Feed: AnandTech
Feed Link: https://www.anandtech.com
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Title: Update: Intel Accelerated Ireland EUV Fab Ramp-Up as Meteor Lake Chips
Were In Short Supply

Date: Thu, 01 Aug 2024 20:15:00 EDT
Link: https://www.anandtech.com/show/21497/intel-ac...

Update 08/02: Patrick Moorhead has published a further tweet, clarifying that
"Pat [Gelsinger] didn't tell me l that there were yield issues. This was *my*
interpretation." The text of the article has been updated accordingly to
reflect this tweet, as well as Intel statements about accelerating their
Ireland Fab 34 ramp-up.

Alongside Intel's weak Q2 2024 earnings report and the announcement of $10
billion in spending cuts and layoffs for 2025, the company is also disclosing
some new information about their chip deliveries over the first half of the
year. A brief report, posted on X by analyst Patrick Moorhead and citing a
conversation with Intel CEO Pat Gelsinger, revealed that Intel encountered a
major production bottleneck on Meteor Lake earlier this year. The issue was
significant enough to drive intel to take the extraordinary and costly step
of accelerating their Ireland fab ramp-up in order to improve chip capacity.

It was a very rough Q2 for $INTC. And that guide... Thanks, @Pgelsinger, for
the time to discuss.

It appears that there were yield/throughput issues on Meteor Lake, negatively
impacting gross margins. When you have to get the product to your customers,
and you have wafers to… pic.twitter.com/pHU66xvFe7

- Patrick Moorhead (@PatrickMoorhead) August 1, 2024 It appears that there
were yield/throughput issues on Meteor Lake, negatively impacting gross
margins. When you have to get the product to your customers, and you have
wafers to burn, you run it hot. I heard from OEMs that they needed more MTL,
but it wasn't bone dry. You have to run hot lots in that case, or else your
customers will be impacted. I didn't have this one on my dance card.
-Patrick Moorhead

In a separate tweet posted several hours later, Moorhead then clarified that
the yield issues mentioned in his first tweet were his interpretation of the
matter, rather than something Pat Gelsinger had told him directly.

For the record, Pat didn't tell me l that there were yield issues. This was
*my* interpretation. But when your COGS are cited for a specific product are
rising in a big, big way, with MTL, you *have* to surmise either yield or
back end throughout issues that can be very expensive.
-Patrick Moorhead

Decoding Moorhead's dense tweets, fundamentally, Moorhead is questioning why
Intel's Cost of Goods Sold (COGS) - how much the company's chips cost to
produce - were on the rise with the launch of Meteor Lake. The analyst
surmised that yields and/or some other unexpected production bottleneck must
be the case, as these are the typical issues that drive up chip COGS on a
short-term basis like Intel has been experiencing.

And, judging from Intel's earnings call that took place after the initial
tweet, Moorhead was right to an extent. Referencing the increased COGS, Intel
CFO David Zinsner noted that Intel opted to ramp up its high-volume
production in Ireland faster than initially planned. This increased Intel's
capacity for Intel 4 (and Intel 3) capacity, but doing so also increased
their costs, as wafers out of Ireland cost more in the near term.

The largest impact was caused by an accelerated ramp of our AI PC product. In
addition to exceeding expectations on Q2 Core Ultra shipments, we made the
decision to accelerate transition of Intel 4 and 3 wafers from our
development fab in Oregon to our high volume facility in Ireland, where wafer
costs are higher in the near term.
-Intel CFO David Zinsner (Intel Q2'24 Earnings Call)

Between Moorhead's report that OEMs have been receiving fewer Meteor Lake
chips than they could use, and Intel's announcement that they accelerated the
Ireland fab ramp-up, this is the first significant disclosure that Meteor
Lake chips were, at least at some point, in unexpectedly short supply. Which
in turn required Intel to take unexpected and extraordinary steps in order to
improve chip production, at the cost of lower short-term profit margins and
higher COGS.

The first of Intel's high-volume manufacturing (HVM) fabs to be equipped for
the Intel 4 and Intel 3 processes, Fab 34 in Ireland is a critical element to
Intel's cutting-edge product plans over the next couple years. Intel was not
initially planning on relying so much on Fab 34 this soon - instead using
their Oregon development fabs to do more of their Intel 4 & Intel 3
fabrication - but the company opted to ramp up at a faster pace. The benefit
to Intel is that they get more fab capacity sooner, but it means they're
incurring around $1 billion in costs now of what would have otherwise been
spread out over further quarters during a more gradual ramp-up.

The net result was that, while Intel took a margin hit, it also allowed them
to supply more Meteor Lake chips than they otherwise would have, even beating
their own previous projections for Q2 shipments. Overall, Intel reported in
their Q2 earnings that they've shipped 15 million "AI PC" chips since Meteor
Lake's launch, though the company doesn't break down how many of those were
in Q2 versus Q1 and Q4'23. Still, according to Moorhead, this was fewer chips
than OEMs would have liked to have, and they would have taken more chips if
they were available.

COGS and Ireland ramp-ups aside, Moorhead also posits that some of Intel's
capacity boost came from running "hot lots" of Meteor Lake - high priority
wafer batches that get moved to the front of the line in order to be
processed as soon as possible (or as reasonably close as is practical). Hot
lots are typically used to get highly-demanded chips produced quickly,
getting them through a fab sooner than the normal process would take. As a
business tool, hot lots are a fact of life of chip production, but they're
undesirable because in most cases they cause disruptions to other wafers that
are waiting their turn to be processed.

If true, running hot lots of Meteor Lake would be a significant development
given the potential disruptions. At the same time, however, the situation
with Meteor Lake is somewhat particular, as the Intel 4 process used for
Meteor Lake's compute tile (the only active tile made at Intel) is not
offered to external foundry customers, or even used by other Intel CPUs (Xeon
6s all use Intel 3). So hot lots of Meteor Lake would have few other wafers
to even jump ahead of for EUV tooling (Intel would certainly not put them
ahead of high-margin Xeon products), while it's unclear how this would
cascade down to any tools shared with Intel 7.

Intel, for their part, did not comment on Meteor Lake chip yields or hot lots
in their earnings call.

In any case, Intel at this point is looking to turn around their troubled
fortunes in the second half of this year. The company's next-gen client SoC
for mobile, Lunar Lake, is set to launch on September 3rd. And notably, both
of its active tiles are being built by TSMC. So Lunar Lake would be spared
from any Intel logic fab bottlenecks, though it still has to go through
Intel's facilities for assembly using their Foveros technology. And there
remains the thorny issue of higher production costs altogether, since Intel
is paying for what's effectively the fully outsourced production of a Core
CPU.

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