In Open Letter, Intel Talks Around PC Sales Growth

In an open letter, Intel CFO and interim CEO Bob Swan claims that his firm is seeing “surprising” growth in its PC business this year. And by surprising, he really means modest.

“Together as an industry, our products are convincing buyers it’s time to upgrade to a new PC,” Mr. Swan writes. “For example, second-quarter PC shipments grew globally for the first time in six years.”

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Looked at objectively, this isn’t much of an accomplishment: The PC market grew by just 1.9 percent in that quarter. And that “growth” came on the heels of six straight years—or 24 consecutive quarters—of often massive shortfalls. By the time those six years concluded, the PC business emerged at a diminished size that is just two-thirds the size it was at the time of its peak.

My own take on the future is that we will see small bursts of cyclical growth surrounded by a sales flat-lining or even decline overall. And the one major upgrade cycle to come—businesses upgrading past Windows 7 to Windows 10—will not be comparable to past upgrade cycles, according to HP. I do believe that this Windows 10 upgrade cycle will be the industry’s last hurrah.

And Intel is pretty much on the same page, at least for the short term.

“We now expect modest growth in the PC total addressable market (TAM) this year for the first time since 2011, driven by strong demand for gaming as well as commercial systems – a segment where you and your customers trust and count on Intel,” Swan continues.

The bad news, for Intel, is that it was apparently unprepared for this growth.

“The surprising return to PC TAM growth has put pressure on our factory network,” he writes. “We’re prioritizing the production of Xeon and Core processors so that collectively we can serve the high-performance [and most lucrative] segments of the market. That said, supply is undoubtedly tight, particularly at the [volume and] entry-level of the PC market. We continue to believe we will have at least the supply to meet the full-year revenue outlook we announced in July, which was $4.5 billion higher than our January expectations.”

I want to be clear about the verbiage I added above.

Intel here is breaking down its deliverables to the PC market into two groups: The expensive and lucrative but relatively small (by volume) market for high-end chips, and the inexpensive and less lucrative but very large (by volume) market for low-end chips.

“We are taking a customer-first approach,” he notes. “We’re working with your teams to align demand with available supply.”

In other words, Intel is saying that it will continue to deliver its more lucrative offerings as required by its own customers (mostly PC makers). And it will do as well as it can with its less-lucrative, low-end end products.

This is brilliant: By claiming that it is struggling to meet demand in a market that grew by just 1.9 percent in one quarter (again, after six years of losses), Intel is creating the appearance of much greater health. I assume its PC maker customers appreciate the 1.9 percent of extra effort required.

But I’m curious why this generated an open letter, and not a private communication to its customers. After all, Intel said on the same day that it has “chosen, and will continue to choose, to respond to Qualcomm’s statements [about Intel] in court, not in public”. Qualcomm’s referenced legal claims are on public record. Why would Intel be private there but take its manufacturing efforts for PC makers public?


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Conversation 12 comments

  • glenn8878

    29 September, 2018 - 11:53 am

    <p>I guess it’s good and bad news. Good that PC demand improved. Bad that Intel can’t cash in. AMD will enjoy higher marketshare. </p>

  • FalseAgent

    29 September, 2018 - 12:04 pm

    <p>I don't get it, why is there an expectation of growth in a mature market? Simple ebbs and flows shouldn't make the news.</p>

    • Daekar

      29 September, 2018 - 3:30 pm

      <blockquote><em><a href="#331472">In reply to FalseAgent:</a></em></blockquote><p>I think because people aren't used to treating any technology companies as if they are part of a mature market. They'll get the picture over the next 5 to 10 years.</p>

  • Sykeward

    29 September, 2018 - 3:12 pm

    <p><span style="color: rgb(0, 0, 0);">Since Intel’s botched “transition” from 14nm to 10nm left them with a shortage of manufacturing capacity, </span>PC makers, especially in Europe, are publicly complaining that their earnings will be impacted because Intel can’t deliver chips to them in quantity. They had to say something publicly. </p><p><br></p><p>This Intel letter is aimed squarely at their shareholders. 1.9% growth in the PC market is pretty feeble already, but picture the reaction when PC sales are down YoY for the holiday quarter and all the PC makers point at Intel and their chip shortage. </p><p><br></p><p><br></p>

  • Daekar

    29 September, 2018 - 3:14 pm

    <p>I would feel sorry for Intel if they hadn't proven time and again in the past that they are willing to rest on their laurels and charge crazy prices for minimally-improved products year after year when competition is weak. Now AMD is in the middle of a very strong push with good products and Intel is caught flatfooted…. and I have no sympathy for Intel. </p><p><br></p><p>If they fall behind in the performance per watt for and pricing race for laptop-class chips, it's going to get very ugly very quickly.</p>

    • wright_is

      Premium Member
      01 October, 2018 - 3:30 am

      <blockquote><em><a href="#331554">In reply to Daekar:</a></em></blockquote><p>Yes. AMD shook them up with the Athlon XP and Athlon 64 at the beginning the the century and now AMD is back again. It will be interesting to see what Intel can come out with to compete. </p><p>They already seem to have abandoned the smartphone market to ARM and are concentrating on IoT, laptop, desktop and server, but AMD's comeback means they have fights in all areas now, ARM at the low end and AMD everywhere else.</p><p>If ARM can get enough performance out of their designs to compete with Intel in the laptop and desktop, then Intel really will have problems.</p><p>Given that even the compromised Threadripper is running rings around the Core i7 and i9 (at least in price/performance), Intel really need to wake up and smell the coffee.</p>

  • pargon

    Premium Member
    29 September, 2018 - 3:42 pm

    <p>Demand very well may keep improving compared to the past 10 years, Paul. There has been just about zero competition for 10 years (And that's about as long as everyone claims "decreasing demand for 10 years!!") due to AMD iterating on their bad design and Intel just coasting each year. A 5 year old Intel Core i5 or i7 really does perform the workload comparably to last years design. Intel finally adding cores to these chips in the present generation has likely prompted this increase in demand. </p><p><br></p><p>AMD isn't slowing down on core count, we're likely to see large advancements in computing power for the average home user without spending more. It's never been a better time to upgrade your desktop or laptop PC in the past 10 years. Going from a 2 core to 4 core on your laptop allow much better multi tasking and even general web browsing performance as Windows takes up quite a bit of resources anyways and is able to spread the workload out better to prioritize user applications.</p>

  • locust infested orchard inc

    29 September, 2018 - 6:50 pm

    <p>Don't worry Intel if you weren't prepared for this growth (though I personally wouldn't be jumping with joy with a near-negligible 1.9% growth), for AMD will gladly take up the slack with their Ryzen Gen 2 CPUs (released earlier in 2018) and their high-end EPYC 'Rome' CPUs, adopting the Zen2 architecture using TSMC's 7nm process, with delivery by the end of 2018, followed by volume production in 2019.</p><p><br></p><p>For a company that has being sitting on its monopolistic laurels since the the launch of its Core CPUs back in 2006, Intel is now faced with a two-pronged attack from both AMD and ARM, who have dilengtly worked hard over the last decade and more, whilst Intel intentionally curtailed the availability of moar (sic) cores to the general consumer.</p><p><br></p><p>Only now (some time in October) are Intel about to reveal the first octo-core CPU for the mainstream market with their ninth generation Coffee Lake refresh, a milestone undertaken by AMD almost 1½ years ago. Had AMD's Ryzen not been able to compete with Intel chips, Intel would continue to have us all believe that quad-core computing was more than adequate for the average desktop user, whilst mobile users are entertained with octo-core ARM SoCs (yes OK, ARM octo-core SoCs aren't comparable to octo-core x86-64 CPUs, but still…), though sadly with OSes not fit for purpose – nothing short of a travesty of fairly considerable portable computing power.</p><p><br></p><p>It has been reported in recent days that forcasts suggest AMD may regain 30% of the global desktop CPU market share in 4Q 2018. Thus if this is indeed bourne out, then AMD will certainly capitalise on Intel's inability to accurately assess their own market demands. I guess Intel's outcome is inevitable when its CEO is preoccupied with a licentious relationship outside of marriage – the company looses focus and direction.</p>

  • bluvg

    30 September, 2018 - 12:26 am

    <p>The CPU shortage/production issue is more significant than most realize, I think. From <a href="; target="_blank">CRN</a>:</p><p><br></p><p class="ql-indent-1">"…the Intel CPU shortage has pushed the lead time for PC shipments… from an average of 14 days to as much as 120 days."</p><p><br></p><p>Rumor has it they're even considering outsourcing some production to TSMC.</p>

  • sonichedgehog360

    01 October, 2018 - 5:41 am

    <p>“<span style="color: rgb(0, 0, 0);">Why would Intel be private there but take its manufacturing efforts for PC makers public?”</span></p><p><br></p><p><span style="color: rgb(0, 0, 0);">Answer: Zen 2. Intel is terrified by it. You would avail yourself much Paul if you got a SemiAccurate subscription. Zen 2 brings a 15% IPC increase over Zen 1, putting it at actually higher IPC (higher perf/clock) than current gen Intel Skylake and its derivatives, and it also has comparable boost clock speeds (&gt;=4.5 GHz). Zen 2 also brings 16-core to AM4, 32-core to ThreadRipper and 64-core to EPYC. Obviously, a S|A subscription has a lot more juicy technical details that are worth the grand.</span></p>

  • Mike Widrick

    01 October, 2018 - 8:08 am

    <p>Most likely they shifted a fab to something else, like modems, since 1.6% isn't much, esp with Ryzen selling so well and taking up more slack than usual.</p><p><br></p><p>This could be an excuse to starve out the lower end, too. This is why MS has to be persistent with ARM. Intel and MS are going to fundamentally diverge as the market shifts.</p>

  • draft myletter

    30 October, 2018 - 9:53 am

    <p>Intel Good news i am very happy to open <a href="; target="_blank">Draft Letter</a></p>

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