September 18, 2008

Converge CPU Update

In this edition of Market Insights, we look at the complexities of predicting CPU demand shortages as well as the patterns of supply that tend to repeat themselves with each product launch.

In our June and August updates, we discussed rumors of shortages due on the new mobile Montevina platform. These reports persisted throughout the summer, but as the product began to ship in August, we saw the market begin to heat up.

Celeron Mobile 575, T3200, T3400, T5800, T5900, P7250 and T9400 have been in demand across all regions for the past six weeks, and we expect this situation to continue well into October.

Forecasting demand
As a supply chain solutions provider for technology-driven companies, Converge has tracked nearly every CPU product launch by building forecast models to help predict potential supply and market demand concerns. It is through this experience that we can expect each new product line launch to bring shortages on the end-of-life parts, followed by shortages on one or two of the new products themselves.

For example, at the time of writing this update, the soon-to-be launched T3400 and T5900 seem to be safe investment choices for an early stock buy as soon as they become available. Additionally, there is enough dialogue across the regions to suggest that the T3400 and T5900 have the potential to be the next hot mobile parts in demand. It will be interesting to track how the supply situation with the Montevinas develops during the run-up to the holiday season.

However, as any production planner can attest, the life cycle of supply and demand for a CPU can still be difficult to predict.

For example, during the last holiday season, the Intel product road map prescribed that the E8400 would replace the E6550. Previously, the P4 630 SL7Z9 and the PD 925 CPUs were the bestsellers, as they occupied the traditionally hallowed space of the 3GHz desktop processor.

Knowing that the E6550 would be eventually phased out meant that there would likely be some last time buy supply issues. In midsummer 2008, the E6550 led the demand for end-of-life Conroe shortages.

When the replacement E8400 hit the market, it quickly launched as a cost-saver and a brief shortage part instead of simply a shortage part. Initially launched at a direct price of $179, the part quickly dropped to $154. A speculative stock buy that may have looked like a smart move at the start of the year would have turned into a potentially costly mistake as the unpredictable life cycle of the CPU unfolded.

Although forecast models can help predict potential supply issues, Converge strongly recommends consulting with experts who track the daily progress of CPU market supply and demand fluctuations in the spot market.

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