Intel's Broadwell Likely to Miss Critical Back-to-School Season

If there's a phrase that's been used to get the hopes of Intel (NASDAQ: INTC  ) investors up over the past several years, it's been "back to school." But over the past two years, the "back-to-school rush" hasn't materialized. While Intel's lower end Bay Trail-M chips for low-cost PCs should ramp nicely for system availability during the back-to-school season of August and September, thus solving Intel's key issue in PCs, it looks as though Intel's first 14-nanometer Core processors, codenamed Broadwell, for higher-end systems will completely miss the back-to-school period. 

Back to school? Not for Broadwell.
To successfully launch a chip, Intel needs to build enough of them to support a mass launch of systems based on the new chip. What happens if the system vendors launch these brand-new shiny systems with the latest fifth-generation core processor, only to end up supply constrained, especially after clearing out prior-generation inventory at a discount? 

So with Broadwell shipping "by the end of the year," according to Kirk Skaugen, GM of the PC Client Group at Intel, at his Intel Developer Forum 2014 keynote in Shenzhen, China, it's clear that Broadwell misses the back-to-school selling season. While this seems like bad news, it's actually a good thing.

PC sales weak; inventories of both Haswell and Ivy Bridge look high
Look at the following screenshot from well-known PC hardware online retailer Newegg.com:

The channels are filled with Ivy Bridge just waiting to be sold. Source: Newegg.com.

Notice something interesting here? The i5 3570K, i7 3770, and i7 3770K are still in ample stock and are price reduced relative to their Haswell-based (i5 4670K, i7 4771, i7 4770K) peers. Now, this may seem to be the "correct" order of things -- shouldn't the older chips be cheaper?

Before PC sales fell off a cliff back in 2012, the pattern was as follows:

  1. Intel releases a new chip family.
  2. Older members of this family see prices rise as production is cut significantly and inventory has usually been more-or-less cleared.
  3. Consumers are given incentive to buy the new chip, particularly as this leads to a new chipset sale for Intel in the form of an upgraded motherboard.

To illustrate the point, Intel's older-generation Sandy Bridge products, shown below, are priced meaningfully higher than either the socket-compatible Ivy Bridge or the newer Haswell products that occupy similar spots in Intel's product stack.

Intel's older Sandy Bridge chips command an irrational premium-the standard order of things. Source: Newegg.com.

It seems likely, then, that the channel is full of Ivy Bridge inventory. While this problem was easy to illustrate with the boxed desktop processors, it's even more pronounced with many budget and mid-range notebooks -- not coincidentally, where the weakness in notebooks is. With Ivy Bridge still clogging the channel and with Haswell and Bay Trail-M ramping, it's unlikely that the PC market would particularly care about yet another CPU launch at the moment.

Intel's Haswell is cheaper than Sandy Bridge but more expensive than Ivy Bridge. Source: Newegg.com. 

14-nanometer yields: Intel can take its sweet time
Intel's definition of "ready for volume production" for a given process is when the lead product is yielding at a sufficiently high rate so as to run the wafers. If Intel were desperate to get product out faster, it would simply eat the bad yields until it got yields under control. However, given the limited competition in the PC market from rival Advanced Micro Devices (NYSE: AMD  ) , which has yet to catch up with the power efficiency of Intel's Ivy Bridge, let alone Haswell, what incentive does Intel have to launch new products until the 14-nanometer process has exceptional yields?

Intel's Haswell-ULT, found in the MacBook Air (2013). Source: Intel. 

Indeed, given that Intel is launching a mid-year "Haswell refresh" for desktops, and the fact that Haswell-based Ultrabooks didn't appear en masse for last year's back-to-school selling season (outside of the MacBook Air and the Sony Vaio Pro 13), Intel can probably get by just fine using Haswell during the back-to-school season.

The only exception, of course, is Apple (NASDAQ: AAPL  ) , which is probably hungry for new, higher-performing Intel silicon for the MacBook Air. Indeed, it's unclear whether Apple will just get dibs on Broadwell and launch earlier than the other PC OEMs stuck with Ivy Bridge/Haswell inventory or if Apple will move to a new chassis without upgrading the processor. 

Apple's MacBook Air (2013) was the first to adopt Intel's low power Haswell processor. Source: Apple. 

Broadwell for Christmas?
Based on this analysis, I expect Broadwell-based systems in limited quantities by Christmas, with Haswell-based systems making up the bulk of the shipments. Further, Intel's refusal to commit to a 2014 launch for Broadwell-K for desktops seems a dead giveaway -- it's not coming until Q1 2015. Notebooks that will benefit from the much lower-power Broadwell chips will likely get the initial run for that Christmas availability.  

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  • Report this Comment On April 06, 2014, at 10:30 PM, techy46 wrote:

    Well, most high end buyers, $900 and up, do not go back to school. However, many are still waiting for the 4th gen i3-i7 prices on the 4000 sku's to drop another $100 especially on touch screen based devices. A good all-in-1 with i5 4200 and touch screen comes in at $1000 or more and that's with HDD not SDD. It can be closer to $1200 or more if you add W8 Pro and 3 years of service. If I were Intel I would ramp the Broadwell 14nm production until after the 2014 Holidays and let anybody that wants on pay a very good premium.

  • Report this Comment On April 06, 2014, at 10:34 PM, techy46 wrote:

    PS Let those shopping for back to school devices get their hands on the new Chrome and Windows 8-9" devices that Intel's putting Braswell into that should sell for $99-199.

  • Report this Comment On April 06, 2014, at 11:12 PM, TEBuddy wrote:

    Well, what this does, is give AMD a very good reason to get their Beema and Mullins products out there ASAP, so they remain competitive with what Intel is still selling. This market where the author claims is weak, is exactly where AMD can dominate in value.

  • Report this Comment On April 07, 2014, at 8:49 AM, stretcho44 wrote:

    "Now, this may seem to be the "correct" order of things -- shouldn't the older chips be cheaper?

    Before PC sales fell off a cliff back in 2012, the pattern was as follows:"

    Pricing of Sandy Bridge vs Ivy Bridge vs Haswell .... one thing different between the SNB to IVB transition when compared with the IVB to HSW chips it the process. Intel wanted to move to 22nm from 32nm, while today, they can produce either IVB or HSW on 22nm with equal ease.

    Your conclusions about channel inventory from pricing seems to be a large leap. We will find out how accurate you are next week when Intel reports.

    IMO, it means very little ... but next week we will know.

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