Chip giants face great challenges

Source: the content is compiled from techtarget by semiconductor industry watch (ID: icbank). Thank you.

With the passage of the chip and Science Act, semiconductor companies have received some much-needed good news after experiencing the pressure of chip shortage in the past few years.

However, this remission may be transient.

It is Huang who has poured cold water on the optimistic attitude of chip manufacturers that the funds of the chip act are not hot or cold. After the pandemic and the soaring inflation, the purchase market of personal computers slowed down, leading to the suspension of it stores.

Glenn O'Donnell, vice president and research director of Forrester Research, said: "during the pandemic, the PC industry experienced a period of irrational prosperity." it now has all the personal computers they need, so naturally, you will see not only chip manufacturers but also original equipment manufacturers such as Dell, HP and Lenovo. "

The cost rise caused by inflation has slowed down not only the sales of personal computers but also the sales of servers. O'Donnell adds that companies that typically replace servers every five years may extend the service life of their existing servers by another year or two to reduce costs.

O'Donnell said that the ripple effect of inflation also affected cloud service providers such as Microsoft. Microsoft began to squeeze azure assets for a longer time and slowed down the expansion of its data center. This means that the large-scale manufacturers who buy a large number of chips as a group postpone the time they buy servers, which again leads to the decline of chip sales of Intel, AMD and NVIDIA.

Chip supply chain slows down

The top semiconductor companies, especially Intel and NVIDIA, reported a decline in quarterly revenue as of June and / or predicted that revenue would continue to be flat or even declining in the next two or three quarters.

Another factor affecting chip sales in the next few quarters is the slowdown in the delivery speed of components required by chip manufacturers to deliver finished products - not only the shortage of important items such as substrates, but also the shortage of precious metal materials including aluminum, which mainly comes from Ukraine, where the supply has slowed down. It is reported that this slowdown has led to a sharp rise in the cost of this material, which is being passed on to chip manufacturers.

Some analysts believe that insufficient demand for personal computers is a problem that will disappear sooner or later. They point out that this period of decline is part of the normal sales cycle.

Dan Newman, an analyst at futurum research and CEO of broadsuite media group, said: "more and more PCs are sold by suppliers. Even in the case of chip shortage, there is a huge increase, resulting in a large backlog." "You know that the merry go round must stop at some point, but you are beginning to see a return to normality."

Although the decline in PC sales has affected all the top chip manufacturers, each company has other unique problems. As far as Intel is concerned, problems that began to appear before the pandemic include the lack of appropriate manufacturing equipment, which hinders the delivery of innovative technologies. This also led the company to miss multiple delivery dates for strategically important processors.

The latest delay occurred two months ago, when Intel delayed the delivery of its next generation Xeon processor code named sapphire rapids for the second time. Intel had previously announced that NVIDIA would use sapphire rapids in its DGX H100 system instead of AMD's Genoa chip.

Chip delay continues

Intel originally planned to deliver sapphire rapids in the fourth quarter of 2021 - a chip that the company hopes will make it more competitive with Genoa. Intel told techtarget that it expects to deliver the chip sometime in the second half of 2023.

Compared with AMD, the main competitor that has been steadily nibbling at Intel's market share, every time Intel delays, the company will further lag behind the technology curve.

"To solve most of the problems, Intel must do three things: execution, execution and execution," said Frank dzubeck, President of communications network architect. "Each delivery date must be met, the opening date of each chip factory must be met, and all technologies must be studied."

Intel's move to correct a series of management mistakes was to bring back pat Gelsinger, a long-term Intel executive, in February 2021. Gelsinger is aggressive in many aspects: in the next three years, it will invest US $100 billion to establish new chip manufacturing plants in the United States and Europe, acquire key chip manufacturers, and reorganize the company to establish a new department focusing on data center and artificial intelligence technology.

Nevertheless, the company missed the delivery date of key products and did not provide any information about solving its manufacturing problems. Some analysts believe that the manufacturing problem will not be solved until the company starts building new manufacturing plants in 2023 and continues until 2025.

J. "The main challenge facing Gelsinger and the staff is to better manage production," said Jack gold, analyst and President of gold associates "They have great designers, but you have to be able to make what you design."

Arm momentum continues

Another challenge Intel faces is competition with arm holdings. The UK based low-cost chipmaker has gained remarkable development momentum in the past few years. Its competitive advantage is that its chips require much less power than Intel's – an attractive asset for owners of large data centers that focus on energy costs and sustainability.

"Arm was once seen as a toy, and people looked down on it because it was mainly used to run mobile phones, not data centers," O'Donnell said. "This view has lasted for many years, but it is no longer so correct. You can now improve it to surpass Intel in many functions."

The good news that Intel competes with arm is that it is difficult to switch large data centers from Intel chips to arm chips. This process can be time-consuming and potentially expensive because it introduces compatibility issues with existing server based applications in the data center.

"Enterprise data centers have been optimizing applications for x86 hardware for years," gold said. "Switching to arm is not easy because compatibility issues are not very transparent. Will busy it personnel take the time to see if their mission critical applications are running efficiently on arm? Probably not."

NVIDIA's business is also affected by the plummeting sales of personal computers, especially in the game market, where users rely heavily on the company's GPU to improve performance. In the most recent quarter, the company reported that sales in the market fell 33% year-on-year. The revenue of its data center products increased by 61% year-on-year, but due to the decline of its GPU sales, these sales slowed sharply to 1% from the first quarter to the second quarter of this year.

Dan Newman said: "NVIDIA has had blowout data for several consecutive quarters, so there is no reason for people to lose their minds about this downturn." "Before we enter the next cycle, you will see this kind of pullback from consumers and businesses for some time - probably next year."

Compared with Intel, one advantage of NVIDIA's faster recovery is the progress it has made by actively investing in artificial intelligence based technologies, which can be seen in its Omniverse products and bundling these technologies with GPUs. The company is also the first company to combine its GPU with its own CPU, thus improving performance.

AMD's quarterly performance was significantly more optimistic, achieving revenue growth for the eighth consecutive quarter, thanks to the strong growth of its data center and embedded product business. According to Lisa Su, CEO of AMD, with the arrival of 5-nanometer chip technology, the company expects its data center business to continue to grow before the end of the year.

Intel said it expected to deliver its first 7-nanometer processor, code named meteor lake, in 2023.

Amd Lisa Su also said at the recent financial analyst meeting that she was "more conservative about the outlook of the personal computer business in the next quarter", which may have a negative impact on the overall revenue.

Microsoft reiterated Su's comments in its quarterly revenue report last month, saying that the slowdown in production and the deterioration of the PC market caused a loss of $300 million to its windows OEM business, which provides windows for all PC manufacturers.

"Amd has made good growth in its personal computer business, but this figure is far lower than that of Intel," said Dan Newman.