Partners: Intel CPU Shortage Delaying Shipments, Raising Prices

Bob Venero wishes he had a better answer for his customers.

The CEO of Future Tech Enterprise, No. 115 on the 2018 CRN Solution Provider 500, said a shortage in Intel CPUs has been the predominant factor in delayed PC shipments from OEMs, which has pushed his lead time for enterprise customers from an average of 14 days to upward of 120 days.

"We're talking about thousands and thousands of units that are impacted," he said.

[Related: Source: Intel 14nm CPU Shortage Tied To 10nm Delays]

As a result, Venero said, he has had to do things that his Holbrook, N.Y.-based company normally wouldn't, such as holding weekly calls with Future Tech's enterprise customers to discuss which products can be shipped, which can't and where to make adjustments.

"It's causing pain and apprehensiveness," he said.

Future Tech is among Intel partners who say they have faced delayed shipments or increased costs, or both, as the result of a shortage in Intel CPUs that are based on the 14-nanometer manufacturing node the company started using for processors in 2014. A major OEM has also chimed in, calling the shortage a significant challenge for the rest of the year as demand for PCs rise.

Intel has acknowledged the shortage, which impacts both Core client and Xeon server processors. During the Santa Clara, Calif.-based company's second-quarter earnings call in July, interim CEO Bob Swan said the company's "biggest challenge in the second half [of the year] will be meeting additional demand." That extra demand led the company to increase in its 2018 full-year revenue outlook by $4.5 billion from the company's expectations in January, an Intel spokesperson told CRN this week.

"We will have supply to meet our announced, full-year revenue outlook and we’re working closely with our customers and factories to manage any additional upside," said the Intel spokesperson.

Intel declined to answer specific questions from CRN about the shortage, including whether additional factors played a role in the tight CPU supply or what the company is telling channel partners.

Partners Dealing With Delays, Price Hikes

Andrew Kretzer, director of sales and marketing at Bold Data Technology, a Fremont, Calif.-based custom systems integrator, said his company has been experiencing a shortage of Intel client CPUs for two months now.

"It's causing significant delays on customers that will not change over to AMD," he said.

The shortage has also led to increased prices, according to Kretzer. In some cases, the company has also had to pay for expedited delivery to stay on schedule.

For certain deals, Kretzer said, the company has had to cover the price hike because the company was already locked into a quote or bid with a government customer.

"There's a significant impact on our Intel desktop business in terms of being able to get products to customers in a time they're accustomed to and price they're accustomed to," he said.

An executive at West Coast solution provider, who did not want to be identified, said his company has also had to cover the CPU price hike, sometimes as a result of having to source products from gray market sellers when traditional distributors run out of stock. And the gray market can create other problems.

"It's not super common, but there's the potential for not necessarily a counterfeit product but product that wasn't meant to be sold in this country, and you can run into warranty issues," the executive said. Buying from the gray market also means you don't get points for Intel's partner program, the executive added.

Low-End CPUs See Greater Impact

Kent Tibbils, vice president of marketing at ASI, a Fremont, Calif.-based distributor, said ASI doesn't have visibility into what allocations will look like in October, November or December, but it hasn't had any impact on pricing for the company.

"Everybody is going through a prioritization of how to allocate their inventory," he said.

ASI has been dealing with a supply constraint of the following desktop CPUs: Core i3-8100, Core i5-8400, Core i5-8500, Core i7-8700 and Core i7-8700K. Tibbils said ASI has also been dealing with a constrained supply of Xeon Scalable processors.

"On the server side, the [supply issue] is not as bad as people had anticipated. If you're doing client, it's a different story," he said.

Other distributors are showing in some cases that they won't get certain products until next month. According to a recent screenshot of a distributor inventory screen provided by an Intel partner, two major distributors show that they won't have the Core i5-8500, for example, until Oct. 4 or Oct. 5. One of them is charging $24 more than the three others listed in the screenshot. The Intel partner shared the screenshot on the condition of anonymity because of its relationship with the distributors.

An analysis by Tom's Hardware shows that price hikes have mostly impacted low-end processors at retailers — which is roughly the same range of products cited by Tibbils at ASI.

Some distributors are downplaying the issue. Executives from two major distributors told CRN under condition of anonymity that they are seeing a looming shortage of the Intel 14nm processors, but that any impacts from the tighter supplies have been minimal at worst.

One distribution executive said that the distributor is currently weighing options, such as increasing sourcing of processors from Intel rival AMD even though AMD would not be able to ramp up fast enough to meet demands. The distributor is stocking up where it makes sense, the executive said.

"But you've got to look at every possible source to supply customers' needs," the executive said.

Shortage A Reflection Of Strong PC Market

Executives throughout the IT hardware industry point to high demand for servers and PCs as a key driver to tightening supplies of the Intel 14nm processors.

That strong demand is clearly shown in recent sales numbers. Research firm IDC this month reported in its Worldwide Quarterly Server Tracker that manufacturers in the second quarter of 2018 shipped 2.9 million servers, up 20.5 percent over the second quarter of 2017.

IDC in July also estimated that PC manufacturers shipped over 62 million PCs in the second quarter, up 2.7 percent compared with shipments in the same quarter of 2017.

Future Tech’s Venero didn't find much of a silver lining in the news of stronger PC sales.

"I guess it means they're buying more PCs, but it's still not a good situation," he said.

Acer CEO Speaks Out While Other OEMs Stay Quiet

Acer CEO Jason Chen said at the end of last month that "the tight supply of Intel's 14nm processors will pose a significant challenge to the supply chain management capability of brand vendors," according to a report by DigiTimes. An Acer spokesperson confirmed Chen's comments to CRN.

Other OEMs have been less forthcoming or specific about the impact Intel's CPU shortage will have. A Dell spokesperson declined to comment, and a Lenovo spokesperson did not respond to multiple requests for comment. Meanwhile, an HP spokesperson pointed to a previous comment by CEO Dion Weisler during HP's most recent earnings call about the company "monitoring several evolving market dynamics, including […] industry component availability."

"That said, one of the strengths we consistently demonstrated is our ability to navigate the impact of these challenges and leverage our innovation and scale to create advantage and drive sustained performance," he said during HP's third-quarter call in August. "We are executing and meeting our commitments and I am confident in the team’s ability to continue doing exactly this.”

Some Partners Wish They Had More Info

The Intel partners who spoke with CRN said they wish they had more information about the CPU shortage and what to expect for the months to come.

"I think Intel needs to make an official statement about what's happening so that we can properly educate our customers," Venero said.

Bold Data’s Kretzer, who has not heard from Intel, said "it's always about setting expectations."

"If they can give us this knowledge in as far as advance as possible and keep that conversation going, so it's not stale information, it would help us keep up to date with our customers," he said.

Andrew Piland, chief operating officer at San Diego-based Datel Systems, agreed. "It would be nice to know what the time frame is, so we can plan around it," he said.

While the current shortage may be creating pain for customers and leading to deferred revenue in some cases, the partners said they’re dealing with it the best they can.

"It may just mean for the time being our margins are going to be kind of [bad]," Piland said. "We'll get past it one way or another."

JOSEPH KOVAR contributed to this story.