Intel Mum On When Entry-Level CPU, IoT Supply Will Improve

Intel is staying quiet on when the company expects its shortage of entry-level CPUs to end as it prioritizes production of Core and Xeon processors to meet growing demand in the PC and server markets.

The Santa Clara, Calif.-based company provided more details on its plan to improve processor supply in its third-quarter earnings call on Thursday, when the company reported a continuing resurgence in its PC business and strong continued growth in its data-centric businesses.

When an analyst asked Intel interim CEO Bob Swan when he expected the supply constraints to be over, Swan did not provide a timeline in his response. But he answered other parts of the analyst’s questions about the company's efforts to improve supply.

"We were caught off guard a little bit this year by the explosive growth well ahead of what our expectations were back at the beginning of the year, and that growth came from all different segments of the business," he said. "It put us in the unfortunate situation of constraining some of the demand signals that we were seeing from the market and our customer base."

Earlier during the call, Swan said the company's efforts to improve supply for Core and Xeon processors would not only have a continued impact on entry-level CPUs but Internet of Things components as well. As a result, Swan said, he expects the company's Internet of Things Group revenue to be down 15 percent sequentially in the fourth quarter.

"Our biggest challenge in Q4 will be meeting any additional PC and [Internet of Things Group] demand beyond our guidance and we do expect fourth quarter upside from here will be limited," Swan said.

Swan said while the company has upgraded its Q4 and full-year revenue guidance, the company's supply issues will constrain further growth.

"We're working extremely hard to get back on track in 2019, but at this stage of the game, given the demand signals we've seen in fourth quarter, we're going to be constrained a little bit," he said. "We're trying to prioritize as best we can with our customers."

Swan said the company's efforts to improve supply also include an extra $1.5 billion spent in capital expenses this year and the repositioning of some factories that were focused on the company's next-generation 10-nanometer CPUs to its current 14nm processors.

The company's CPUs have been in hot demand this year, in some cases to the point where there have been shortages, which has created issues for some partners. Intel acknowledged in September that its CPU supply was "undoubtedly tight," especially for lower-end PCs.

Despite repositioning some of its 10nm capacity, Intel remains on track to have 10nm CPU-based systems on shelves by the holiday 2019 season, Swan said during the call. Earlier in the week, the company denied a report stating that the company had killed off its 10nm CPUs.

"We continue to make good progress on 10nm," Swan said.

For the third-quarter, Intel said its Client Computing Group achieved a new record for revenue, growing 16 percent year-over-year to $10.2 billion. Driven by strong demand for its desktop CPUs in the commercial and gaming market, the PC-centric group's growth has been trending upward this year, with Intel seeing year-over-year growth of 6 percent in Q2 and 3 percent in Q1.

Intel's growth in its data-centric businesses also remained strong, with the Data Center Group growing 26 percent year-over-year to $6.1 billion and its memory business growing 21 percent to $1.1 billion. The Internet of Things Group also grew 19 percent year-over-year to $919 million, not including its now-divested Wind River business. Things slowed down, however, for the Programmable Solutions Group, which only saw single-digit growth after growing in the double digits for several quarters.

The company's Q3 revenue was $19.1 billion, a 19 percent increase from the same period last year and beating Wall Street's expectations by $1 billion. Its net income was $6.5 billion or $1.40 per share, compared to $4.8 million or $1.01 per share from the same period last year. On a per-share basis, Intel beat Wall Street's expectations for net income by 25 cents.

Intel's stock price was up roughly 1 percent in after-hours trading.