Smith’s global inventory manager, Todd Banker, offers commodity expertise on the current trends in the CPU market. Before he began leading Smith’s global inventory efforts, Todd served as the company’s global commodity manager for memory. Todd has over 25 years of industry expertise and has worked his entire career at Smith.
As part of an ongoing series, Smith’s thought leaders share their views on market forecasts and industry happenings.
Information about the CPU market is relatively easy to find with a simple web search. You can find market-share breakdowns, blurbs touting the benefits of the newest technologies, announcements of production problems, and updates detailing how the problems are being fixed. But finding information about what’s most important to a CPU buyer– what’s going on with pricing? – is a bit more difficult to achieve just by searching the web.
Leading into 2018, the CPU market had been relatively stable but strong for a few years. The rise of cloud computing led the charge of CPU demand, while PC/laptop demand dropped due to the uptick in mobile and tablet solutions. Pockets of shortages occurred from unexpected bumps in consumer demand and upgrade needs, minor allocation problems, and the occasional announcements of new server farms needing processors. But, for the most part, no widespread allocation problems hit the industry. During that time, the mix of Intel vs. AMD market share also remained even-keeled while both companies introduced more varieties of products to cater to a wider variety of applications.
That stability was shaken in the spring of 2018 when Intel announced that the production of their new-generation 10nm product was underperforming and they would have to delay its mass introduction, scheduled for 4Q18 – again. This announcement coincided with an unexpected bump in worldwide personal-computer sales and kicked off an Intel CPU shortage that has continued into 2Q19.
Again, the ins and outs of Intel’s solution to the shortage can be found all over the web. Suffice it to say that, currently, Intel’s 14nm ramp-up (meant to alleviate the shortage) has happened more slowly than expected, and, though the 10nm launch date is not official, it’s estimated to be at the end of 2019 – about the same time the 14nm ramp-up should be able to cover incoming orders 100%. To mitigate revenue loss and help cover the CAPEX needed to ramp production, Intel raised prices of all CPU products and elected to support server processors, which have higher resales and better profit margins, over laptop and PC processors. Thus, the PC segment is currently being hit harder by the shortage than the enterprise segment.
With global access to many customer types, a varied supplier base, and a centralized commodity team to assimilate and disseminate information gathered by our traders, Smith is uniquely positioned to advise and offer multiple support solutions to our customers who have been hit by the Intel CPU shortage.
The standard reactionary solution is to only take care of delivery shortages at the last possible moment, hoping that, during the wait, the last few quantities required for production will be delivered on time from the original source. A just-in-time solution satisfies the shortage, but it can lead to higher purchasing prices, since time has now become a second and urgent factor in the purchase, and it will not help with any possible future delivery issues.
A second solution looks at scheduling expected shortage quantities for multiple future deliveries when the shortage is first noted. A schedule can help in two ways: 1) It will guarantee that the end user has parts always available to them, since, normally, all of the parts required are bought at the beginning of the order and located in our warehouse until it’s time to ship, and 2) It can help save money. In most shortages, the prices of affected parts tend to increase until the production solutions start bearing fruit. So, if a just-in-time methodology is used, there is a high probability that the second purchase will be at a higher price than the first. Scheduling those deliveries during the first purchase could reduce the future PPV that would occur during a second, later buy.
Sometimes, an end user will over-order product, believing that they will not receive it all but hoping they will receive enough for their actual needs. When the full quantity does arrive – which does happen sometimes in shortages – they then have excess product at a price higher than the ASP from 6 months ago and higher than the products may be when they need them in the future. At that moment, the end user can contact an open-market company like Smith to help them move that excess stock as soon as possible. Not only will it alleviate their inventory costs, but it also saves them money in the long run by selling the product while it is still at its heightened price point and before prices decline.
However a company decides to attack the volatility of the shortage – whether using one of the previously noted solutions or a different strategy entirely – their most important tool is information. Smith is here to be a reliable and helpful partner in that process, for we will be monitoring the situation closely and will be available for all inquiries.
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