Intel Boosts Spending by $1 Billion to Head Off PC Shortages

(Bloomberg) -- Intel Corp., which dominates the market for personal computer processors, said it’s taking steps to increase output and alleviate a shortage that had threatened to slow the industry’s growth.

The Santa Clara, California-based chipmaker has added an extra $1 billion to its capital equipment budget this year, increasing output from existing facilities in the U.S., Ireland and Israel. The company said it’s been surprised by a return to growth in demand for personal computers. Total spending in 2018 will be $15 billion, Intel said in a letter to customers posted on its website Friday.

The shares gained 3.1 percent to $47.29 at 1:08 p.m. in New York, after jumping as much as 4.1 percent on the announcement. Rival Advanced Micro Devices Inc. fell as much as 8 percent on concern that increasing production by Intel will deprive it of the opportunity to gain market share.

Intel’s effort to try to reassure its customers and investors about the company’s production highlights the importance of output from its factories to the computing industry and the concern that has been building. The chipmaker’s processors are the heart of more than 90 percent of the world’s laptops and almost all server computers.

Intel has struggled to shift to a more-advanced manufacturing technique, called 10-nanometer, and that has given rivals like AMD a chance to catch up in this crucial part of the chip industry. Friday’s update suggests that demand for Intel’s current chips remains strong.

The longer-term implications may not be as rosy, said Stacy Rasgon, an analyst at Sanford C. Bernstein. Boosting production of older technology raises costs, as does raising spending on production equipment that can become outmoded, he wrote in a note to investors. Intel’s announcement also doesn’t shut the door on AMD making market share gains because its chips tend to be cheaper, a segment of the business that Intel has said it’s not prioritizing, according to Rasgon.

Intel said it’s making progress in moving its output to 10-nanometer technology, an effort that’s as much as two years late, according to some analysts’ estimates.

“Yields are improving and we continue to expect volume production in 2019,” Intel said. Yield refers to the amount of usable chips made from every production batch.

Shrinking the dimensions of the tiny transistors that give chips their function allows chipmakers to produce them more cheaply, make them more powerful or give them the ability to use less electricity. Intel has led the race to make such improvements, measured in nanometers, or billionths of a meter, for decades. The increase in spending will go to the older 14-nanometer production, a technique introduced at the end of 2013.

Intel said it’s devoting production resources to high-end chips such as server parts. That may cause a shortage of budget PC chips. The squeeze won’t impact Intel’s ability to hit annual revenue targets, according to the statement.

©2018 Bloomberg L.P.