A shortage of high-end computer chips from Intel is being felt in other parts of the tech sector, reports The Wall Street Journal (Sept. 24, 2018). The question is how far it might spread.
Intel supplies the vast majority of CPU chips for the PC market today. Most are produced with circuitry measured at 14-nanometers—the most advanced manufacturing node Intel currently has in mass production. Intel has three facilities capable of producing chips at that level, but those facilities are also in high demand for the type of processors that power data centers, which is Intel’s business line with the best growth. Some of that capacity is also now going toward producing modem chips used in the latest generation of iPhones, which just hit stores.
Intel, in other words, has many demanding customers competing for a finite amount of manufacturing capacity. And while the company has already boosted its planned capital expenditure for the year by $1 billion, such facilities can’t be expanded quickly—especially while the company is struggling to shift some of its production to a new, more advanced 10-nanometer process. That makes it difficult to respond to rapid changes in the market, like the recent surprising jump in PC demand. Second quarter PC shipments grew globally for the first time in six years.
Server-chip demand is also booming, fueled mostly by capital spending from tech giants like Google, Amazon, Microsoft and Facebook, which are building data centers to power cloud-based services. Those four invested over $34 billion in the first 6 months of this year, up 59% from a year earlier. Capital spending by big tech companies could slow if those they aren’t able to get enough server processors to meet their own expansion plans.
Classroom discussion questions:
- Why is Intel unable to fully meet current chip demand?
- Who are Intel’s main customers and what is Intel’s main product?