Enterprise Mobility Customers Beware: Long Lead Times and Inventory Shortage Anticipated Through End of 2018

by Spencer Gisser | 10/11/2018

 

Intel is suffering a severe manufacturing shortage of its 14nm semiconductors, electronic components that Intel’s customers use in manufacturing such devices as smartphones and tablets and notebooks. Intel has released an open letter to its customers and partners pledging rapid changes and affirming the belief that Intel will meet the full-year revenue outlook the company announced in July. The company claims that it expects to have “at least the supply to meet the full-year revenue outlook we announced in July.” However, we are late in the year and this does not eliminate the possibility of shortages after December. Two main factors are to blame for the present crisis: demand for PCs has risen, and Intel delayed production of its 10nm chip design. Intel’s manufacturing shortage appears to be severe and may affect downstream manufacturers, potentially pushing companies out of Intel’s orbit.

Intel’s current shortage appears to be severe. A Digitimes report alleges that Intel’s 14nm manufacturing capacity has fallen short of demand by as much as 50%, according to unnamed industry sources. Those of Intel’s customers who use these semiconductors risk manufacturing delays if they run out of these chips. This will ripple throughout the mobile eco-system through the end of 2018 and perhaps beyond as device vendors will struggle to fulfill demand from their customers. More specifically, in the rugged mobile market, customers will likely suffer even longer lead times (lead times are already long in comparison to other mobile categories) and should plan accordingly.

Although Intel’s official 14nm chips have nodes that are considerably smaller than their competition’s, other manufacturers are further on their way to more advanced 10nm and 7nm node sizes. For companies that are already considering Intel’s competitors this may represent the necessary evidence to make the switch. Between the difficulty Intel faces and the risks for Intel customers, this semiconductor shortage may lead to significant changes and tough decisions in the coming months.

Rising demand for gaming and commercial systems had led to increased PC purchases, which has strained Intel’s microchip manufacturing capacity. Few hardware companies saw this sudden spike in demand coming, especially given slow sales and rising inventory among other hardware vendors. As a result, this surge in demand has caught Intel by surprise, leaving the company playing catch-up.

The 10nm semiconductor is the 14nm chip’s successor and is by nearly all metrics superior. Although initially promised for the first half of 2018, Intel announced this past April that it would defer volume shipment of 10nm semiconductors until 2019. Although this announcement only applied to 10nm semiconductors, this delay has likely contributed to the current 14nm shortage. Those of Intel’s customers who had planned to order 10nm chipsets in 2018 have instead had to order 14nm semiconductors for the time being. This unanticipated demand for 14nm chipsets likely contributed to the present shortage of 14nm semiconductors. Apple, notably, had planned to use Intel’s new 10nm processors in a MacBook refresh, but Intel’s 10nm delay forced Apple to redesign their system to accommodate 14nm chips instead.

Intel is taking steps to ameliorate the shortage. The company is increasing its investment into its 14nm manufacturing sites in Oregon, Arizona, Ireland, and Israel. Intel also re-affirmed its commitment to volume production of 10nm chips in 2019. As an additional measure to increase production, Intel is contracting some of its 14nm manufacturing to Taiwan Semiconductor Manufacturing Company (TSMC). TSMC is the world’s largest semiconductor foundry, and the company works with Intel as a contract manufacturer already.

View the 2018 Enterprise Mobility & Connected Devices Research Outline to learn more.



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