Shortages of chips and components have plagued the high-tech industry for several quarters now and while semiconductor companies and their peers are investing in additional manufacturing capacities, there is no light at the end of the tunnel. This week Intel warned that in Q3 there will be unprecedented shortage of chips for consumer PCs.
"Persistent industry-wide component and substrate shortages are expected to lower CCG revenues sequentially," said George Davies, chief financial officer of Intel, said during Intel's Q2 2021 conference call with analysts and investors (via SeekingAlpha). "We expect supply shortages to continue for several quarters but appear to be particularly acute for clients in Q3. In datacenter, we expect enterprise, government and cloud to show further recovery in Q3."
Just several years ago Intel had issues producing enough silicon at its fabs, due to overwhelming demand for Xeon and high-end Core CPUs, so it expanded its manufacturing capacities. Today, Intel has enough semiconductor production capacities for its products made using both 10nm and 14nm fabrication processes, but there's another obstacle in packaging its chips: insufficient Ajinomoto build-up films (ABF) substrates supply.
The best CPUs and other modern processors and chipsets use laminated packaging, as well as chip substrates based on insulating, which are supplied by just one company, Ajinomoto Fine-Techno Co. While Ajinomoto can supply more or less enough films, actual makers of IC substrates cannot meet demand from all of their customers and became a bottleneck for a variety of chipmakers and chip packaging houses earlier this year. Intel has its own testing and packaging facilities but apparently cannot get enough substrates.
"We did a really good job of eating up a lot of our substrates, some of which we thought we would have available to us in Q3," Davis said.
Demand for PCs usually peaks in September – November, as people return to offices, whereas students return to schools. But demand for components starts to increase in the second half of June and peaks in August – September as PC makers build systems for the back-to-school and holiday seasons. Since Intel (and its partners) have limited substrate production and packaging capacities, their shipments to PC makers (and the channel) are going to be constrained while demand will go up. As a result, shortages of CPUs, chipsets and other components for client PCs are expected to be severe n Q3 2021.
Intel has to prioritize shipments of its datacenter-oriented Xeon processors both because of long-term contracts and because of margins. Since Intel's Xeon CPUs are physically bigger than Intel's client CPUs, shipping one of such datacenter chips means being unable to ship three or four client chips.
In a bid to ensure that it can get enough substrates, Intel has invested in ABF substrate makers and also installed some of the equipment to finish production of ABF substrates in its own packaging facilities.
Intel is hopeful for Q4.
"In Q3, we could see we had a real supply challenge, it is acute," said Davis. "But Q4, we are doing everything we can to help our substrate suppliers increase supply, including finishing up some of their manufacturing in our own facilities, which is something we could do with as an IDM."
