recovery in both Intel's Internet of Things Group (IOTG) and the Enterprise portion of its Data Center Group (DCG)."

On the personal computing front, Gelsinger noted the "ecosystem is back to shipping over 1 million PC units a day despite grappling with component shortages," adding that "PC density, or PCs per household, is increasing as COVID has irreversibly changed the way we work, learn, connect, and care for each other. For example, even as we emerge from COVID, we're seeing many companies opt for hybrid work models versus full return to the office. Second, replacement cycles are shortening on a larger and aging installed base."

He also predicted the sustained shift to notebooks and deployment of new operating systems would "continue to drive refresh on the 400 million PCs over 4 years old that are running Windows 10."

Over on our sister site, The Next Platform, we dived deeper into reasons behind the Data Center Group turning in its "third best revenue quarter in its history," although, as TNP notes, profitability of the segment is not nearly as impressive.

Chief financial officer George Davis noted on the call that DCG had "significant factory startup costs embedded for them" and that the unit and the Xeon product line were "absolutely critical" to the company.

Intel also talked up its cloud-agnostic Xeon platform pitched at telco operators in partnership with Ericsson. The latter has just inked an $8.3bn deal with communications service provider Verizon to supply 5G "solutions," in the US against a backdrop of Huawei sanctions, including, no doubt, Intel and Ericsson's Xeon-based virtualized RAN solution.

Intel's CFO also warned investors not to flinch when they saw operating expenditures ramp up, as the firm pours more budget into its IDM project: "It is good to remember that our investment in 7-nanometer represents a normal impact to introducing new process technologies. Since April, we have seen supply chain inflation happening faster."

He added: "We expect increased R&D through the year as we invest in our roadmap and IDM 2.0 strategy, resulting in year-over-year growth in OpEx of approximately 10 per cent."

Gelsinger noted: "Just to be clear, we're still relying on our substrate network, but we're pulling some of the backend processing into our own factories, which allows us to essentially get more out of the capacity that's available in the industry."

Quizzed about whether it would build out its foundry business by M&A after recent rumours that Chipzilla planned to buy GlobalFoundries, Gelsinger wouldn't be drawn, conceding the build-out of the foundry biz would "include mature nodes, our [22-nanometer process]." He also said he believed "industry consolidation" to be "very likely" due to "the intense R&D, the need to move to modern and leading edge nodes, the massive capital investments required."

Intel last month slightly postponed shipping of its 10nm Sapphire Rapids Xeon server chips, which will be its highest-performing next-gen data centre processor family. Shipments to cloud and other big vendors were pushed back from Q4 2021 to Q1 2022, and for everyone else from H1 2022 to Q2 2022. On this subject, Davis admitted: "So we did add a bit more time for the validation cycle. We are now deep into the validation. It's in the hands of customers, with volumes sampling under way."

The company has recently committed to spend up to $20bn on US foundries in Arizona, and, as of last week, another $20bn on foundry operations in Europe. It's understood Intel will be seeking subsidies.

Asked on the call who "the target customers" were that could "justify this nearly 40 billion of spending that Intel is committing to from a foundry perspective," Gelsinger retorted that Chipzilla itself would hoover up a lot of the "expanded capacity," adding that "demand signals [from customers]... were significantly in excess of our capacity today."

Chipzilla holds its Intel Accelerated shindig on Monday. ®

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