Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I am worried about Intel, No, for real.
Speaker 1: We're recording this on October first, So I'm worried about
Speaker 1: some other things. But sure, sure, no.
Speaker 2: There's plenty to worry about in the world. But like,
Speaker 2: I'm worried about.
Speaker 3: Intel specifically, because it's all nice to talk about industrial
Speaker 3: policy and we're going to build these you know, build
Speaker 3: out all these industries, et cetera. But here we have
Speaker 3: one of the true industrial giants, one of the flagship
Speaker 3: companies of the United States getting a lot of support,
Speaker 3: are leading company in the field of semiconductors, which is
Speaker 3: a major strategic priority for the US, and they do
Speaker 3: not seem to be doing.
Speaker 4: Well at all.
Speaker 2: The stock is absolutely dismal. They're cutting jobs.
Speaker 3: If this is the flagship company like them and Boeing
Speaker 3: loomed very large in my head about I guess what
Speaker 3: I would say is like, I don't know if corporate
Speaker 3: rot is too strong of a word, but yeah, like
Speaker 3: corporate rot.
Speaker 1: Not to add to your anxiety, but did you also
Speaker 1: see some of the headlines coming out of North Carolina
Speaker 1: about quartz sand.
Speaker 2: Yeah, I don't know what that's all about.
Speaker 1: It's kind of an interesting one. So after Hurricane Helene,
Speaker 1: there's a town called Spruce Pine where apparently most of
Speaker 1: the world's supply of pure quartz sand comes from, and
Speaker 1: that could have an impact on the production of semiconductors.
Speaker 1: So we get to I guess we get to unveil
Speaker 1: the bullhorn for the bullwhip effect. Again.
Speaker 2: We're not doing this. Apparently we are doing this again.
Speaker 2: I did a deadlift.
Speaker 1: One two, Jimmy okay, uh barges.
Speaker 3: This isn't after school Special, except.
Speaker 1: I've decided I'm going to base my entire personality going
Speaker 1: forward on campaigning for a strategic pork reserve in the US.
Speaker 2: Where's the best costa?
Speaker 1: These are the important question? Is it robots taking over
Speaker 1: the world?
Speaker 3: No, I think that like in a couple of years,
Speaker 3: the AI will do a really good job of making
Speaker 3: the odd Launch podcast And people say, I don't really
Speaker 3: need to listen to Joe and Tracy anymore.
Speaker 2: We do have touching, the perfect welcome to lots More
Speaker 2: where we catch up with friends about what's going on
Speaker 2: right now.
Speaker 1: Because even when Odd Lots is over, there's always lots
Speaker 1: more And.
Speaker 2: We really do have the perfect guest stacy, what's going
Speaker 2: wrong until.
Speaker 4: What's not going wrong? At Intel? Right now?
Speaker 5: They're in a tough spot, right, I mean they are
Speaker 5: embarking on a very risky and capital intensive strategy. I
Speaker 5: say embarking, but frankly they've been along on the strategy
Speaker 5: for quite a few years.
Speaker 3: Yeah, because CEO Pat Gelsinger came in in twenty twenty one,
Speaker 3: and so we're like at least three years into what
Speaker 3: is supposedly an embarkment on a new strategy. And if
Speaker 3: I just look at the stock price, it's lower than
Speaker 3: was in twenty fifteen.
Speaker 5: Yeah, in fact, you know it's I actually look, I
Speaker 5: launched on the stock in June of two thousand and nine.
Speaker 5: I think it was fifteen dollars and ninety four cents,
Speaker 5: so fifteen or sixteen years ago, and it's.
Speaker 4: Not that far off of there. Now.
Speaker 5: It's had a bit of a balance in the recent weeks.
Speaker 5: We can talk about why, but in general they're in
Speaker 5: a tough spot. Yeah, I mean the biggest issue that
Speaker 5: they're having, and we can argue, is the.
Speaker 4: Strategy the right one or the wrong one. That's a
Speaker 4: discussion we.
Speaker 5: Can have, but it might be the biggest issue is
Speaker 5: just the core business that was supposed to support them
Speaker 5: as they rolled that strategy out is no longer really
Speaker 5: sufficient to support it anymore.
Speaker 4: But they maybe too far along their path to stop. Right.
Speaker 5: The whole idea was, you know, we're gonna be doubling
Speaker 5: down on manufacturing.
Speaker 4: We're going to building lots of factories in the US
Speaker 4: and everywhere else.
Speaker 5: We're going to be building up a significant third party
Speaker 5: foundry business to make parts not just for ourselves but
Speaker 5: for other third party customers as well. We're getting a
Speaker 5: lot of external funding to do this, and you know,
Speaker 5: eventually we'll get there and it's going to be great.
Speaker 5: But that the problem is that the you know, these
Speaker 5: things are very you know, intensive, like they cost a
Speaker 5: lot of money, and because of the deterioration that we've
Speaker 5: seen in Intel's core business for a variety of reasons,
Speaker 5: the macro's not been great. You know, they were over
Speaker 5: earning as many were during COVID and and that bubble
Speaker 5: is popped. They're still losing share in many of their
Speaker 5: key markets. They've completely missed the AI revolution, which is
Speaker 5: one of the few areas of semiconductors today that's actually
Speaker 5: really on fire. And they effectively have nothing to show
Speaker 5: in that as and and those markets are starting to
Speaker 5: eat into some of the core stuff that Intel does.
Speaker 5: That core business doesn't doesn't really support that the path
Speaker 5: that they're on anymore, even after the subsidies and and
Speaker 5: frankly doing some other things that are probably not you
Speaker 5: wouldn't want to do if you didn't have to. They've
Speaker 5: been selling parts of some of their factories to private
Speaker 5: equity and getting cash for that. But even after all
Speaker 5: of that, you know, it's still costing them like a
Speaker 5: bunch of money that they don't really have anymore. They
Speaker 5: put out some targets recently that sort of showed a
Speaker 5: path to you know, a better companies, but in twenty thirty,
Speaker 5: it's twenty twenty four.
Speaker 4: Right now, that's a long ways away.
Speaker 5: There's a lot of wood to chop between now and then,
Speaker 5: even if they can manage to execute on that.
Speaker 4: So they're in a tough spot.
Speaker 1: So we are speaking with Stacey Raskin, who is of
Speaker 1: course the semiconductor analyst over at Bernstein. We've spoken to
Speaker 1: him before. We also have McKenzie Hawkins, who is our
Speaker 1: colleague here at Bloomberg. McKenzie, how existential are the next Oh,
Speaker 1: I guess, let's see October, November, December, next three months.
Speaker 1: For Intel.
Speaker 6: This is a crucial stretch for Intel, in part because
Speaker 6: it's a crucial stretch for the Biden administration. The company
Speaker 6: is the single largest beneficiary of this massive US effort
Speaker 6: to resource semiconductor manufacturing through Call twenty twenty two Chips
Speaker 6: in Science Act. They're in line to receive eight and
Speaker 6: a half billion dollars in grants for projects across four
Speaker 6: US states for commercial partners. They're also supposed to get
Speaker 6: three billion dollars to make chips for the Pentagon and
Speaker 6: eleven billion dollars in loans, not to mention twenty five
Speaker 6: percent tax breaks on their US investments. There isn't really
Speaker 6: a fear that the broader SEPSTY program will go away
Speaker 6: after President Biden leaves office. But Intel's been negotiating this
Speaker 6: award package with officials in the Biden administration for well
Speaker 6: over a year now. It's not yet finalized, and they
Speaker 6: really want to prove two officials that yes, we need
Speaker 6: to sign these documents. We want to get money out
Speaker 6: the door, ideally by the end of this administration, because
Speaker 6: who really knows what will come after January, and they're
Speaker 6: all trying to do that before they really really prove
Speaker 6: in the technology stack on which these awards are premised.
Speaker 3: Stacy two questions in your when you think of Intel,
Speaker 3: how important is the aid from the US government to
Speaker 3: its future? And when you think of the US government,
Speaker 3: how important is Intel to the policy objectives of the
Speaker 3: United States.
Speaker 5: They're clearly both important. The aid from the government is
Speaker 5: helping them. And by the way, I will say, I
Speaker 5: don't think they're in a critical situation from a cash
Speaker 5: standpoint right now, partially because of some.
Speaker 4: Of those government funds.
Speaker 5: So if you add up what they've just done, some
Speaker 5: of the were structuring that they've just announced, the CAPEX cuts,
Speaker 5: the op X cuts, the suspended dividend, they suspended their
Speaker 5: dividend right, the governmental funds both from the tax credit
Speaker 5: as well as the grants of those rolling as well
Speaker 5: as some of those private equity funds. It's something like
Speaker 5: forty billion dollars of incremental cash that lends on the
Speaker 5: balance sheet like through the end of twenty five of
Speaker 5: twenty twenty five, versus not doing anything at all. So
Speaker 5: like again, I think their cash position is okay because
Speaker 5: of this stuff. I don't think they're desperate. It's partially
Speaker 5: be due to those government funds. I will say, however,
Speaker 5: to get those grants, it's not like they don't get
Speaker 5: an eight and a half billion dollar check like they're
Speaker 5: milestone base. They have to do the projects and build
Speaker 5: them out and hit the milestones and then that money
Speaker 5: get gets apportioned. But that money is important in terms
Speaker 5: of like how important is Intel for the for the
Speaker 5: government's efforts. I mean, it's clearly very important. Although I
Speaker 5: will say, you know, if if the goal is really
Speaker 5: to get a ton of leading edge manufacturing capacity built
Speaker 5: in the US, you could argue if the government was
Speaker 5: only goal oriented, maybe picking Intel as their champion was
Speaker 5: not the best way to go. There are other players
Speaker 5: that you could have encouraged, who whether they're all building here,
Speaker 5: but you could have encouraged, for example, somebody like a
Speaker 5: TSMC to build a lot more here than they're doing.
Speaker 4: Now that being set, we're not just goal already.
Speaker 5: Other like politics is a huge piece. It's not politically
Speaker 5: viable to do something like that. Intel is the only
Speaker 5: US based company that can even hope to build out
Speaker 5: a leading edge footprint, and so I understand why they've
Speaker 5: been named the national champion, but I mean, it's just
Speaker 5: given the issues that they're having, it does sort of
Speaker 5: throw the eventual success of the program, especially especially around
Speaker 5: the leading edge side, into a little bit of a loop,
Speaker 5: like we'll have to see how things go for them.
Speaker 6: And you think it's important to remember here. Intel is
Speaker 6: the largest beneficiary of the Chips Act, but definitely not
Speaker 6: the only one. The US is in line to give
Speaker 6: more than six billion dollars to TSMC, the unambiguous industry leader.
Speaker 6: There's also more than six billion dollars lated for Samsung,
Speaker 6: which is building leading edge capacity in Texas. But Intel
Speaker 6: is really important one because the Pentagon has decided that
Speaker 6: we need an American company to make cutting edge chips
Speaker 6: for military and intelligence purposes. They've had early conversations about
Speaker 6: buying those chips from foreign owned foundries that are on
Speaker 6: US soil. It's crucial that we're having TSMC building three
Speaker 6: fabs in Arizona, and that was a commitment that the
Speaker 6: US government got from them with the carot of these subsidies.
Speaker 6: But Intel, I mean, Gelsinger kind of hinged his entire
Speaker 6: turnaround plan on this US manufacturing expansion was a major
Speaker 6: lobbyist pushing for the Ships Act, riding the coattails of
Speaker 6: that subsidy program. And yes, you know this says really
Speaker 6: high political stakes for the Biden administration and for industrial
Speaker 6: policy writ large. You know, I think it's a feature,
Speaker 6: not a bug of the program that Intel hasn't gotten
Speaker 6: any money yet. As Stacy mentioned, these are milestone based awards.
Speaker 6: You know, companies will get a tranch of money and
Speaker 6: they have you know, first wafers out of their facilities.
Speaker 6: Look at a trants of money when facilities are completed.
Speaker 6: But for a company that is, you know, not acutely
Speaker 6: running out of cash, but not in a great financial
Speaker 6: position like Intel, it really matters when that money actually flows.
Speaker 6: And the US government is still vetting the viability of
Speaker 6: these manufacturing plans in the first place before they're willing
Speaker 6: to sign a final agreement. All they've announced is a
Speaker 6: preliminary award.
Speaker 1: Is there a viable alternative to Intel? I get the
Speaker 1: sense that maybe there isn't.
Speaker 5: I mean, there are three companies in theory that can
Speaker 5: do leading edge semiconductor manufacturing global It's TSMC, Samsung, and Intel.
Speaker 5: And of those three, only really TSMC is hitting out
Speaker 5: of the park in terms of executing to their roadmaps.
Speaker 5: Like Intel, cole is having problems and again we can
Speaker 5: talk about their roadmap and where that may be going,
Speaker 5: but they've been having issues and Samsung as well as
Speaker 5: also having issues, Like this stuff is not easy, Like yeah, I.
Speaker 3: Always Samsung by the way, by the way, by the way,
Speaker 3: on the day we're recording this October first, Bloomberg reporting
Speaker 3: some substantial layoffs at Samsung and they're losing some shared
Speaker 3: to competitors like Skhnix, et cetera in certain lines. So yeah,
Speaker 3: just to talk about it's not just Intel having the struggles. Okay,
Speaker 3: keep going, Yeah.
Speaker 5: Yeah, so it's the stuff is hard to do. Again,
Speaker 5: I'm always amazed that any of it works at all.
Speaker 4: But to McKenzie's probably one of the three.
Speaker 1: I mean, the administration has said they want an American
Speaker 1: company to do this, and so I guess I'm wondering, like,
Speaker 1: are there ways that they could structure something with TSMC
Speaker 1: or Samsung or does it have to be an American company,
Speaker 1: in which case it seems like Intel is the only option.
Speaker 5: Yeah, if if you want an American company to do
Speaker 5: this stuff, they are the only option. It may be
Speaker 5: helpful to talk about their roadmap. So Patt has talked
Speaker 5: a lot about what he calls five nodes in four years,
Speaker 5: and according to Intel, they're executing, although if you kind
Speaker 5: of look at it, it's kind of kind of questionable.
Speaker 5: I mean, they're delivering what they're calling seven animeter today
Speaker 5: in volume. That's the old what they used to call ten.
Speaker 5: They are now starting to ship Intel four animeter. It's
Speaker 5: a single product that's called Meteor Lake, and in fact
Speaker 5: is it's a client PC product. It has a tiled architecture.
Speaker 5: There was one tile on there that's on Intel four
Speaker 5: and the other three tiles are made it actually outsourced.
Speaker 4: They made it TSMC, and.
Speaker 5: The margins of that product are not very good and
Speaker 5: it's actually it impacted their margins in the most recent quarter.
Speaker 5: They're getting ready to now to ship another client product
Speaker 5: which is called Lunar Lake, which actually from some of
Speaker 5: the ben shorts looks like a decent product, but it's
Speaker 5: one hundred percent outsource. There's no Intel technology and process
Speaker 5: technology and it all it's all made at TSMC, and
Speaker 5: they've talked about that further impacting their margins as we
Speaker 5: go into next year. The big one and I think
Speaker 5: the one that Pat is kind of betting the company
Speaker 5: on it is what's called eighteen A.
Speaker 4: So there were two flavors. There was a twenty eight.
Speaker 5: Process that was supposed to come out with a product
Speaker 5: called arrow Lake that they have canceled. So the five
Speaker 5: nodes in four years of the canceled they're going to
Speaker 5: jump straight.
Speaker 4: To eighteen A.
Speaker 5: Their characterization of that is an eighteen A is so
Speaker 5: good they don't need twenty get twenty eight, So I
Speaker 5: guess we'll have to see eighteen A in theory is
Speaker 5: when they start bringing volume back from the foundries back
Speaker 5: into their own fabs, which in theory is supposed to
Speaker 5: make their cost structure better. And if you think about
Speaker 5: the dream case that they laid out, the idea was,
Speaker 5: we do this, we bring all this stuff back. It
Speaker 5: makes our margins better because the cost are better because
Speaker 5: we're now internal. It's a better process, so we can
Speaker 5: take back market share and we can charge more for
Speaker 5: our product because we can design better products. And it
Speaker 5: gives customers like lots of confidence that things are going good,
Speaker 5: so they're confident to put a lot of volume with us,
Speaker 5: and we grow from there. And they talked about hitting
Speaker 5: the manufacturing business kind of hitting break even around twenty
Speaker 5: twenty seven and then growing to like very sizeable amounts
Speaker 5: by twenty thirty, so that.
Speaker 4: That's the dream. It's all riding on the success of
Speaker 4: eighteen A.
Speaker 5: Many of the sort of you know, kind of like
Speaker 5: supply change ets and channels that can pick up for
Speaker 5: eight and right, they're kind of mixed at best, I
Speaker 5: would say. On the positive, they just announced Amazon as
Speaker 5: a customer, and I guess Amazon was willing to have
Speaker 5: their name attached to it, so I guess that's good.
Speaker 4: It doesn't look like it's a high volume part.
Speaker 5: I think it's going to take time for this to
Speaker 5: ramp and I guess we're just waiting around and seeing
Speaker 5: and that's probably about how long they have. You know,
Speaker 5: in theory, eighteen A is supposed to be here next year.
Speaker 5: They've got a low volume server part called Clearwater Force
Speaker 5: that launches in the first half of next year. Panther Lake,
Speaker 5: which is a higher volume client product, launches in the
Speaker 5: second half of next year.
Speaker 4: I guess it'll be volume, real volume in twenty twenty six.
Speaker 5: So you got about a year a year and a
Speaker 5: half to see whether or not they can actually manage
Speaker 5: to make stuff in a cost effective manner for themselves
Speaker 5: on eighteen A and then we'll see if that drives
Speaker 5: volume or not. But that's about how long they have
Speaker 5: I think twelve months, maybe twelve to eighteen months, and
Speaker 5: then we'll see if this works or not. But at
Speaker 5: this point we don't know.
Speaker 6: And you know, Intel's ability to secure major customer commitments
Speaker 6: is of course a really key metric for US government
Speaker 6: officials that are trying to evaluate the viability of there
Speaker 6: should we be giving them eight and a half billion
Speaker 6: dollars of tax payer money for commercial manufacturing. I mean,
Speaker 6: they already have three billion dollars set aside for the
Speaker 6: Pentagon as a customer. But if you talk to anybody
Speaker 6: in the chip industry, the Defense Department is a really
Speaker 6: difficult customer. Foundaries that have been in a secure Pentagon
Speaker 6: supply chain in the past of struggle to make a
Speaker 6: return on products manufactured. Those fabs and Commerce Secretary Gina Raimondo,
Speaker 6: in many ways, her legacy and her image and her
Speaker 6: the kind of main purpose of her department is riding
Speaker 6: a lot of the success of this program, and therefore,
Speaker 6: in part on the success of Intel not in a
Speaker 6: whole She's been calling up chip makers and saying, would
Speaker 6: you consider using Intel fabs? She asked in Vidia, she
Speaker 6: asked AMD to consider manufacturing at Intel's ohio facilities, and
Speaker 6: you know, in Vidias in the earliest stages of evaluating
Speaker 6: whether that's a possibility. AMD is happy with their current supplier,
Speaker 6: which is TSMC. And so you know, as much as
Speaker 6: the government really wants intels to succeed, the industry wants
Speaker 6: intels to succeed, even TSMC does. Intel's a four to
Speaker 6: five billion dollar customer of TSMC's. The custom comments just
Speaker 6: aren't there right now, and.
Speaker 5: There can't really you can't anything infirment. So you know,
Speaker 5: if they can deliver, yeah, right, So I think anyone
Speaker 5: that wants leading edge is going to evaluate them, like
Speaker 5: why wouldn't you, Like you want second sources, you want
Speaker 5: geographically secure supply. But I mean, if they can't deliver,
Speaker 5: they can't deliver. If they can deliver, they can And
Speaker 5: that's what we're waiting for. Throwing whatever money you want
Speaker 5: to throw at it, it isn't going to solve that problem.
Speaker 3: This gets back to like some of our first ever
Speaker 3: episodes that we did on semiconductors years ago. We're just
Speaker 3: about this basic challenge that like it's brutal to get
Speaker 3: hot yields. That there's all these processes and if you
Speaker 3: get it, if you get every process at ninety nine
Speaker 3: point nine to nine percent, right, that still doesn't get
Speaker 3: you the yields that you need to get. And so
Speaker 3: their strategy is like, Okay, you're building for this product,
Speaker 3: you're building for this end consumer, you're building, you're doing
Speaker 3: in house, and then there's execution and the big question
Speaker 3: mark is just this execution question and we just still
Speaker 3: don't know.
Speaker 5: Yeah, we don't know this. This again, even under the
Speaker 5: best of circumstances is very difficult. You know, they're going
Speaker 5: through a lot of other turmoil right now. So they
Speaker 5: have clearly in the midst of a big layoff. Yeah,
Speaker 5: they're actually like canceling some of these projects. So remember
Speaker 5: they weren't just trying to build in the US. They
Speaker 5: had a big Germany project with other subsidies that they
Speaker 5: just paused. They had a packaging plant in Poland. I
Speaker 5: think they just paused. So they don't need the capacity,
Speaker 5: right and they don't have the money.
Speaker 4: To pay for it. Even with the subsidies.
Speaker 5: So there's a lot of like other like internal turmoil
Speaker 5: that is going on there right now while they are
Speaker 5: still trying to execute on everything else that they have
Speaker 5: to do.
Speaker 4: Like it doesn't make it easier.
Speaker 6: You know, this is an intensely cyclical industry, right and
Speaker 6: you know, when we think about what does you know,
Speaker 6: Intel's success or failures say about the design of US
Speaker 6: industrial policy, you have to remember the ship sacked. Biden
Speaker 6: signed the ship sacked two years ago. That was sort
Speaker 6: of at the earliest stages of the AI boom, and
Speaker 6: were there were maybe warning signs about Intel, certainly, but
Speaker 6: not kind of the flashing red light that we see now.
Speaker 6: And so government officials not known necessarily for being super
Speaker 6: nimble or having to evaluate that in real time. We
Speaker 6: had a lot of preliminary announcements earlier this year. We
Speaker 6: saw basically a multi billion dollar announcement a week in
Speaker 6: March and April, and markets change, company dynamics change. And
Speaker 6: I think the challenge is that, you know, there's a
Speaker 6: sort of lack of understanding even among folks who pay
Speaker 6: attention to this sometimes in Washington, about whether the money
Speaker 6: has actually gone out the door. It hasn't but the
Speaker 6: public is expecting that. Intel is expecting that. I mean,
Speaker 6: the state of Ohio is investing two billion dollars in
Speaker 6: Intel's Ohio facility. Those plans are contingent on getting money
Speaker 6: from the US government, but officials also have to evaluate,
Speaker 6: you know, if a company, you know, Intel or anybody else,
Speaker 6: isn't able to execute on the timeline that we set out,
Speaker 6: at the scale that we set out, at what point
Speaker 6: do we start talking about other options of where to
Speaker 6: spend this money. Thirty nine billion dollars set aside for grants,
Speaker 6: that's a lot of taxpayer dollars.
Speaker 1: I just remember, the first time we ever had Stacy
Speaker 1: on was back in twenty twenty, which is kind of
Speaker 1: a blur for me. But Stacy, you were bearish on
Speaker 1: Intel even back then. In fact, I think like the
Speaker 1: title of the episode was something like, why the US's
Speaker 1: number one like semiconductor company is doing terribly something like that.
Speaker 1: I'm curious, in twenty twenty four, is there anything that
Speaker 1: would that you could possibly see that would induce you
Speaker 1: to be bullish on Intel? Like what would they need
Speaker 1: to do to prove their business case?
Speaker 4: Yeah?
Speaker 5: I mean, look, so they gave some targets. But like
Speaker 5: I said, which we're twenty thirty, my biggest takeaway from
Speaker 5: that was from those presidents was come.
Speaker 4: Back in twenty thirty. Right, call me twenty thirty.
Speaker 5: But if you sort of if I sort of started
Speaker 5: to articulate some of that dream thesis earlier, but if
Speaker 5: you think about it, you know it was, like I said,
Speaker 5: they execute on the new road maps, they take market share,
Speaker 5: you know, they build out their foundry business.
Speaker 4: And if you look at the targets, and again I'm
Speaker 4: going to refrain from.
Speaker 5: Giving like investment conclusions on this podcast, but just factually,
Speaker 5: what they presented for their twenty thirty model had them
Speaker 5: doing roughly one hundred billion dollars in total revenues, roughly
Speaker 5: sixty billion on their product groups, forty billion on their
Speaker 5: foundry manufacturing side. Of that forty billion, twenty five billion
Speaker 5: was internal revenues.
Speaker 4: What they're actually doing now, by the way, is they.
Speaker 5: Are charging their internal groups effectively a price to use
Speaker 5: the manufacturing base. So the internal does have to buy
Speaker 5: the wafers from the internal manufacturing when they're using and
Speaker 5: the net revenue nets out at the end. But you
Speaker 5: had forty billion in foundry twenty five billion internal and
Speaker 5: fifteen billion external, So it'd be if you nit up
Speaker 5: the twenty five billion, it would be seventy five billion
Speaker 5: in total revenues. The company's doing a little over fifty
Speaker 5: right now, maybe fifty billion. That fifteen billion in external
Speaker 5: foundry revenue would be double what Samsung does in foundry
Speaker 5: revenues today.
Speaker 4: So it's pretty big.
Speaker 5: But if you start to run numbers and then they
Speaker 5: give some margin targets, you start to run numbers like that,
Speaker 5: it looks like a good it's good. Like they're they're
Speaker 5: generating cash, they're making profits, right, and that would be
Speaker 5: you know, that would be a scenario where where things
Speaker 5: could be great, right. I think on the other side
Speaker 5: of it, you know, I get a lot of calls
Speaker 5: these days unlike the breakup value, Like what would it
Speaker 5: be would it call?
Speaker 1: Yeah, the qualcot, Yeah the QUI.
Speaker 4: Let's talk about that because that was in the news recently.
Speaker 5: There was a newsflow that suggested Qualcom may be interested
Speaker 5: in buying them, and we run the numbers on it,
Speaker 5: as I want to do, and look, I can argue
Speaker 5: for Qualcom potentially, you know, there's there's a diversification strategy
Speaker 5: Qualcom's revenues are if I have the licensing and it's
Speaker 5: eighty percent handsets, and there's a diversification story there for Qualcom,
Speaker 5: but it is slow going. And you know, Intel, if
Speaker 5: I just look at the product side of it, you know, look,
Speaker 5: if you just slap them together, you'd have a company
Speaker 5: that was I don't know, a third handsets, a third client,
Speaker 5: maybe fifteen percent data center. You'd have some auto in there.
Speaker 5: It would look more diverse and have more and more drivers. Right. Issues,
Speaker 5: I can't make it work if the fabs go along
Speaker 5: with it, oh right, And that's the problem because it's big.
Speaker 5: If you stock or qualk them, it would be massively deluded.
Speaker 5: And you start adding even a little bit of cash,
Speaker 5: the leverage gets to tow untenable levels. And so now
Speaker 5: to get back to the breakup, these says, this is
Speaker 5: my biggest issue with it. Intel is clearly prepping to
Speaker 5: split the company between products and manufacturing at some point.
Speaker 5: They've separated out the financials and they've even put it
Speaker 5: in an independent subsidiary. The issues right now, the foundry
Speaker 5: cannot stand on its own if if they were to devestigate,
Speaker 5: goes bankrupt immediately, it's losing twelve billion dollars a year
Speaker 5: and it's got one customer, right Intel. So that's not
Speaker 5: viable until they build a third party business, and that
Speaker 5: still becomes questionable.
Speaker 4: Can they build that or not.
Speaker 5: I don't think they can just sell the factory, say
Speaker 5: to TSMC or somebody like. I don't think TSMC wants
Speaker 5: to run them. Right again, they're losing a bunch of money,
Speaker 5: and TSMC's process flow is completely different, I think hypothetically,
Speaker 5: and this gets to the regula, you could just you
Speaker 5: scrap them, right, you sell the tools for whatever there were,
Speaker 5: but maybe that covers your restructuring and you go a
Speaker 5: whole to outsource stand So this is what AMD did,
Speaker 5: like effectively back from twenty eight to like twenty fourteen.
Speaker 4: That was sort of where they ended up.
Speaker 5: My issue with that is, at least right now, I
Speaker 5: don't think that's politically vital.
Speaker 4: Yeah, I've just given all the conversations we've been having,
Speaker 4: and so that's the thing.
Speaker 5: I don't know those fabs unless they can build the mountain,
Speaker 5: actually build those businesses they're in income. This is one
Speaker 5: could if you were but that it's maybe there's you know,
Speaker 5: maybe there's value to break up. But I think you
Speaker 5: have to destroy the company down locked. I don't think
Speaker 5: we're ready to do that right now.
Speaker 6: And to the point about political viability, that raises a
Speaker 6: really important question of you know, it is the Commerce
Speaker 6: Department and Secretary of Gena Raimondo's priority to get these
Speaker 6: fabs up and running in the US. The minute that
Speaker 6: we start talking about in acquisition, that gets kicked over
Speaker 6: to anti trust folks. And we don't know that Lena
Speaker 6: con that's see will have the same priorities as Gino Raimondo.
Speaker 6: It's a really really interesting test. And you know, right
Speaker 6: now there's obviously been a lot of news about Qualcom.
Speaker 6: We also saw ARM make an approach for Intel's design
Speaker 6: business and until said no. But ARM wasn't even interested
Speaker 6: in the manufacturing operation. And it's hard to see you know,
Speaker 6: anybody who's been working on the Chips Act interested in
Speaker 6: any type of acquisition that wouldn't see Intel move forward
Speaker 6: with its US factories. But who wants to take on
Speaker 6: one hundred billion dollars worth of manufacturing investments on American
Speaker 6: soil that don't seem likely to turn a profit.
Speaker 3: This is the problem. The main thing we want in
Speaker 3: this country is not advanced chips. We want the ability
Speaker 3: for American companies to be able to produce advanced chips,
Speaker 3: and there's no way to just sort of financially engineer
Speaker 3: your way out of investments that aren't delivering on that.
Speaker 3: Like we can talk about all kinds of combinations, we
Speaker 3: can talk about all kinds of whatever, but they're right, like.
Speaker 1: This is the core problem that money can't see.
Speaker 2: Yeah, that's exactly right.
Speaker 5: What you would need is somebody to go in and
Speaker 5: capitalize these ascid This is kind of what AMD did
Speaker 5: back back in two thousand and eight. You know, they
Speaker 5: sold their factories to the Middle East, Tabu Dhabi, to
Speaker 5: the bottle of them, but they were bleeding, right, this is.
Speaker 4: Actually what formed global founderies. Say Global Founderies actually.
Speaker 5: Only profitable day because they gave up on the leading
Speaker 5: edge and AMD actually like ditched them and they went
Speaker 5: whole hogged at TSMC back in the days. But that
Speaker 5: was the path they had, like a deep pocketed investor
Speaker 5: who apparently didn't really care about making decisions that were
Speaker 5: necessarily economically motivated.
Speaker 4: I mean clearly right now.
Speaker 5: It's like you were just to see something like with Intel,
Speaker 5: you need something that like investor levels would be one
Speaker 5: or two orders of magnitude higher than what we saw
Speaker 5: back then with AMD and their fabs, you know, ten,
Speaker 5: fIF fifteen, or twenty years ago.
Speaker 4: And I don't know, like where would that come from.
Speaker 5: Like I've had people suggest, oh, the government could do it,
Speaker 5: but I mean, the government's already funding them, like they
Speaker 5: don't have any other.
Speaker 4: Like dollars that are allocated.
Speaker 5: And I've had people suggest, oh, Intel's customers could do that,
Speaker 5: but if in those customers were interested in supporting, they
Speaker 5: could put foundry volume there. They don't need to like
Speaker 5: buy out the manufacturing and support the manufacturing assets, like
Speaker 5: I don't.
Speaker 4: This is what I meant when I talked earlier.
Speaker 5: I said, I, you know, they're the business as it
Speaker 5: stands doesn't necessarily support the path along the strategy, but
Speaker 5: they may be too late and maybe too late for
Speaker 5: them to stop what they're doing.
Speaker 4: This is kind of what I meant, So I kind
Speaker 4: of stuck.
Speaker 1: So I know, we've been focused on the problems at Intel,
Speaker 1: but I joked earlier that we might have to get
Speaker 1: the bullwhip bullhorn back out because of what's been happening
Speaker 1: in North Carolina how seriously should we take those headlines?
Speaker 4: Yeah, I mean so.
Speaker 5: For those of you that don't know, spruce primee is
Speaker 5: one of the largest global sources something called high purity quartz.
Speaker 5: High puriody quartz is used to make the crucibles that
Speaker 5: hold the silicon melt that are used to make silicon
Speaker 5: wafers for semiconductor manufacturing. The way you make silicon wafers
Speaker 5: by the ways, you have a big cauldron effectively of
Speaker 5: melted silicon. You dope it with all with specific amounts
Speaker 5: of impurities to get the properties you want, and then
Speaker 5: you touch a little piece of single crystal silicon to
Speaker 5: this molten silicon and you start to pull it up,
Speaker 5: and you rotate the crucible as you're doing this, and
Speaker 5: you pull out this effectively a big inget. It's called
Speaker 5: a bull of silicon. Who think can be I don't know,
Speaker 5: twelve or fifteen feet high at the end of it.
Speaker 1: That sounds so satisfying.
Speaker 5: Actually, it's called the Sharalski process or the CZ it's
Speaker 5: really really cool, and you can control the diameter of
Speaker 5: this bull via the pull speed and the rotational speed
Speaker 5: of this cauldron. And then they slice this thing up
Speaker 5: and they make silicon wafers out of it. So the
Speaker 5: high purity court to the ultri purity courts from Spruce
Speaker 5: Pine and a few other places used to make the
Speaker 5: quartz crucibles that holds the milk, and it is one
Speaker 5: of the largest sources. And the area just got pounded,
Speaker 5: I mean be inundated by Hurricane Helene.
Speaker 3: So the method is named after Polish scientist Jon Scheralski.
Speaker 2: God, there really are a lot of.
Speaker 3: Steps in semiconductor manufacture. The crucible.
Speaker 5: Yeah, this is just to make the wafers by the
Speaker 5: process been around for over one hundred years.
Speaker 4: Like it's a pretty remarkable Anyways.
Speaker 3: Mckennessee lawyer here, we're about to wrap any questions as
Speaker 3: a journalist, anything you need to ask Stacy.
Speaker 6: Oh gosh, I mean the big question is doesn't even fail?
Speaker 6: What do they have to do to not fail? And
Speaker 6: when we think about, you know, large, what does this
Speaker 6: policy need to look like to not justic scene and
Speaker 6: tell about to saying the ecosystem overall? Stacey, if you
Speaker 6: had to design a ship sacked too, what would it
Speaker 6: look like?
Speaker 5: Oh? Yeah, I mean first just done, Intel, Like I'm
Speaker 5: not gonna knock them. I think their biggest mistakes were
Speaker 5: not necessarily the strategy.
Speaker 4: And we can argue with strategy yes or no.
Speaker 5: But their biggest mistake I think was coming in and
Speaker 5: I mean when look when Pack got there, he kind
Speaker 5: of sounded more like a cheerleader than the CEO. I
Speaker 5: mean it was the AMD's in a review mirror, and
Speaker 5: he had these ludicrous targets that they were hiring to.
Speaker 5: I mean, he should have come in and said, look,
Speaker 5: I'm so happy to be back get intell, but like
Speaker 5: you're gonna have to be patient.
Speaker 4: It's going to be a slug.
Speaker 1: Wait till twenty thirty.
Speaker 5: I have to fix yeah, And it was always it
Speaker 5: took ten years to break it.
Speaker 4: Why would it take less than ten years to fix that?
Speaker 4: It was always going to take the twenty thirty.
Speaker 1: En I'm tempted to put this in my performance review.
Speaker 1: Wait till twenty thirty and see.
Speaker 4: That's talked lately.
Speaker 5: He wished that he took like harder actions on costs
Speaker 5: and everything earlier.
Speaker 4: Clearly they should have done that right.
Speaker 5: Instead, he went on a hiring spreel, you know, like
Speaker 5: headcount was up twenty one thousand employees in the seven
Speaker 5: quarters after he took the job, and then they had
Speaker 5: to lay off. Then they started hiring again. Now they're
Speaker 5: doing a bigger laugh. It's demoralizing. So those are clearly
Speaker 5: mistakes above and beyond. Again, we can talk about the
Speaker 5: strategy or not, but I certainly would have recommended they take.
Speaker 4: A harder line right right when they got there.
Speaker 5: In terms of the Chip to Act itself, I'm not
Speaker 5: going to say it's not successful. So the dollar amounts
Speaker 5: aren't actually that. They're thirty nine billion dollars for manufacturing.
Speaker 5: Plus you know, the tax got to probably be as
Speaker 5: big or bigger, you know, over like five years for
Speaker 5: the whole industry. Is actually not that big, but it
Speaker 5: is stimulating a lot of other incremental investment. And like
Speaker 5: the majority of the actual dollars that eventually will get
Speaker 5: spent or not coming from the Chips Actor, It's coming
Speaker 5: from the companies themselves, I mean, as it should so
Speaker 5: as a mechanism to stimulate like domestic investment in SEMIS,
Speaker 5: I think it is a success. Could we use more sure,
Speaker 5: although you have to even talk about its cyclical industry.
Speaker 5: You have to think about what's the right time in
Speaker 5: place to spend these dollars and in terms of like
Speaker 5: betting on Intel, what was a national champion. I mean
Speaker 5: that may or may not have been a good idea,
Speaker 5: but again, I don't know what choice they had just
Speaker 5: given the political realities of what they're doing. It's again
Speaker 5: I won't knock them, and it's a good first step.
Speaker 5: I just helped the wear with the political warrelhol is
Speaker 5: there to continue again. We've got an administration change coming up,
Speaker 5: and who the heck knows what's going to happen.
Speaker 4: I don't know, but I hope they can continue with this.
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Speaker 1: I just realized it's Stacy, Tracy and McKenzie. Oh you're
Speaker 1: the odd one out show. Joey