Microsoft signals that Intel chip shortages could be over

A shortage in Intel microprocessors that affected Microsoft and the PC industry during late 2018 appears to have ended, helping spur sales of Microsoft's Windows and Surface products.

During Microsoft’s earnings call on Wednesday, chief financial officer Amy Hood said the overall PC market was stronger than anticipated. “In Windows, the overall PC market was stronger than we anticipated, driven by improved chip supply that met both unfulfilled Q2 commercial and premium consumer demand as well as better-than-expected Q3 commercial demand,” Hood said.

A quarter ago, Hood had taken a different tone, complaining on behalf of Microsoft that chip supply constraints had hurt the overall PC market.  “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,” Hood said then. 

Hood didn’t specifically detail what changes Intel had made, nor did she call out the chipmaker specifically. But Intel itself had acknowledged its manufacturing problems in January, and other PC vendors had addressed the issue. As far as Microsoft is concerned, though, Intel apparently has solved its problems. Hood said that as far as chip supply goes within commercial and the premium consumer segments, “we feel fine for Q4.”

Microsoft topped analyst estimates in terms of revenue and profits for the third quarter of fiscal 2019, which it reported Wednesday. The company recorded net income of $8.8 billion, up 19 percent from a year ago, on revenue of $30.6 billion, up 14 percent from a year ago. Revenue in More Personal Computing, which houses Windows, Surface, and Xbox gaming revenue, was $10.7 billion and increased 8 percent from a year ago.

While sales of “non-Pro” Microsoft Windows were essentially flat, sales of Windows Pro software climbed 15 percent.

Surface revenue increased 21 percent year over year to $1.32 billion, though it declined from a quarter ago, when Microsoft reported $1.86 billion in sales during the traditionally strong fourth-quarter holiday season. Microsoft also apparently met its own aggressive Surface forecasts from a quarter ago. In January, Hood predicted that Surface would generate sales growth in excess of 20 percent—though without specifying whether she was referring to sequentially or year over year. To date, Microsoft’s Surface line has exclusively used Intel processors.

What this means for you: Chip shortages typically mean higher prices, so alleviating those supply problems should mean more affordable PCs. Well, they should, but that’s assuming PC makers don’t get greedy and start using the extra profits to pad their own bottom lines.