FPGA Inventory Correction Hits Intel’s Earnings Outlook

John Ward Author

In its fiscal Q4 2023 earnings announcement, Intel warned that its financial performance is impacted by an ongoing inventory correction for FPGAs expected to persist through the first half of 2024.

The company said its Programmable Solutions Group (PSG) Data Center and AI (DCAI) groups are encountering an industrywide cyclical correction for FPGAs. Intel noted that the FPGA market had commenced a period of inventory burn following an extended phase of strong demand growth and tight supply.

The State of the FPGA Market

As the company first noted in its fiscal Q3 earnings call, PSG is expected to continue to face an industrywide cyclical correction for FPGAs, which Intel expects to last through the first half of 2024.

The company said PSG revenue declined in Q4 and is expected to experience depressed demand during the next few quarters. Customers will strive to reduce inventory before conditions for rate rates and demand growth return to normal later in 2024.

Intel said DCAI revenue was $4 billion, up 4% sequentially. Although the company’s sales to the server market expanded by double digits, the revenue growth was nearly negated by the FPGA inventory correction.

FPGA sales growth had remained positive throughout 2023, with the Commodity IQ Demand Index averaging 130 in the Asia-Pacific region. This well-above-the-baseline reading indicates a sustained increase in demand. By the end of 2023, stockpile levels were increasing, with the Commodity IQ Inventory Index for FPGAs rising above the baseline in October and November.

However, inventory levels started to decline in December, with the Commodity IQ Inventory index for FPGAs falling to 94.5 for the month. The index is expected to remain below the baseline in January and February, reflecting declines in stockpile levels.

What Should Buyers Expect From FPGAs in 2024?

As a result of the inventory correction, conditions in the FPGA market favor buyers, with pricing and lead times on the decline. However, such favorable conditions are not expected to last as demand expands in 2024.

According to market watchers, FPGA sales are set to rise by nearly 8% in 2024, following growth of about 7% in 2023. Demand is propelled by the rising use of programmable logic technology in data centers for AI acceleration.

FPGAs provide an efficient and cost-effective approach to accelerating high-volume AI inference applications, representing an attractive alternative to increasingly expensive and hard-to-source graphics processing units (GPUs).

For buyers, now is the time to negotiate better pricing and delivery terms before supplies tighten for this crucial part powering the generative AI revolution.

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