In early October, Intel (INTC +1.15%) unveiled a new processor family for desktop PCs known by the codename Coffee Lake. The Coffee Lake chips were notable for being the company's first mainstream hex-core desktop processors, as well as being the first products manufactured using the company's new 14nm++ technology, the company's third-generation version of its 14nm technology.
14nm++, Intel claims, delivers about 10% better performance than the prior-generation 14nm+ technology, which in turn delivered a roughly 12% performance boost over the company's first-generation 14nm technology.
Initial supply of Coffee Lake processors, particularly in the retail channels, wasn't good. A PC enthusiast looking to build her or his own computer with a Coffee Lake chip inside would have to constantly monitor the websites of major computer hardware resellers in the hopes that the chips would come back into stock.
Image source: Intel.
And even when the chips did come back into stock, resellers would offer them for prices well above Intel's own manufacturer suggested retail price (MSRP).
Obviously, low supply isn't an ideal scenario for a company. At best, it means the revenue that the company would enjoy from a product is deferred to a future quarter, and at worst, it means that the company runs the risk of losing product sales to products from other vendors.
Fortunately, it seems that supply of Intel's Coffee Lake chips has dramatically improved.
Retailer price gouging
If I wanted to build a Coffee Lake-based desktop PC right now, I'd have little issue doing so, as Newegg.com has the Core i7-8700K, Core i7-8700, and Core i5-8600K in stock as of this writing.
However, a clear sign that Intel still isn't quite able to meet all the demand out there for these chips is that Newegg is selling these chips for substantial premiums to MSRP. The Core i7-8700K, for example, costs $420 on Newegg, which is a full $71 markup to MSRP. The same story applies to the Core i7-8700 and Core i5-8600K, which Newegg offers for $57 and $43 over MSRP, respectively.
To be clear, I don't fault Newegg.com for taking advantage of the current supply situation by charging more for the Coffee Lake chips -- that's just good business. But the fact that Newegg can get away with selling these chips dramatically over MSRP indicates that Intel still needs to increase supply of these chips.
An opportunity for Intel
I think this situation highlights a potential opportunity that Intel should seek to exploit in future product generations. The Coffee Lake product stack includes processors that top out at an MSRP of $359, a $20 increase from where the prior generation Kaby Lake processor family topped out, but it's clear that there's decent demand -- at least from the do-it-yourself/PC enthusiast community -- for Intel's latest chips even at significantly higher price points.
It may be in Intel's best interests to, in future generations, offer mainstream desktop processors with even better performance and features at even higher price points. That is, in addition to offering a product at, say, the $359 price point, Intel could sell something within the range of $420 to $450.
Image source: Intel.
For such a product, Intel wouldn't necessarily even need to build an all-new product. Instead, Intel could do something along the lines of cherry-picking the highest-quality chips within a processor generation and running those chips at higher out-of-the-box speeds than the cheaper models.
Considering that website Silicon Lottery, which buys these chips in bulk and certifies the chips at speeds higher than what Intel rates them at, is able to sell the top 30% of the Core i7-8700K chips for $660, it seems as though there's a clear opportunity for Intel to dramatically boost its average selling prices using chips it already builds.
