Intel to outsource component manufacturing to meet high demand

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Last week, Intel published a letter for its clients alerting them to an issue regarding its supply chain. The firm is currently experiencing a shortage of 14-nanometer (nm) chipsets due to higher than expected demand for personal computer components. However, the firm is working hard to right the ship, specifically by outsourcing production to other chipmakers.

What’s Causing the Unexpected PC Demand?

As mobile platforms grow increasingly ubiquitous, it might be surprising that the PC market is still growing. Interestingly, increased demand for desktop hardware is the result of the enduring popularity of PC gaming.

According to Newzoo, the PC gaming market will generate $35.7 billion in revenue this year, a four percent year-over-year increase. Moreover, the market analyst group predicts that the segment will reach $39.5 billion by 2022. Desktop gaming is also predicted to experience a higher than average growth rate in China.

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Indeed, Research and Markets reports that Sino PC gaming revenue will reach $16 billion by 2023. As such, the Chinese desktop gaming segment is expected to experience a compound annual growth rate of 5.1 percent.

Because of its booming Chinese PC sales, Intel has struggled to align production with demand. Last year, the corporation forecasted bottlenecks and increased its manufacturing spending by 30 percent to $15.2 billion. Consequently, the firm’s production of 14 nm chipsets has jumped by 25 percent in the last year.

Nevertheless, with an estimated 68 million PCs shipped globally in the last quarter, Intel is still burning through inventory. Accordingly, Dell recently lowered its annual revenue forecast by $1 billion due to a lack of Intel components.

How Intel is Addressing the Problem

Although Intel represents 80 percent of the PC component market, its supply chain difficulties have provided an opportunity for its competitors. For instance, AMD is making a play for the low-price PC market with its Ryzen 3 CPU. The firm is also targeting high-end users with its forthcoming 128 thread, 64 core Threadripper chipset.

As AMD’s latest Ryzen processors are 7 nm, they offer higher performance and less power consumption than Intel’s CPUs.

Still, the Santa Clara, California-based corporation remains undaunted in the face of increased competition. Intel CFO George Davis said his company intends to resolve its supply issues by the end of next year. Moreover, the firm is working to supplement its supply of 14 nm chips by 25 percent in 2020. Intel increasing its current production will also help ensure a smooth rollout of its forthcoming 10 nm processors.

The company’s decision to enlist outside manufacturers to boost its capacity will help it achieve that goal.

Furthermore, the corporation recently entered into a partnership with MediaTek to produce components for 5G laptops. Though Intel isn’t the only firm to make a play for that sector, its size and brand reputation should allow it to dominate the emerging market.

At this point, Intel is in a position to continue outpacing Wall Street’s expectations into next year. Still, the firm will need to solve its production problems as quickly as possible to do so.