What Intel and AMD results tell us about the PC market this year
Intel and AMD published their quarterly numbers over the last week, offering an early glimpse into the state of PC supply over the coming months.
The market ended in buoyant fashion at the end of the last decade, with 2019 the first year of growth since 2011, according to analysts.
But the renaissance could have been more full blooded than it turned out to be.
Supply could not keep up with demand, with PCs flying out the door quicker than Intel could make chips for them.
This was a hindrance for the IT industry, with a host of vendors - including Dell, HP, Apple and Lenovo - complaining that a lack of components shackled sales.
Intel has consistently said that it would soon be back up to speed, but manufacturers have been complaining about a shortage as recently as this month (although in this case it was datacentre vendor HPE).
Meanwhile AMD, the David to Goliath Intel, has grabbed its opportunity with both hands, as Intel focused on high-end machines and left space in the low end.
It does seem, however, that the drought could soon be over, based on the pair's latest earnings reports.
Both vendors fared well in Q4, with Intel beating analyst expectations of eight per cent year-on-year revenue growth ($20.21bn; £15.5bn) and AMD seeing sales rocket by half to $2.13bn.
Intel was caught off guard by the swell in demand in 2018, with CEO Bob Swan publishing an open letter commenting on the "surprising return to PC total addressable market growth".
But Swan was optimistic on the earnings call last week, claiming Intel will take its inventory to "normalised" levels this year.
He said that Intel invested record numbers in manufacturing in 2018 and 2019, with output in Q2 last year increasing 25 per cent sequentially.
"Beginning to rebuild inventory" was a theme throughout the call and one that Intel execs were adamant to hammer home to analysts.
CFO George Davis, who was appointed last year, said: "In the second half of the year, we would expect to be able to bring both our server products and most importantly, our PC products back to a more normalised inventory level.
"So being up in the high single digits is meant to allow us to not only satisfy our customers but also rebuild inventory."
CEO Swan also acknowledged that inventory in the channel is low, saying the vendor takes full responsibility.
"The channel inventories exiting the year for PC, I would say, are relatively low and that's on us," he said.
"So I do expect that during the course of the year we will build our inventory levels to better deal with spikes in demand. But at the same time, we expect the channel to be at more healthy levels as we exit 2020 and then through 2021."
Swan also insisted that Intel will have enough supply to cater for demand in Q1, and throughout the year in general, but was more hesitant when it came to Q2.
"I think our challenge will be on two things, particularly on Q2 with PCs and that is linearity, not just the supply in the quarter, but week-on-week supply our customers are hoping for.
"Secondly, particular SKUs or mix, making sure that we have the right product mix. So we will have enough capacity. I think Q2 will be a little challenging as we try to deal with product mix and linearity, but overall we plan to be out of the supply constrained environment in 2020."
It is Intel's product mix that left the door open for once-silenced competitor AMD to creep back in.
AMD has thrived at the low end of the market and seen its share price climb more than 2,000 per cent since 2016, with its valuation eclipsing even its dotcom-era peak.
The vendor also announced its re-entry into the server chip market in 2017 and has set itself the target of a double-digit market share by the middle of this year.
Meanwhile, it announced high-profile partnerships with HP and Microsoft last year, while the likes of Asus, Dell and Lenovo all launched devices with the well-received Ryzen CPU in 2018.
But AMD is reluctant to attribute its success to Intel's struggles.
On the most recent earnings call, CEO Lisa Su claimed the growth is down to AMD's portfolio and brushed off suggestions that Intel's bolstered capacity could hamper it moving forward.
"We finished 2019 very strong in the overall PC market both in mobile and desktop," she said.
"I think that's primarily on the strength of the product portfolio and the expanding customer platforms that we have.
"There are some discussions about, let's call it pockets of shortages, but as I said before, we have been on this steady increase in market share now for the last eight quarters and we believe we gained share in Q4 as well. So I think what we see is the portfolio getting a lot stronger.
"I think our outlook expects growth in all businesses, including the PC business, and we remain very focused on expanding our market presence in consumer as well as commercial PCs."
Too little too late
Intel is perhaps helped out of its supply shortage by a PC market preparing to re-enter a slumber.
The Windows 10 refresh was seen as the primary driver for PC sales last year, and will likely continue to be in early 2020, but the general consensus is that this will fade away towards the second half of the year.
Both Swan and SU said they expect to be competing in a total addressable market that is flat, or smaller, than 2019.
But while AMD still expects to see growth in its PC business, with Su optimistic that AMD can steal market share from Intel in the notebook space, Intel is expecting a low single-digit decline.
Both vendors however picked out the server space as being the likely source of the most growth.
If the battle for PC dominance is going to mellow somewhat in 2020, perhaps AMD and Intel are now preparing to clash in the datacentre.
Industry: Data Centre / Data Center
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