Dividend Investing | Technology

Intel Chip Shortage Continues and Will Persist

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“Intel has admitted it is facing a microchip shortage due to a surprising rally in the personal computer market.” [1]

Intel produces 90% of the world’s personal computer processors. [1]
This is a significant admission.  Global PC demand has been higher than expected of late.  Intel chief (interim) Bob Swan has confirmed this by “…publishing an open letter warning business partners that supply was “tight”. [1]

… and saying:

“The surprising return to PC market growth has put pressure on our factory network … supply is undoubtedly tight, particularly at the entry level of the PC market…” [1]

Experts expect the shortage to linger throughout the year.  Obviously this plays into the retail holiday season at year’s end.

My own take is that Intel will gain in the short term due to price increases and speculators attempting to exploit the shortage; however, supply contracts are often long term in nature to avoid situations like this and Intel will most certainly lose future revenue if they cannot keep up with the pace of demand.  Long term, Intel’s goodwill with down-line manufacturers will most certainly suffer.  I think future supplier contract negotiations will become even more difficult for Intel.  Better forecasting of demand for the products that lie within their wheelhouse should not be a struggle, but seems it has been.

Despite this, I still view Intel stock as undervalued and good buy for my portfolio at current market prices.

Sources:

[1] – https://uk.finance.yahoo.com/news/intel-scrambles-avoid-microchip-shortage-184427951.html

[2] – https://www.telegraph.co.uk/technology/2017/04/12/pc-sales-grow-first-time-five-years/