Intel Corp. has been reporting strong financial results this year since it gained market share from Advanced Micro Devices, enjoyed increased sales of corporate PCs and introduced rather competitive products for various market segments. However, the success of Intel’s products could also has its disadvantage: since the company is boosting inventory in the channel, this may impact its future sales.
It is normal for chipmakers to build channel inventory in the first half of the year and then sell it in the second half of the year. According to Stacy Rasgon, an analyst with Bernstein Research, the situation with Intel this year is somewhat atypical since inventory build in the first half of 2014 was not followed by channel inventory drain in the second half of the year. The world’s largest chipmaker sells microprocessors at a rate that surpasses sales of PCs, thus continues to build up inventory in the channel.
“Far from draining channel inventory in 2H14, Intel’s Q3 results and implied Q4 outlook suggest channel inventories will continue to build into the second half of the year, an event we have not seen in years and years,” said Ms. Rasgon in a note to clients, reports Tech Trader Daily. “This is not necessarily inconsistent with Intel’s own statements (they have indicated they are replenishing the channel in front of a “normal” consumer sell-through season).”
If sales of personal computers during the holiday season and prior the Chinese New Year are high enough, then Intel’s chips will all be used to build systems. However, if sales of PCs fall short of expectations, then there will be millions of unsold Intel’s processors in the channel.
Excessive amount of microprocessors in the channel will make it harder for Intel and partners to sell future chips, including mainstream central processing units based on the “Broadwell” and the “Skylake” micro-architectures starting from the second quarter of 2015. In the worst-case scenario Intel may even need to delay (or limit) new product launches to sell older products first.
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KitGuru Says: Intel is clearly interested in selling as many CPUs as possible, it is just natural for the company. What is unclear is why PC makers and channel partners of the chip giant get more microprocessors than they can possibly sell?