The day after AMD announced their quarterly results, Intel followed up with a very impressive quarter of their own. Intel has reported another record quarter with $17B in revenue and $5B net. The business is extremely healthy and they continue to provide a lot of value and returns to shareholders. Typically Q2 is the second slowest quarter of the year, but Intel was able to improve their revenues by $900M over Q1. In certain quarters a 5% increase may not be all that large, but it is a significant jump from Q1 to Q2.
Intel reported that nearly all areas of the company have grown. Client Computing Group showed a 6% increase year over year, which is good news for the industry in general as many have (often) predicted that the PC market is in decline. This is also in the face of renewed competition from AMD and their Zen architecture based products. AMD also has grown steadily over the past year in terms of shipping products, so that further reinforces the impression that the PC market continues to grow steadily.
The data-centric business is steadily closing the gap between it and the PC centric group. CCG posted $8.7B in revenues while the data groups combined came in at around $8.1B. The Data Center Group was $5.5B of that result. It is up a very impressive 27% yoy. Intel has what seems to be a juggernaut in the data center with their Xeon products, and that growth is quite likely to continue growing as the need for data processing in our information rich world seemingly knows no bounds.
Intel raised their outlook for the year by nearly $2B to an impressive $69B in revenues. This is easily 10x that of their primary competitor. 2018 has certainly been a very profitable year for Intel and it looks to continue that trend throughout the last two quarters. Intel continues to improve upon their 14nm processes and it has allowed them to achieve a 61.4% margin. Compare this to AMD’s 37% margin and we can understand why 2018 is looking so good. Intel has lost a little bit on margin as compared to last year, but the amount of products being shipped is simply stunning as compared to its rival.
There were some expecting AMD to be taking up more of Intel’s marketshare, but that has not been the case. If anything, while AMD’s bottom line has improved, Intel appears to have actually taken more share in an expanding market. Unlike 2003 when AMD had the superior product with the Athlon 64 over Intel’s Pentium 4, the current Ryzen CPUs are “merely” competitive. While the performance and efficiency jump for AMD’s architecture is impressive considering the previous “Bulldozer” based generation, they now offer comparable performance with a price/core count advantage over Intel. This has not been enough to convince people and organizations to change en masse to AMD’s offerings. In 2003 a 2 GHz Athlon 64 was outperforming a 3.2 GHz Pentium 4. AMD was able to continue outperforming Intel even though they were at a serious process disadvantage.
While Q3 and Q4 look to continue Intel’s string of record quarters, things do not look as rosy when we get into 2019. Intel has had an endless stream of problems getting their advanced 10nm process up and running. It was originally expected to replace Intel’s 14nm process around two years after that particular process had been introduced. Then it turned into three years. Now we are five years into Intel using a 14nm variant for their latest generation of products. Intel used to have a 18 to 24 month lead over the competition when it comes to process technology, but now that advantage has all but evaporated. In theory Intel’s 10nm process is superior to what TSMC is offering with its 7nm in terms of die size, power, and transistor performance. However, those advantages do not amount to anything if it is unworkable. Intel has been very tight lipped with analysts and shareholders about the exact issues it is facing with the direction they set on with 10nm. It seems the combination of materials, tolerances, and self-aligned quad patterning is problematic enough that Intel cannot get consistent results with yields and bins.
In the conference call Intel said that 10nm parts will be available on shelves by the holiday season of 2019. This means that Intel expects to hit high volume manufacturing near the end of 1H 2019. Intel further stated that data center parts will be shipping shortly after desktop and mobile, so most expect the first products to hit in Q1 2020. The problem that Intel will is that TSMC will be starting volume manufacturing of their 7nm parts shortly, if not already. AMD has 7nm EPYC sampling to partners and has spoken of a 1H introduction of those parts in volume. AMD will be introducing the Zen 2 architecture in that time on both server and desktop, and they are hinting at a significant IPC uplift with these parts.
If Intel is able to hit its 10nm goal in late 2019, AMD will have around a nine month window where they theoretically could have a superior product than Intel. AMD will surely come ahead from a density standpoint. If we combine this with the potential IPC improvement and a small uplift in transistor performance, then Zen 2 products should be able to outclass anything Intel comes out with. If AMD is really on the ball, then their EPYC processors could have a year to themselves without a comparable product from Intel.
This type of competition does not mean that Intel will simply shrivel up and die, but it is causing investors to rethink holding onto the stock after the pretty impressive run up over the past several years. Intel still has more fab space available to it than AMD could dream of at this point. There will be a lot of competition for 7nm wafer starts that will be shared by AMD, NVIDIA, Qualcomm, and Apple (not to mention dozens of other fab-less semi firms). AMD could very well sell as many chips as it can make, but it simply cannot address the needs of all of the markets that it is competing in. If GLOBALFOUNDRIES 7nm process is similar to TSMC’s, then we will see AMD be able to supply far greater amounts of product to the market, but GF is at least six months behind TSMC when it comes to ramping up their next generation process line. I would not expect GF based CPUs to hit anytime before Q2 2019, if not towards the end of that quarter.
Does this mean that Intel expects nothing except doom and gloom throughout 2019 and possibly into 2020? I do not think so. Intel will retain its market dominance, but it looks to be experiencing a situation that is a combination of a competitor hitting its stride as well as some bad luck/poor planning with manufacturing. This should open the door for AMD to make significant advances in marketshare and allow the company to make some serious money by improving their ASPs as well as shipping more parts.
2018 will undoubtedly be a record year for Intel. It is 2019 that is giving pause to investors and shareholders. If Intel can clean up its 10nm process in a timely manner they will close the door on any advances from AMD. If the company continues to experience issues with 10nm and never in fact gets it out the door, then it will be a long couple of years til Intel gets out their 7nm process. The rumor is that engineers have been pulled off of 7nm to fix 10nm. If this is the case, then I hesitate to even think when we will be seeing that upcoming node coming to fruition.