Intel factories fail to keep up
Paper price cuts hurt more than steel
A story in Asia Biztech has highlighted difficulties Intel has with production at its factories and at the same time underlined further difficulties ahead for the chip giant.
This last Monday we reported price cuts Intel had made on its CPUs, while yesterday we also reported the dearth of 1GHz Pentium III processors available to huge distributors including Ingram Micro and Tech Data.
The Nikkei report confirms continuing shortages of CPUs at both the high and the low end, and at the same time reveals projected shipment weightings for Intel's fourth quarter. Customers are being told that Celerons will suffer the most from the shortages, which will last, at least, until the end of the year, with Pentium IIIs receiving a 75 per cent allocation.
It seems, therefore, that Intel is having to trim its sails on its low end (and highly successful) Celeron line to maintain margins on Pentium IIIs while still performing a complex juggling act at its existing factories.
At last week's Intel Developer Forum, Mike Splinter, who has the unenviable job of looking after production at the company, disclosed that seven of Intel's fabs, so far, had switched production to .18 micron technology.
There is still a world shortage of Flash memory, and Intel produces this product using .18 micron technology. Later in the week, we heard that Intel's StrongARM XScale technology would also use this process technology.
This means that the rest of Intel's factories are continuing to produce a variety of silicon on .25 and even on .35 micron process technology, while, at the same time, the firm wants to push the boat out on .13 micron processes and has committed that some Pentium IIIs and some Willamette Pentium IV production will be produced using this technology next year.
Meanwhile, Intel also wants to start produce 12-inch wafers. Both .13 micron process technology and 12-inch wafer factories require considerable re-tooling. Meanwhile, Intel has said it is to build additional fab capacity and has also acquired capacity in the shape of the old Rockwell plant.
All of this shows the complexity of running a business such as Intel's, and reminds us of AMD's Jerry Sander III's axiom: "Only real men have fabs".
We've had occasion to see the inside of an Intel fab, at Albuquerque, and one can only admire the technological achievements that Chipzilla has managed. Microsoft, for example, does not have fabs and isn't locked into this type of colossal R&D and capital investment.
AMD only has one and a half x86 fabs, although it has a couple of other FASL (Fujitsu-AMD) Flash fabs, and also needs to build more capacity to help supply pent up demand for both its microprocessors and Flash memory.
Intel, we can confirm, has 10 fabs in the US, three fabs in Europe and one still under construction. It has other fabs elsewhere.
Unfortunately for Intel, and to a lesser extent AMD, there is a huge PR war underway which rather masks the underlying realities. While both firms are playing x86 chip leapfrog, there is an unbelievable amount of effort going on behind the scenes to deliver wafers and chips off the factory floors.
Intel's chairman of the board, Andy Grove, was asked at last week's IDF why, given the shortages, weren't chip prices rising, rather than falling, according to the normal rules of supply and demand. His answer was that Intel still wishes to drive the x86 technology into the market and that raising prices would have an adverse effect on that push.
Lest we forget, Intel, and we presume AMD, also have considerable headroom, with gross margins hovering around the 60 per cent mark. As we've pointed out before, many other players in the PC supply chain, would serially murder for margins anything like that, while distributors end up with net margins of something between 1 and 2 per cent. Intel, unlike AMD, is also very liquid. So, in the long term, we can't really see Chipzilla bowing out of a market it has dominated for so many years. ®