Intel’s Gelsinger predicts chip shortage will run through 2024

Intel CEO Pat Gelsinger expects chip shortages will continue into 2024 due to a lack of manufacturing equipment and tools to make the chips. Gelsinger made the comments during an interview with CNBC’s TechCheck about Intel’s first quarter earnings. While the company did well in Q1, the outlook for Q2 is not as positive, and Intel stock took a hit for it.

Semiconductor manufacturers have faced a number of challenges to meet demand, most notably production shutdowns due to the Covid pandemic. However, Gelsinger specifically linked the shortages to a lack of manufacturing equipment and difficulty building new semiconductor fabrication plants, or fabs.

“That’s part of the reason that we believe the overall semiconductor shortage will now drift into 2024, from our earlier estimates in 2023, just because the shortages have now hit equipment, and some of those factory ramps will be more challenged,” Gelsinger said on the program.

While there are a number of chip fabrication companies on the lower end of the product lines, Dutch company ASML Holdings is the only one capable of making Extreme Ultraviolet (EUV) technology, which is used to make chips under 10nm. And ASML recently said it could only fulfill 60% of orders for chipmaking tools this year. 

“The demand we are currently seeing comes from so many places in the industry,” ASML CEO Peter Wennink said during an earnings call with analysts two weeks ago. “It’s so widespread. We have significantly underestimated the width of the demand. That, I don’t think, is going to go away.”

ASML doesn’t build a lot of EUV fabs. Its customer list for EUV can be counted on one hand – Intel, TSMC, and Samsung. But these EUV fabs are monstrous. The building is the size of a football stadium, while the manufacturing gear inside is the size of a house. It’s not trivial manufacturing, and there’s a reason fabs take two to four years to build.

To put it another way, what do you think is the bulk of the cost of those $20 billion fabs that Intel is committed to building in Arizona? It’s certainly not the buildings, or the power, or the HVAC.

Despite having a customer base of about two dozen, semiconductor manufacturing equipment is a very big business. It was $50 billion in 2020 and is projected to grow to $84.8 billion in 2028.

That’s one of the reasons Intel is expanding its Intel Foundry Services business, which makes chips for other companies. On the earnings call with financial analysts, Gelsinger said Intel Foundry Services hit a $1 billion run rate for the first time, and Intel now has more than 10 qualified opportunities in advanced stages of engagement that collectively represent a deal value of greater than $5 billion.