Two independent analysts downplayed an open letter from Intel sent earlier this week that apologized to customers and partners for delays in PC chip shipments.
“This letter is a part of a very standard process for Intel and does not represent a new reason for alarm in the market,” said Vlad Galabov, an analyst at IHS Markit, now a part of Informa Tech. He commented in an email to FierceElectronics on Friday. “I doubt the supply/demand situation is different now…from what it was a month ago.”
Galabov said he previously worked in Intel’s supply chain for seven years and is “no stranger to these letters and situations.”
Instead of faulting Intel for falling behind as Intel admitted in its letter, Galabov said Intel’s letter is instead an indication of a strong PC market that is exceeding Intel’s stepped-up demand in recent months. “My conclusion would be that this [letter] is a very positive sign for the PC market which looks quite robust and is not declining as anticipated,” he added.
The letter from Michelle Johnston Holthaus, general manager of sales and marketing, was posted late Wednesday on the Intel website and began, “I’d like to acknowledge and sincerely apologize for the impact recent PC CPU delays are having on your business…”
Her letter added that Intel’s 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.”
In an October earnings call with analysts, CEO Bob Swan said second half 2019 PC client chip shipments were up more than 10%, which was still not sufficient to keep up with demand. He added, “We are letting customers down.”
Intel has invested capital funds for increasing 14nm production this year, while ramping up 10nm production.
Some industry observers had a very different initial reaction to the letter.
In one initial media reaction, Ryan Smith in AnandTech, called the letter “sobering” and possibly without precedent. Smith noted Intel’s delays have been going on for more than a year.
Leonard Lee, an analyst at NeXt Curve, called Intel’s apology for PC CPU shipment delays “better than nothing,” and described the supply-demand imbalance Intel faces as “complicated.” He said unusual buying patterns by PC manufacturers play into Intel’s problems, not just problems Intel has faced with 14 nm chip production.
These unusual buying patterns are “likely due to the impending tariffs on consumer electronic products, blacklistings and the overall volatility and uncertainty that the U.S.-China trade war is injecting into the semiconductor market and broader tech industry,” Lee added.
It is significant that Intel’s open letter refers to PC chip supplies, not data center chips, he said. Planned December tariffs will have an impact on the cost of PCs in the U.S., which could be filtering down, in part, to Intel’s problems.
“The current trade situation makes forecasting at Intel and third parties pretty challenging, especially in the short term, even in light of a persistent supply shortage that Intel and its customers have suffered,” Lee said. “This challenge is not surprising.”
Intel also acknowledged in its letter that it is using third party foundries, but it isn’t clear how much production is being done outside of Intel.
“I doubt Intel uses external fabrication much,” Galabov said.
An Intel spokeswoman on Friday said the company is not quantifying its use of outside foundries, but said outside foundries are working on non-CPU products. *
Investors didn’t find the Intel apology that significant on Thursday, but the stock declined some on Friday. Intel’s stock price dropped slightly on Thursday morning after the letter was posted late in the day before, but finished Thursday at $58.22, not far behind Intel’s 52-week high of $59.59.
When the market opened on Friday, Intel’s stock quickly jumped higher, hitting $58.50 after the first five minutes of trades. Later in the morning, the price started to decline and fell to below $58 shortly after 10 a.m. ET.
Galabov has seen Intel apologize multiple times for production delays over the years, going back to when he started at Intel in 2009. “Throughout those times, any supply tightness, while unpleasant and impacting production line planning at Intel’s customers, did not result in a broad market impact,” Galabov said.
“As an analyst now, I would not take this letter as a reason to change my forecast for 2019 or 2020. Particularly, I would not be decreasing my forecast,” Galabov concluded.
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*This article was updated and clarified from the original to add how Intel is using outside foundries.