Intel's (NASDAQ: INTC) CPU shortage started last year as surging demand for its data center CPUs caused a production bottleneck in its 14nm chips. The company's difficult ramp-up to 10nm chips and its exclusive deal to produce Apple's (NASDAQ: AAPL) iPhone modems, which use the same 14nm process as its data center and PC CPUs, exacerbated the problem.
Intel invested an extra $1 billion into its 14nm production sites last year, and claims that the shortage should be resolved by mid-2019. However, DigiTimes recently claimed that Intel's chip shortages could still worsen during the second quarter on higher market demand for Chromebooks and other low-end PCs.
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This ongoing shortage is a major headache for Intel, but it's also causing problems for other tech companies. Let's take a look at three companies that could also be hurt by the CPU shortage: HP (NYSE: HPQ), Microsoft (NASDAQ: MSFT), and Apple.
HP consistently grew its PC sales as its rivals struggled with a saturated market, long upgrade cycles, and competition from mobile devices. HP gained ground with new high-end laptops and convertible devices, and it maintained a strong presence in the desktop market with its Omen gaming PCs.
Two-thirds of HP's revenue came from its personal systems (PCs and workstations) unit last quarter. That unit generated just 2% annual sales growth during the first quarter of 2019, compared with double-digit sales growth throughout 2018. Its notebook shipments fell 1% annually and its desktop shipments dropped 8%, but HP offset those declines with price hikes.
HP mainly attributed its weak PC sales to Intel's CPU shortage. During the conference call, CFO Steve Fieler stated that CPU constraints would persist in the first half of 2019, followed by "improvements in the second half." That forecast is likely based on Intel's, so HP could face more pain if the chipmaker fails to resolve its CPU shortage.
Microsoft and Intel were once steadfast allies that ruled the "Wintel" PC market. But in recent years, Microsoft has pivoted away from Intel's x86 CPUs by optimizing Windows and Office for ARM-based CPUs.
Microsoft's first-quarter earnings report indicates that's a smart long-term strategy. Its cloud, gaming, and hardware businesses all posted robust growth, but its Windows OEM revenues from PC makers fell 5% annually -- with its non-Pro OEM sales falling 11% and its Pro OEM sales dipping 2%.
During the conference call, CFO Amy Hood mainly blamed those declines on "the timing of chip supply to our OEM partners, which constrained an otherwise healthy PC ecosystem." Microsoft expects the chip shortage to last through its third fiscal quarter, which ends on June 30.
Apple shifted the production of all its iPhone modems to Intel after the escalation of its legal disputes with Qualcomm (NASDAQ: QCOM). However, that change hurt Apple in two ways -- Intel's 4G modems aren't as fast as Qualcomm's, and Intel won't release a 5G modem until 2020. Qualcomm introduced its first 5G modem earlier this year.
This means that Apple's first 5G iPhones should arrive about a year after 5G phones from Android OEMs. However, Intel has a lot on its 14nm production plate right now, and analysts at UBS and Cowen both recently warned that the chipmaker could struggle to launch its 5G modem by 2020.
Intel refuted those claims, but its previous production issues don't inspire much confidence. If Intel drops the ball next year, Apple could be forced to make peace with Qualcomm.
DigiTimes also notes that Intel still faces shortages for the Amber Lake CPUs that power Apple's MacBook Air. That shortage could put pressure on Apple's Mac sales, which rose 9% annually last quarter on the launches of its new MacBook Air and Mac mini.
The bottom line
Intel's chip shortage is sending shock waves across the tech market, and investors should spot the potential damage to hardware and software makers. The shortage probably won't cause lasting damage to HP, Microsoft, or Apple, but it could throttle these tech giants' near-term growth.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple and HP. The Motley Fool owns shares of and recommends Apple and Microsoft. The Motley Fool owns shares of Qualcomm and has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.