News for this week primarily focused on the industry, as opposed to products, and so highlighted AMD earnings, Microsoft earnings, and NVIDIA earnings. There are interesting stories within each of these topics: For Microsoft, the company indirectly blamed Intel's CPU shortage as impacting its growth projections for Windows 10; for NVIDIA, GPU sales slow-downs are still impacting the bottom line, and the company has adjusted its revenue projections accordingly; for AMD, the company saw an uptick for 4Q18, but is facing a slow quarter for 1Q19.
Beyond these stories, areas of interest include an AI white-hat hacking machine (named "Mayhem," a water-cooled supercomputer), Intel expansions and investments, and Intel's sort-of-new CEO.
Show notes below the embedded video, as always.
NVIDIA 4Q18 Revenue Lower than Expected -- Again
Starting the week, NVIDIA was met with a 15% drop in shares as its updated its Q4 revenue guidance. A full statement can be read over at NVIDIA’s website, but it highlights “deteriorating economic conditioning in China,” as well as headwinds in the gaming market. As such, NVIDIA has lowered guidance to a quarterly revenue of $2.20 billion, down from the previously projected $2.70 billion.
While NVIDIA maintains the depletion of excess 10-series cards went mostly according to plan, the company experienced lower than expected sales of high-end GPUs, stating that “some customers may have delayed their purchase while waiting for lower price points and further demonstrations of RTX technology in actual games.” Additionally, NVIDIA notes that the datacenter sector remained cautious, and several deals were not closed as expected in Q4.
Regarding China, NVIDIA isn’t the only tech company claiming struggles. Apple recently issued a rare adjustment to their 1Q19 revenue guidance due to a slump in iPhone sales, particularly in China.
Reports indicate that TSMC is preparing to scrap thousands of chips due to a defective chemical damaging wafers in production. The contaminant seems to be linked to a photoresist chemical, but details regarding the defect or supplier are scarce. The disruption in fabrication seems to be isolated to TSMC’s 16nm and 12nm lines at Fab 14 in southern Taiwan, primarily affecting NVIDIA, MediaTek, Huawei, and HiSilicon.
Nikkei Asian Review has a statement: “TSMC has discovered a shipment of chemical material used in the manufacturing process that deviated from the specification and will impact wafer yield.”
Intel Expansion Continues: $11 Billion Investment in Israel
As we mentioned in our last HW News, Intel has plans to expand and upgrade some of its global fabs, and we talked about their upcoming plans in Oregon for 7nm. Intel’s plans include Oregon, Israel, and Ireland seeing significant investments. It seems Israel is next, as Intel is currently weighing an $11 billion investment to build a new fab.
Finance Minister Moshe Kahlon confirmed that Intel could receive a $1 billion grant for their investment:
“The moment the company comes to Israel and invests $10 billion, and it receives a grant of 9 percent, that means 91 percent of it stays here,” Kahlon said in an interview on Army Radio. “There are always such discounts, there are always incentives.”
Intel’s financial outlay would include a separate $5 billion expansion in their already sizeable operations in Israel. The expansions would add 1,000 new employees to Intel’s already 13,000 strong workforce in Israel. If the deals materialize, it will be the largest investment in Israel, and the largest fab in the region.
Mayhem Is A Water Cooled, White-Hat Hacking Machine
We’ve long relied on white-hat hackers -- the “ethical” hackers, who use their talent for the greater good -- to help mitigate and patch cybersecurity issues. With the advent of machine learning and AI, it seems they’re going to get some help from machines like Mayhem.
Mayhem is a water cooled supercomputer, of sorts, capable of finding, validating, and patching security vulnerabilities in code. While this method isn’t altogether new, what is new is how Mayhem will actually exploit the vulnerability first, obtaining proof of vulnerability (anything that would lead to elevated privileges or root access), rather than just flagging what may be a false positive. This is akin to the type of code a black-hat hacker might use to gain access.
One of Mayhem’s first tests came by setting it loose on every program in the Debian Linux distribution, where it found 14,000 unique vulnerabilities -- 250 of which were new, never before discovered.
Mayhem’s team, ForAllSecure, entered Mayhem into DARPA, the world’s first all machine hacking competition, put on by The U.S. Defense Advanced Research Projects Agency. Mayhem was up against six other machines, and would be judged on its ability to find and patch vulnerabilities. Long story short, Mayhem won the competition, despite suffering a crash in the 40th round out of 100. Mayhem’s lead was sizeable enough that the rest of the machines couldn’t catch up, even with more than half the competition left.
After winning the competition, David Brumley (cofounder and CEO of ForAllSecure) stated that ForAllSecure would sell Mayhem’s services to early adopters like the U.S. Government. Additionally, Brumley stated that Mayhem will work alongside humans for now, but he believes that in the future, machines will handle the job solo.
AMD’s 4Q18 earnings are in, and they appear to have fared better than Intel and NVIDIA, both of whom had quarters that were comparatively underwhelming. 4Q18 revenue was $1.42 billion, which is a 6% increase YoY, with the full year revenue coming in at $6.48 billion, a 23% increase YoY. AMD attributes the growth to increased to higher revenue from their Compute and Graphics segment.
AMD’s gross margins are also up, going from 34% to 38%, primarily due to increased shipments of Ryzen, Epyc and Threadripper, and Radeon; however, AMD expects 1Q19 to a be a little soft, as even it feels the sting of excess inventory and the cryptocurrency void:
“For the first quarter of 2019, AMD expects revenue to be approximately $1.25 billion, plus or minus $50 million, a decrease of approximately 12 percent sequentially and 24 percent year-over-year. The sequential decrease is expected to be primarily driven by continued softness in the graphics channel and seasonality across the business. The year-over-year decrease is expected to be primarily driven by lower graphics sales due to excess channel inventory, the absence of blockchain-related GPU revenue and lower memory sales.”
AMD also renegotiated its WSA (Wafer Supply Agreement) with GlobalFoundries, freeing itself of penalty fees for sourcing 7nm silicon from third parties, such as TSMC.
“The amendment provides AMD full flexibility for wafer purchases from any foundry at the 7nm node and beyond without any one-time payments or royalties.”
GlobalFoundries will be AMD’s partner for 12nm and above, with the same stipulations as before applying to using third party suppliers. The amendment will see AMD using GlobalFoundries through 2021.
After seven months, interim CEO and former CFO Robert (Bob) Swan will assume the role of Intel’s CEO permanently. Swan assumed CEO duties when Brian Krzanich resigned in 2018, following an extramarital affair with a subordinate, which violated Intel’s policy.
Swan will pick up where Krzanich left off, and that’s the continued transformation of Intel’s business from PC-centric to data-centric. Swan even notes this in his email, saying “our core strategy is not changing: We’ve embarked on what we believe can be the most successful transformation in corporate history. We are evolving from a PC-centric to a data-centric company” and “We must remain focused on playing offense and innovating for an increasingly data-centric world. A world where all data needs to be processed, moved, stored and analyzed.”
Swan has extensive financial experience, and has previously worked for General Atlantic, eBay, and General Electric. Intel is currently conducting an internal and external search for a new CFO.
Microsoft Hints Intel’s CPU Shortage Affecting Windows Growth
Intel’s supply crisis is well documented now, and even Microsoft has subtly indicated it has affected their business. In their Q219 earnings report (Microsoft’s fiscal years are weird), Satya Nadella, CEO, and Amy Hood, CFO, alluded to Intel as the primary reason for lower than expected Windows growth.
“Now to the results for More Personal Computing segment. Revenue was $13 billion, increasing 7%. Results in our Windows OEM business were lower than expected, partially offset by strong Surface results. In Windows, the overall PC market was smaller than we expected primarily due to the timing of chip supply to our OEM partners, which constrained an otherwise healthy PC ecosystem and negatively impacted both OEM Pro and non-Pro revenue growth.”
Now, Microsoft isn’t exactly pointing fingers or naming names, but we can read between the lines here. There’s only two players in the x86 processor space delivering CPUs to OEMs. One of them has had a very public struggle with supply and demand, and the other hasn’t.