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Intel faces mounting challenge from AMD amid supply-chain struggles

Intel Corp.'s dominance in the computer processor market could be threatened this year as rival semiconductor manufacturer Advanced Micro Devices Inc. prepares to release a range of new chips, while Intel continues to grapple with supply-chain issues.

Intel struggled to meet customer demand for its computer chips in 2019 as market growth exceeded expectations, leading to shipment delays for some customers. In a November 2019 letter, Intel executives said the supply-demand issues continued despite "record levels" of company investment in expanding manufacturing capabilities.

Intel reported flat-to-negative year-over-year revenue growth for the first three quarters of 2019. It eked out growth of 0.1% to $19.19 billion in the third quarter following a decline of 2.7% in the second. However, Intel's results still beat analysts' expectations, and the company in October raised its full-year 2019 revenue guidance to $71 billion, from $69.5 billion.

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As Intel struggled with market-supply challenges in 2019, smaller rival AMD worked to expand its position with the release of more powerful and efficient chips. AMD reported year-over-year revenue growth of 9% to $1.80 billion in the third quarter, driven by the company's new range of desktop and enterprise processors, as well as graphics cards. For the fourth quarter of 2019, AMD expects revenue of $2.1 billion, an increase of about 48% year over year.

Analysts expect the double-digit revenue growth to continue for AMD in 2020 given consumer demand for the company's new chips and Intel's continued supply struggles. Competition between the two chipmakers is set to intensify in the coming months as AMD prepares to release a new series of mobile processors for laptops.

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AMD announced new processors for laptops earlier this month at CES, the Consumer Technology Association's annual technology and media trade show, where it claimed its offerings would be significantly more powerful than those produced by Intel. The new AMD processors should start appearing in laptops in the first quarter of this year.

"AMD's CES announcements were a clear attack at one of Intel's major business segments: laptops," said Anshel Sag, a consumer and chip tech analyst at Moor Insights & Strategy, in an interview.

Sag predicted that AMD would continue to steal market share from Intel in 2020 by improving relationships with major hardware manufacturers like HP Inc. and Dell Technologies Inc., both of which blamed Intel supply issues for their lower-than-expected revenue in the third quarter of 2019. Hardware companies are turning to AMD and finding components that perform "as good if not better" than Intel's processors and chips, the analyst said.

Intel also announced new processors for laptops at CES, though it offered few details on when they would launch or whether their tech specifications would be comparable to AMD's upcoming laptop processors.

Also at CES, Intel unveiled its first discrete graphics processing unit, entering an area of the market that has been dominated by AMD and NVIDIA Corp. Though Intel offered few details about its upcoming graphics unit, code-named DG1, analysts expressed skepticism that Intel would be able to enter the graphics market with a product impressive enough to take market share from the leading players.

"I think Intel's play in the graphics card space is not going to be as aggressive as a lot of people thought it would be," Sag said. "The first parts are likely going to be very low performance but high efficiency, so they would only compete with the bottom tier Nvidia and AMD cards initially."

Even if Intel's graphics cards met the performance capabilities of rival hardware, it still may struggle to lure consumers away from AMD and Nvidia, both of which have a loyal customer base among the gamers who buy high-end graphics cards.

"AMD sees the rising tide of competitive gaming on PC, and it has the hardware to cater to that market," said Neil Barbour, an analyst at Kagan, a media market research group within S&P Global Market Intelligence.

Barbour also noted that AMD's involvement in gaming stretches beyond PCs, as the company's chips will power the next-generation of gaming consoles by Sony Corp. and Microsoft Corp., which are set to launch during the December 2020 holiday season.