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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, you know,

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Speaker 1: obviously all year we've been talking about inflation and supply

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Speaker 1: chain issues and shortages, but one of the first areas

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Speaker 1: that we really started talking about was the head to

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Speaker 1: do with the disruptions and semiconductors. Yeah, I think this

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Speaker 1: was like our entry into global supply chain issues. Um,

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Speaker 1: we started talking about semiconductors and this idea that there

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Speaker 1: was a shortage of these chips that were needed for

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Speaker 1: all sorts of things. And I think, you know, if

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Speaker 1: you are of a certain age or generation, you tend

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Speaker 1: to think of semiconductors is something that goes into a computer.

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Speaker 1: But of course nowadays they show up in phones, in

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Speaker 1: you know, things like refrigerators, and of course some cars

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Speaker 1: as well. Just almost every major appliance now seems to

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Speaker 1: have some sort of chip embedded in it. Right, And

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Speaker 1: we did like a six episode series I think, earlier

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Speaker 1: this year about chips. But the chip story, even though

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Speaker 1: we haven't talked about as much lately, it really hasn't

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Speaker 1: gone away. And I think I just saw last week

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Speaker 1: there was a story about some chip manufacturer in Malaysia

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Speaker 1: reducing production. They're pretty regular stories. You mentioned automobiles about

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Speaker 1: car companies still not being able to get an adequate

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Speaker 1: supply of chips and thus being forced to cut production.

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Speaker 1: So they the issues have not gone away by any straight. Yeah,

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Speaker 1: I think Toyota made a massive downgrade to its expected production.

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Speaker 1: But yeah, so this is something that I've been wondering about.

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Speaker 1: So on the one hand, yes, we have some COVID

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Speaker 1: outbreaks in Asia that have disrupted semiconductor factories or manufacturers,

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Speaker 1: particularly in Malaysia where they manufactured. My understanding as they

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Speaker 1: manufacture some components for semiconductors or something like that. So okay,

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Speaker 1: you have the Delta variant and that's not production to

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Speaker 1: some extent. But on the other hand, you know, as

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Speaker 1: you said, this issue has been going on for quite

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Speaker 1: some time now, like more than a year, and the

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Speaker 1: big question is why aren't we getting to a better

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Speaker 1: place in terms of production at this point. The semiconductor

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Speaker 1: companies know that they need to boost production. They know

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Speaker 1: there's lots of demand out there, so why isn't that happening. Well,

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Speaker 1: hopefully we are going to get some answers today on

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Speaker 1: the show. Why it is that we're now in the

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Speaker 1: middle of September. Uh, and we still don't have something

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Speaker 1: resembling like a smooth semiconductor supply chain. We're gonna be

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Speaker 1: going back to our first guest that we had on

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Speaker 1: the Semiconductor series. I think he actually appeared twice already.

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Speaker 1: The last time was in March. We're gonna be speaking

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Speaker 1: with Stacy Raskin. He's managing director and senior analyst at

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Speaker 1: Bernstein covering u S semiconductors. He's going to hopefully answer

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Speaker 1: all of our questions. So Stacy, welcome back to Odd Lots. Oh,

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Speaker 1: it's great to be back. Thank you for having me again.

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Speaker 1: So are we right? I mean, it appears not only

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Speaker 1: are the issues persisting like in some some in some measures,

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Speaker 1: things seem to be getting worse. Yeah, And so we

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Speaker 1: had hoped that by now things would be getting back

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Speaker 1: to some semblance of normalcy, and and you're right, they're

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Speaker 1: really not. It's actually getting worse, not better, in many

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Speaker 1: parts of the market. So we still are seeing you know,

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Speaker 1: production shortfalls, we're still seeing shortages. You know, We've been

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Speaker 1: hoping obviously that you know, COVID would be you know,

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Speaker 1: on on the decline at this point, it is not

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Speaker 1: it is still causing disruptions. You mentioned Malaysia and some

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Speaker 1: other areas. So yeah, we're we're we're not back to

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Speaker 1: normal yet. We're still seeing some of the same issues

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Speaker 1: that we've been seeing for quite a while. So what

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Speaker 1: exactly is driving those disruptions then? So you know, you

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Speaker 1: mentioned some COVID outbreaks in parts of Asia, but it

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Speaker 1: seems to be you know, we might see some factory closures,

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Speaker 1: some isolated factory closures, but it seems like the issues

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Speaker 1: are sort of more endemic than just you know, an

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Speaker 1: outbreak at a particular factory. Yes, I mean may be

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Speaker 1: helpful to go back a little bit and talk about

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Speaker 1: what caused these shortages in the first place. And I

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Speaker 1: talked about this, I think I can't remember, maybe it's

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Speaker 1: the second time that I was on. But if we

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Speaker 1: if we look at the automotive sector first, that that's

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Speaker 1: where we're seeing some of the biggest issue. We've seen

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Speaker 1: the biggest issues all the whole time, and you're right,

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Speaker 1: we're still actually seeing production costs. You mentioned Toyota. We

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Speaker 1: also had recently, GM and Ford and a bunch of

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Speaker 1: others and then it's been going so they're still seeing shortages.

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Speaker 1: You have to remember the issue there was initial supply

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Speaker 1: chain whipsaws. You know, in the in the beginning of COVID,

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Speaker 1: factories got shut down. Um you know, people were locked

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Speaker 1: in their houses. They weren't driving demand at least initially

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Speaker 1: for for small amount of time plummeted and remember the

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Speaker 1: auto vendors canceled all their orders. Demand came roaring back

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Speaker 1: obviously the plan started opening up. They went back hat

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Speaker 1: in hand to try to get capacity, to get pret action,

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Speaker 1: and it just didn't exist. And it was like, well,

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Speaker 1: you know, get in line right, it'll it'll take time.

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Speaker 1: And remember what I said. You know, even if you're starting,

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Speaker 1: even if you have the capacity available, it takes months

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Speaker 1: um to make these chips from a from a dead start,

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Speaker 1: and so that caused you know, cascading effects. I mean

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Speaker 1: it still has, right, and you know that. The other

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Speaker 1: issue in the other end markets was just demand is

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Speaker 1: very strong and that was part of the reason we

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Speaker 1: saw issues in auto as well. I mean, the capacity

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Speaker 1: that they were using got back filled in many cases

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Speaker 1: by other stuff. But just in general we've seemed really

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Speaker 1: really strong demand I mean much stronger than I think

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Speaker 1: anybody thought was was going to be possible in things

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Speaker 1: like PCs and like anything that was sort of work

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Speaker 1: from home, study from home, play from home. Um. I

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Speaker 1: think you also need to couple this with the fact

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Speaker 1: that the industry itself, I mean, you know, remember SEMIS

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Speaker 1: it cost billions of dollars dead capacity, and you know,

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Speaker 1: historically they you know, they added capacity to demand that

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Speaker 1: they saw and when demand was very very strong, much

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Speaker 1: stronger than I just didn't have, the capacity was avail.

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Speaker 1: And because that demand is still strong, you know, we're

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Speaker 1: still shy, we're still short, we're still tight. Um. And

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Speaker 1: so now you have to layer on on top of

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Speaker 1: all that. Though you remember this, this stuff is never smooth,

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Speaker 1: and when you have these kinds of problems, they do

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Speaker 1: cascade and they cause more issues, and it's just it's

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Speaker 1: just a big mess. I mean, it still is. And

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Speaker 1: so it hasn't we haven't had time to actually bring

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Speaker 1: enough capacity online to to alleviate things. And the demand.

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Speaker 1: You know, in most parts of the market we can

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Speaker 1: talk about where people are worried about demand maybe starting

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Speaker 1: to roll over a bit, but in general, demand is

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Speaker 1: still strong. Supply is still tight um and and we've

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Speaker 1: still got problems and it hasn't it hasn't alleviated yet.

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Speaker 1: And now you throw you know, the resurgence of Delta

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Speaker 1: on top of us. And again you mentioned Malaysia. What

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Speaker 1: they do A lot of Malaysia they do what's called

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Speaker 1: back end. It's a lot of what what's called packaging,

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Speaker 1: So they don't necessarily they don't have like semiconductor factories

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Speaker 1: in Malaysia. They're not making like chips. Once you actually

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Speaker 1: make the chip in the factory, you have to what's

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Speaker 1: called packaging. You have to put the electrical leads and

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Speaker 1: everything on it's such that you can take that chip

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Speaker 1: and actually put it on a circuit board. So they

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Speaker 1: do that kind of stuff assembly and testing and other

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Speaker 1: things in Malaysia, and a lot of those issues were

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Speaker 1: impacted in a lot of that stuff is done in

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Speaker 1: Southeast Asia and and a lot of those, uh things

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Speaker 1: were impacted by by COVID. So that's just something else

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Speaker 1: icing on the cake on top of everything else and

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Speaker 1: not getting better. Yeah, that was one of the things

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Speaker 1: I remember we talked about one of our semi conductor

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Speaker 1: episodes with Willie she at Harvard Business school. And obviously,

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Speaker 1: just like in addition to the sort of technical challenges,

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Speaker 1: any given ship has a highly globalized supply chain. And

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Speaker 1: so as you mentioned, maybe it gets manufactured to wear

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Speaker 1: in Taiwan, but then some sort of packaging happens in Malaysia,

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Speaker 1: and so there must be to some extent issues that

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Speaker 1: are the sort of generalized supply chain issues that are

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Speaker 1: affecting more or less everything must have some having some

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Speaker 1: impact on semi conductors specifically, it is and so you right,

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Speaker 1: so semis are extremely global, and I forget, I forget

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Speaker 1: how many different borders the average semiconductor crosses like in

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Speaker 1: its in its lifetime, you know, from from initial production

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Speaker 1: to actually getting sold to the end user. But but

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Speaker 1: it's a lot, right, and you're right. They can be

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Speaker 1: you know, it can be a US company that's using

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Speaker 1: the Taiwanes foundry to make it, where it gets packaged

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Speaker 1: in Malaysia and then it goes to a distributor in China,

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Speaker 1: and like it's it's all over the place. So there's

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Speaker 1: there's a lot of that, and there are big logistical

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Speaker 1: channel the challenges that we're seeing right now. Shipping costs

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Speaker 1: are actually getting getting much higher We've seen ports shutdowns

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Speaker 1: in China and other places as are trying to control

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Speaker 1: the spread of of delta um. We've seen container ships

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Speaker 1: like like stacking up. I think maybe I can't remember

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Speaker 1: a fifth if the sewers canal was blocked the last

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Speaker 1: time we said that, I can't remember. But we're seeing

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Speaker 1: tons of a logistical challenges. A lot of semi conductor

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Speaker 1: comes in front. The other companies too, are starting to

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Speaker 1: talk about this as well, like when when they talk

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Speaker 1: on earnings, calls and everything. We're starting to see some

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Speaker 1: of those costs go up and some of these supply

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Speaker 1: chains are are are it's it's it's it's just a

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Speaker 1: big hot mess. I mean, the whole thing, which I

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Speaker 1: guess shouldn't really be a surprise is I mean, again,

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Speaker 1: you know we had a global potential global catastrophe. You

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Speaker 1: know that was it was causing. I'm part of me

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Speaker 1: is like amaze that it's been as resilient as it

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Speaker 1: has been. Frankly, but but it is, it is it

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Speaker 1: is still causing problems and and and it's funny like that. Obviously,

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Speaker 1: the question I get the most is how long is

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Speaker 1: it gonna last? I wish I had an answer. I don't,

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Speaker 1: you know. And it's really funny when you when you

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Speaker 1: think about the stocks right and and and the companies,

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Speaker 1: I mean, they're they're still putting up monster numbers. The

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Speaker 1: sector right now, in terms of revenue is on track

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Speaker 1: to grow probably twent this year and blow past five

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Speaker 1: billion dollars for the first time in in in history.

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Speaker 1: Um and and every quarter of the companies are putting

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Speaker 1: up better and better numbers. And I would say investor

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Speaker 1: conviction is getting less and less like the higher the

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Speaker 1: numbers go, because we've all seen this number this movie before.

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Speaker 1: We see this massive strong demand. Nobody really knows how

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Speaker 1: much of it is real and how much of it

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Speaker 1: is phantom. We talked about double ordering and everything else

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Speaker 1: the last time it was here. Um, you know, this

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Speaker 1: is when when things were uncertain, they order more and

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Speaker 1: and and so like. It's it's funny the stocks haven't

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Speaker 1: done much of anything, you know, even as the numbers

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Speaker 1: have you continued to go up and up and up,

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Speaker 1: because people still don't know how sustainable this, this this

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Speaker 1: strong demand is so stacy. This is something that I

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Speaker 1: wanted to ask you about. So you know, you mentioned

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Speaker 1: this cascade effect early on and you didn't mention it specifically,

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Speaker 1: but there is this bullwhip effect that seems to be

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Speaker 1: at play where everyone was expecting demand to drop, companies

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Speaker 1: cut orders, so the semiconductor manufacturers UM sort of backed

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Speaker 1: off from production and then things turned out better than

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Speaker 1: people had expected and there was loads of demand and

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Speaker 1: the semiconductor companies have been trying to catch up ever since.

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Speaker 1: But I guess my question is, like, one, is there

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Speaker 1: something in particular about semiconductors and the manufacturing process that

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Speaker 1: makes them more sensitive to the bullwhip effect um, this

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Speaker 1: cascade idea. And then secondly, one of the things that

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Speaker 1: comes into play when there's a shortage a supply shortage

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Speaker 1: is every when starts stockpiling, right, So it's hard to

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Speaker 1: tell what's real demand versus what's just people hoarding components

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Speaker 1: because they think they're not going to be able to

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Speaker 1: get them. So what's your sense of that at the moment,

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Speaker 1: real demand versus stockpiloting. Yeah, yeah, so let's let's address

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Speaker 1: the first question. They're like, why are semi's the bullwip right? Um? Yeah,

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Speaker 1: it's there at the back of the supply chain. So

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Speaker 1: then you think about them and I'll take a microprocessor

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Speaker 1: for a PC just as a simple example, you know,

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Speaker 1: like Intel or am D or whoever makes the processor,

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Speaker 1: and then who does that get sold to, like a

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Speaker 1: Taiwanese O d M maybe it's called Original Device Manufacturer

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Speaker 1: who builds like a notebook computer and then they stick

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Speaker 1: it on a plane or a boat, right, and they

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Speaker 1: sell it, you know, they send it off to HP

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Speaker 1: or or something like that, and then HP, you know,

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Speaker 1: sells it to best Buy and then best Buy sells

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Speaker 1: it to you or like. However, there's probably other steps

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Speaker 1: in there as well. But there's a lot of points

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Speaker 1: within that chain where you can get inventory building or

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Speaker 1: bleeding or anything else. And and the fluctuations tend to

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Speaker 1: magnify as you work from the front of the chain back. Um.

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Speaker 1: This is a very well known that the thing you

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Speaker 1: see it all the time, and the semis are at

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Speaker 1: the back of that supply chain. So small fluctuations, even

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Speaker 1: small fluctuations and end demand like at the customer level,

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Speaker 1: can propagate backwards and have corresponding a larger impact like

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Speaker 1: the farther back you go in the chain, and the

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Speaker 1: semis are just at the back. And and remember I

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Speaker 1: think we talked about this last time. But you know

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Speaker 1: that the semi companies have to plan in this environment,

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Speaker 1: and their actual my opinion at least, is that semi

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Speaker 1: conductor company management teams their actual visibility into what their

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Speaker 1: end customers are truly doing is precisely zero. They have

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Speaker 1: no idea. They do the best they can. I'm not

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Speaker 1: I'm not blaming them. It's not good or bad, right,

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Speaker 1: it just is right. And the best companies out there,

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Speaker 1: like A are willing to accept this and and deal

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Speaker 1: with it. But their actual visibility is not great. But

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Speaker 1: by the way, companies are trying to do some stuff

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Speaker 1: right at you to to get to your second question

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Speaker 1: around potential double ordering and stock piloting and so so. Yes,

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Speaker 1: this this is a standard kind of behavior, and probably

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Speaker 1: not just in semis. I mean this is normal human behavior,

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Speaker 1: like when you can't get something that you need, you

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Speaker 1: tend to order more and again. This is a phenomenon

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Speaker 1: known as double ordering. And I mean a simple example.

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Speaker 1: Let's say you're making widgets and you need you know,

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Speaker 1: a hundred semi conductors you know whatever, right, and your

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Speaker 1: inventors says, okay, I can't, I'll give you ten. I

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Speaker 1: can supply ten and i'll give you the other you know,

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Speaker 1: ninety the you need, I'll give you those in fifty weeks.

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Speaker 1: So your next step is to order a thousand semi

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Speaker 1: coffer from wherever you could hope to cobble them together

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Speaker 1: on the hope that you can build up the hundred

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Speaker 1: of leading and then you cancel all the other orders. Right,

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Speaker 1: And so what semi conduct investors tend to watch for

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Speaker 1: that this is a fundamental phenomenon as lead times like

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Speaker 1: how long does it take to get the product after

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Speaker 1: you order it, and those lead times are stretching out.

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Speaker 1: What what what investors tend to watch for is when the

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Speaker 1: lead times start to pull back in because that's usually

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Speaker 1: when the cancelations start to happen. And so what a

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Speaker 1: lot of companies are doing right now is they're actually

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Speaker 1: doing things like putting in long lead time orders non

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Speaker 1: cancelable orders, for example. Generally in the space historically that

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Speaker 1: you didn't do that, there were no penalties to cancel orders,

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Speaker 1: um companies. Now some companies are starting to put things

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Speaker 1: like non cancelable orders. Other companies are parsing their orders.

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Speaker 1: It's like, well, I know this, customers ordering a hundred parts,

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Speaker 1: but I think they only need thirties, so I'm gonna

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Speaker 1: only ship them thirty. Right. We're seeing some of that

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Speaker 1: as well, and so the companies are doing the best

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Speaker 1: they can in this environment to try to manage through.

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Speaker 1: It is their stockpilot going, undoubtedly their stockpilot. I don't

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Speaker 1: see how there couldn't be. Can you measure it? No,

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Speaker 1: it's hard. So and I'll give you an example, like

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Speaker 1: there there are some cases where, again you go, look

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Speaker 1: at the auto vendors, even if they're stockpiloting, and whether

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Speaker 1: they may be stocked by some much, but we were

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Speaker 1: still seeing actual production cuts. So clearly, you know, even

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Speaker 1: if they're they're stockpiling some parts, clearly they don't have

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Speaker 1: enough of what they need to build the cars that

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Speaker 1: they want. Right, So we're still seeing some some some

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Speaker 1: primary examples here of situations where actual shortages, where the

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Speaker 1: shortages still seem to be real, because we wouldn't be

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Speaker 1: having actual production cuts if they didn't have actual shortages. Obviously,

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Speaker 1: this is what you sort of described is going on

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Speaker 1: in a range of industries. Are we gonna hit one day?

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Speaker 1: And could this be a source of investor concerned? We're

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Speaker 1: like we wake up and there is just a crazy

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Speaker 1: blood of chips because so many entities or is it

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Speaker 1: so is capacity so constrained generally that it's just hard

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Speaker 1: to imagine there ever being a point where there's a

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Speaker 1: huge oversupply. I mean never never say never, right, and

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Speaker 1: the normal practices, Yeah, you'd wake up one day and

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Speaker 1: you'd see a glut that that is normally how this

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Speaker 1: would happen. And again, like this is why investors are worried,

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Speaker 1: and this is why even though the numbers are going up,

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Speaker 1: the stocks aren't really going up all that much. Multiples

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Speaker 1: are coming down, and people are worried. You know that

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Speaker 1: we're you know, getting closer to peak, right, And I

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Speaker 1: guess mathematically, like by definition, we're getting close to peak

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Speaker 1: every day. At the same time, we could be quote

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Speaker 1: unquote post to peak for quite some time, right, because

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Speaker 1: as long as this stuff's working. Again, the other thing

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Speaker 1: you need to remember with with this is even though

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Speaker 1: demand is really strong, I mean like you need, you

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Speaker 1: need everything. So that's the thing is like the auto values.

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Speaker 1: See I'll pick on the auto vendors again, like I

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Speaker 1: mean they could be getting percent of everything they need,

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Speaker 1: but if they don't have the five percent that they

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Speaker 1: that they need they can't chip the car, right, And

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Speaker 1: you could have a situation where like you have auto

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Speaker 1: vendor A you know they have and they're they're short

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Speaker 1: five percent. An auto vendor V hascent what they need

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Speaker 1: in their short five percent, but it's a different five percent, right, Um,

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Speaker 1: so that maybe something what we're seeing right now is

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Speaker 1: like I I don't know, like at some point we

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Speaker 1: may get a glot and now. At the same time,

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Speaker 1: you can also argue that like post COVID, some of

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Speaker 1: this demand is real and so like like I'll look

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Speaker 1: at PCs for example, PCs right now we're incredib have

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Speaker 1: been incredibly strong. I mean we were doing two hundred

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Speaker 1: and fifty to two hundred and sixty million PCs a

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Speaker 1: year pre COVID, Like we did three hundred million one

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Speaker 1: right now we're on track to do probably close to

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Speaker 1: three fifty, which would sort of match the peak in

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Speaker 1: the industry, which is in and there's a big controversy

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Speaker 1: in PC PCs. Right our PC is gonna grow next year,

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Speaker 1: they're gonna be down or like whatever. But even if

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Speaker 1: they're down, they're probably not going back to to fifty,

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Speaker 1: right probably not like we I could argue that there's

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Speaker 1: a structural case. I mean, like like whatever the normalized

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Speaker 1: run righted pieces ought to be, it's probably higher than

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Speaker 1: it was pre COVID. And you can make that argument

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Speaker 1: about a number of event markets. And so even if

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Speaker 1: we get a glut, some of the things we we

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Speaker 1: probably had pulled forward in digitization and everything pre COVID

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Speaker 1: or since pre COVID, and we've got more people doing remote.

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Speaker 1: Remote work is going to be a thing from now on,

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Speaker 1: like whether or not, like people start to go back

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Speaker 1: to the office is more. Um, I could argue that

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Speaker 1: some structural level event things should be higher, you know,

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Speaker 1: in terms of capacity. I think Tracy, you asked during

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Speaker 1: the intro, why isn't the semiconductor industry added capacity? It

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Speaker 1: just takes time, right, They're all trying. I mean you

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Speaker 1: can go look at like this the Semi cup guys

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Speaker 1: like like way for fab Equipment w f E is

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Speaker 1: is going through the roof right now, and you've got

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Speaker 1: big forecast from from big companies, you know, throwing out

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Speaker 1: big numbers in terms of what they're planning on spending

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Speaker 1: over the next few years. Capacity probably will get added.

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Speaker 1: It just takes time. To get added. So the worry,

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Speaker 1: obviously is that capacity comes online right when the man

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Speaker 1: starts to roll off, and I don't know what it's

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Speaker 1: going to look like. I guess, well, this year will

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Speaker 1: probably be fine. Still in terms of the fundamentals and numbers,

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Speaker 1: we'll see what two and twenty three look like. Those

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Speaker 1: are the kind of time frames we're probably talking about

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Speaker 1: in terms of supply coming on UM and we'll see

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Speaker 1: how well it is to well mactually is to demand

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Speaker 1: like when it doesn't. So I wouldn't expect this to

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Speaker 1: make a massive difference to the supply demand imbalance. But

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Speaker 1: what are the chances that you start to see customers,

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Speaker 1: the people who are actually ordering chips just back away

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Speaker 1: or decide they're going to design more analog stuff, um,

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Speaker 1: you know, in order to avoid this problem. And I'm

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Speaker 1: thinking specifically, you know, last week, Bloomberg grand an article

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Speaker 1: about air conditioning manufacturers dropping copper components because the price

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Speaker 1: of copper was so high, and they're all starting to

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Speaker 1: not all of them, but some of them are starting

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Speaker 1: to switch to aluminum. So I'm wondering, like, could you

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Speaker 1: see a similar thing with semiconductors or is it just

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Speaker 1: you know, pretty impossible given the nature of the types

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Speaker 1: of electronics we're talking about. What do you mean like

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Speaker 1: switching away from semi connectors to something else? Yeah, I guess,

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Speaker 1: like I guess going analog. Right, there were like a

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Speaker 1: few car companies that were saying they're going to like

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Speaker 1: drop some of the complicated electronics in order to produce Well,

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Speaker 1: we we are seeing some of that. So some of

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Speaker 1: the car we seem like cars. I'll make it up,

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Speaker 1: but like you know, shipping without you know, the the

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Speaker 1: electronically controlled rear view mirror or stuff like that. Right,

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Speaker 1: we're seeing some things because I remember, you know, if

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Speaker 1: you're gonna ship a car, you kind of need the

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Speaker 1: full kid. If there's things you could leave out where

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Speaker 1: the car is still sailable and then add them later

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Speaker 1: like you could do, we're seeing some of that. The

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Speaker 1: other thing we're seeing with like Auto that or sometimes

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Speaker 1: is they're building the cars like everything. They're building the

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Speaker 1: car complete except for the stuff they have, and they're

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Speaker 1: parking it so that when they when they get the

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Speaker 1: park they need, then they can ship. I actually suspect

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Speaker 1: we're seeing this in PCs as well. My math and

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Speaker 1: we published as my mass suggests that as strong as

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Speaker 1: PCs are right now, I think CPUs shipments, the microprocessors

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Speaker 1: shipments are even stronger. And we've heard like like HPS

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Speaker 1: sort of talked about on ARMIS calls about building things

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Speaker 1: like strategic Inventor. I suspect they're building kits, you know,

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Speaker 1: and and and sitting on the shell phone. So as

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Speaker 1: soon as they get the final parts that they're missing

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Speaker 1: that they can they can ship. So we are seeing

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Speaker 1: some of that. So you can call that stockpiling in

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Speaker 1: some sense. Right, It's hard to know how widespread it

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Speaker 1: is and everything else, but I mean it's a normal

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Speaker 1: behavior that we might see in cars. We are seeing,

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Speaker 1: to your to your points of some of these things

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Speaker 1: are getting left up. But the thing with cars, you

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Speaker 1: can't just like like we we can't go back, you know,

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Speaker 1: Like my first car was the Toyota Corolla. It didn't

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Speaker 1: have very much in the ways of semi conductors in it. Right,

429
00:20:40,040 --> 00:20:41,960
Speaker 1: We're we're probably not going back to something that you

430
00:20:42,280 --> 00:20:44,960
Speaker 1: can't all right, And in fact, some one thing we're

431
00:20:44,960 --> 00:20:48,320
Speaker 1: seeing from the auto vendors, the limited supply of semis

432
00:20:48,320 --> 00:20:51,679
Speaker 1: that they do have, they're actually selling higher end cars, right,

433
00:20:51,720 --> 00:20:55,200
Speaker 1: They're actually prioritizing because the profits are higher, right, So

434
00:20:55,280 --> 00:20:58,000
Speaker 1: they're they're they're they're they're saving the limited semi editors.

435
00:20:58,040 --> 00:20:59,840
Speaker 1: They have to actually make as most money as possible

436
00:20:59,880 --> 00:21:01,760
Speaker 1: with them, and so in some cases we may be

437
00:21:01,840 --> 00:21:04,480
Speaker 1: seeing like mix actually going up rather than rather than down.

438
00:21:04,840 --> 00:21:09,040
Speaker 1: Oh yeah, I've wondered about that with with with various industries,

439
00:21:09,440 --> 00:21:11,920
Speaker 1: the degree to which, like, okay, if you have a

440
00:21:12,080 --> 00:21:16,480
Speaker 1: shortage of components overall. I remember we were talking about

441
00:21:16,520 --> 00:21:20,320
Speaker 1: this a little bit. We actually did an episode several

442
00:21:20,359 --> 00:21:24,280
Speaker 1: weeks ago, like on bathtubs and appliances. But I've been

443
00:21:24,320 --> 00:21:27,399
Speaker 1: wondering the degree to which end users of technology or

444
00:21:27,520 --> 00:21:31,240
Speaker 1: raw materials are changing their mix and prioritizing the production

445
00:21:31,840 --> 00:21:36,280
Speaker 1: of the the higher margin lines. Yeah, it's it's hard

446
00:21:36,280 --> 00:21:38,080
Speaker 1: to know. I do think in auto we we've seen

447
00:21:38,160 --> 00:21:41,159
Speaker 1: that in other end marketing, and I can mention graphics

448
00:21:41,200 --> 00:21:43,040
Speaker 1: cards of them. I mean people you can't even buy

449
00:21:43,040 --> 00:21:44,760
Speaker 1: a graphics card right and they're just selling everything they

450
00:21:44,800 --> 00:21:46,879
Speaker 1: can make right now. Um, But yeah, I do think

451
00:21:46,880 --> 00:21:49,719
Speaker 1: we're seeing some of that us anecdotally. Um, we are

452
00:21:49,760 --> 00:21:52,680
Speaker 1: seeing it. How much is you know, obviously on top

453
00:21:52,720 --> 00:21:56,200
Speaker 1: of everything else, one is seeing this incredible crypto boom.

454
00:21:56,720 --> 00:22:00,480
Speaker 1: How much does that contribute at the margins too tightness

455
00:22:00,680 --> 00:22:04,520
Speaker 1: in the semiconductor space, and how much as a professional

456
00:22:04,600 --> 00:22:07,879
Speaker 1: semiconductor analyst does that force you to get to know

457
00:22:08,119 --> 00:22:11,639
Speaker 1: this sort of new industry. Well, it's it's not that

458
00:22:11,840 --> 00:22:14,719
Speaker 1: new anymore. And we've seen a number of crypto crypto

459
00:22:14,760 --> 00:22:17,360
Speaker 1: booms and and and busts over over the earth fair enough,

460
00:22:17,480 --> 00:22:19,520
Speaker 1: I don't think like so you can talk about like

461
00:22:19,800 --> 00:22:22,639
Speaker 1: like the crypto impact on shortages in a couple of

462
00:22:22,640 --> 00:22:24,800
Speaker 1: different they're just like, for example, of shortages of graphics

463
00:22:24,840 --> 00:22:26,959
Speaker 1: cards and again go try to buy one. The other

464
00:22:27,119 --> 00:22:29,280
Speaker 1: is like taking a capacity at the foundries. And I

465
00:22:29,359 --> 00:22:33,960
Speaker 1: remember duringen you had a lot of the bitcoin minors,

466
00:22:33,960 --> 00:22:36,520
Speaker 1: guys like bitmain that make custom chips to mind bitcoin.

467
00:22:36,680 --> 00:22:39,639
Speaker 1: I think at one point they were a ten percent

468
00:22:39,760 --> 00:22:42,520
Speaker 1: customer of t SMC, like for a heartbeat, right, So

469
00:22:42,640 --> 00:22:45,160
Speaker 1: for that was like back during the bubble. I don't

470
00:22:45,200 --> 00:22:48,440
Speaker 1: think we've seen anything nearer that much for for their

471
00:22:48,480 --> 00:22:50,520
Speaker 1: for the the guys that make the custom mining chips

472
00:22:50,600 --> 00:22:52,040
Speaker 1: this time. And I don't think t SMC has been

473
00:22:52,040 --> 00:22:55,240
Speaker 1: prioritizing those guys nearly as much. But in general, I mean,

474
00:22:55,320 --> 00:22:57,480
Speaker 1: we've just got tightness all around at the leading edge,

475
00:22:57,480 --> 00:23:00,080
Speaker 1: and certainly that's been part of the problem with with

476
00:23:00,200 --> 00:23:02,000
Speaker 1: graphics cards. It's been hard to get, and obviously the

477
00:23:02,000 --> 00:23:04,320
Speaker 1: demand has been very strong. I'd also say like even

478
00:23:04,359 --> 00:23:07,439
Speaker 1: beyond with for graphics are even beyond crypto. The gaming

479
00:23:07,520 --> 00:23:09,920
Speaker 1: cycle this time is much stronger. Obviously we hit we

480
00:23:10,000 --> 00:23:12,240
Speaker 1: had COVID, and people were trapped in their houses and

481
00:23:12,280 --> 00:23:14,520
Speaker 1: they wanted to the video games were a good way

482
00:23:14,520 --> 00:23:15,720
Speaker 1: to pass the time, so they wanted to buy the

483
00:23:15,800 --> 00:23:18,320
Speaker 1: cards and the products from both in video and A

484
00:23:18,400 --> 00:23:20,760
Speaker 1: and D this time were actually much better than the

485
00:23:20,800 --> 00:23:23,080
Speaker 1: prior cycle, which was kind of like you know, second

486
00:23:23,080 --> 00:23:25,920
Speaker 1: half of and so there's actually a lot more I

487
00:23:25,960 --> 00:23:28,880
Speaker 1: think demand from gamers for the parts this time versus

488
00:23:29,000 --> 00:23:30,359
Speaker 1: last time where I where I do think a lot

489
00:23:30,440 --> 00:23:33,720
Speaker 1: of that incremental demand um was from the cryptomotis. And

490
00:23:33,720 --> 00:23:36,480
Speaker 1: so what happened in nine when the miners stopped buying,

491
00:23:37,200 --> 00:23:39,280
Speaker 1: the gamers didn't really want to step up and pick

492
00:23:39,359 --> 00:23:41,080
Speaker 1: up the slack, and so obviously we saw some fairly

493
00:23:41,160 --> 00:23:43,840
Speaker 1: big shortfalls, you know, the beginning of end of eighteen,

494
00:23:43,880 --> 00:23:46,760
Speaker 1: beginning of nineteen for for guys like in video this

495
00:23:46,960 --> 00:23:49,359
Speaker 1: time that their news cycle. It's called it's called amp

496
00:23:49,400 --> 00:23:51,080
Speaker 1: here is is the code name for it. I do

497
00:23:51,200 --> 00:23:53,720
Speaker 1: think actually gaming demand is quite strong for it. They

498
00:23:53,800 --> 00:23:56,240
Speaker 1: can't get the parts. So one hope for in videos

499
00:23:56,320 --> 00:23:58,359
Speaker 1: is if and when the miners stop buying that the

500
00:23:58,640 --> 00:24:00,920
Speaker 1: gamers will start to pick up the slack okay, and

501
00:24:01,280 --> 00:24:03,440
Speaker 1: we'll see like we're we're not there yet in terms

502
00:24:03,480 --> 00:24:05,320
Speaker 1: of the demand is still like off the charts I

503
00:24:05,520 --> 00:24:07,119
Speaker 1: think for for both the video and am D for

504
00:24:07,280 --> 00:24:09,920
Speaker 1: for game for graphics cards. So let's talk about I

505
00:24:10,000 --> 00:24:11,760
Speaker 1: think actually the first time we had you on who

506
00:24:11,840 --> 00:24:15,640
Speaker 1: was about like the fall of Intel or Intel Stumble.

507
00:24:16,040 --> 00:24:18,080
Speaker 1: That was like the first theme and of course it

508
00:24:18,160 --> 00:24:22,720
Speaker 1: had a pretty rough and they had fallen behind. So

509
00:24:22,920 --> 00:24:25,560
Speaker 1: that so then they bounced. Then they hired the new CEO,

510
00:24:26,200 --> 00:24:29,399
Speaker 1: girl singer, and the stock rallied and people like this

511
00:24:29,520 --> 00:24:31,840
Speaker 1: idea of like, oh they're gonna like reinvest in production

512
00:24:31,920 --> 00:24:34,240
Speaker 1: because that's the core issue that we talked about, there's

513
00:24:34,320 --> 00:24:37,639
Speaker 1: falling behind our productive capabilities. Now the stock has had

514
00:24:37,680 --> 00:24:40,600
Speaker 1: a pretty rough year once again, So what is the

515
00:24:40,720 --> 00:24:44,320
Speaker 1: current issue. What are the big concerns right now facing Intel?

516
00:24:44,880 --> 00:24:46,320
Speaker 1: You bet it's a few things. So you're right with

517
00:24:46,440 --> 00:24:48,320
Speaker 1: the day they hired Pat Elsoner, I think the stock

518
00:24:48,400 --> 00:24:50,960
Speaker 1: was up and I get like, I like Pat Patt

519
00:24:51,000 --> 00:24:53,200
Speaker 1: is the guy they probably should have hired two years ago, right,

520
00:24:53,800 --> 00:24:55,440
Speaker 1: and so he's he's the right guy for the job.

521
00:24:55,440 --> 00:24:57,600
Speaker 1: I think now that things that he's not a magician either,

522
00:24:58,560 --> 00:25:00,520
Speaker 1: and he has to play the a hand that he's

523
00:25:00,560 --> 00:25:02,159
Speaker 1: been dealt, and the hand that he was dealt is

524
00:25:02,880 --> 00:25:04,840
Speaker 1: pretty tough. And I think I said this the first

525
00:25:04,840 --> 00:25:07,240
Speaker 1: time it was on But the problems that Intel's having,

526
00:25:07,280 --> 00:25:09,400
Speaker 1: they didn't just develop like over the last couple of quarters.

527
00:25:09,440 --> 00:25:11,640
Speaker 1: These have been ten years in the making and they're

528
00:25:11,640 --> 00:25:13,040
Speaker 1: not going to get fixed in a couple of course.

529
00:25:13,119 --> 00:25:15,480
Speaker 1: They will probably take five or ten years to to

530
00:25:15,960 --> 00:25:18,760
Speaker 1: to fix. And so they've done a few things. Actually

531
00:25:18,800 --> 00:25:20,320
Speaker 1: since we chat, I think that was the last November

532
00:25:20,359 --> 00:25:22,520
Speaker 1: when we chatted, and and so we've we've they've done

533
00:25:22,520 --> 00:25:24,879
Speaker 1: a few things. Um number one, we talked a lot

534
00:25:24,880 --> 00:25:27,639
Speaker 1: about their difficulties at seven animeters. So they're claiming that

535
00:25:27,720 --> 00:25:31,000
Speaker 1: seven animeters is now fixed. They're claiming the issue was

536
00:25:31,080 --> 00:25:33,680
Speaker 1: they didn't they weren't using eu V what's called extreme

537
00:25:33,760 --> 00:25:37,240
Speaker 1: ultra Violet mothography, which is a very advanced type of

538
00:25:37,280 --> 00:25:40,840
Speaker 1: patterning technology to make very small features. UM and I

539
00:25:40,920 --> 00:25:43,520
Speaker 1: guess that that that is their their public stance on

540
00:25:43,640 --> 00:25:45,400
Speaker 1: on what the solution was they're gonna use. They're gonna

541
00:25:45,400 --> 00:25:47,879
Speaker 1: be much bigger using e V and that's going to

542
00:25:47,920 --> 00:25:50,080
Speaker 1: fix the problem. It's also, by the way, clear probably

543
00:25:50,119 --> 00:25:51,720
Speaker 1: why they didn't want to use it. It's very expensive.

544
00:25:51,760 --> 00:25:53,400
Speaker 1: Their capex this year is gonna win up to something

545
00:25:53,480 --> 00:25:55,760
Speaker 1: like twenty billion dollars and that's not foundry, that's their

546
00:25:56,240 --> 00:25:58,080
Speaker 1: their own core business. But they don't really have a choice,

547
00:25:58,080 --> 00:26:00,879
Speaker 1: so they they've claimed that's fixed. They've also now I

548
00:26:00,880 --> 00:26:02,880
Speaker 1: don't know, a month maybe two months ago, they put

549
00:26:02,880 --> 00:26:05,199
Speaker 1: out a roadmap and this road they did a few things.

550
00:26:05,320 --> 00:26:07,639
Speaker 1: Number one is they adjusted their their nomin Remember we

551
00:26:07,720 --> 00:26:10,480
Speaker 1: talked about the node nomenclature and how like Intel nodes

552
00:26:10,520 --> 00:26:13,639
Speaker 1: didn't correspond to t SMC nodes in terms of process.

553
00:26:13,840 --> 00:26:17,359
Speaker 1: So they've changed their nomenclature to ALIGNE. Okay, so what

554
00:26:17,480 --> 00:26:19,560
Speaker 1: they were talking about seven naneties before that that is

555
00:26:19,640 --> 00:26:23,920
Speaker 1: now Intel four for an Okay, fine, what whatever. I'm

556
00:26:23,920 --> 00:26:25,480
Speaker 1: not going to knock them because they were they weren't

557
00:26:25,520 --> 00:26:29,200
Speaker 1: gaining anything by being a pedantic about it, so I mean, okay, fine.

558
00:26:29,680 --> 00:26:31,160
Speaker 1: But then the other thing is they said they're gonna

559
00:26:31,200 --> 00:26:33,919
Speaker 1: do kind of like five evolutions in four years. They're

560
00:26:33,920 --> 00:26:35,840
Speaker 1: gonna do they're doing ten now, and they're gonna go

561
00:26:35,960 --> 00:26:38,280
Speaker 1: to I think I can't remember what it's called ten

562
00:26:38,480 --> 00:26:41,159
Speaker 1: Enhanced super fin or something, and then they're gonna go

563
00:26:41,200 --> 00:26:43,879
Speaker 1: to Intel four and then Intel three, which is like

564
00:26:44,200 --> 00:26:46,600
Speaker 1: like an enhanced seven, and then they're gonna go to

565
00:26:46,680 --> 00:26:49,520
Speaker 1: something called twenty and twenty A is like in back

566
00:26:49,840 --> 00:26:55,760
Speaker 1: in and twenty A technology, We'll have a couple of

567
00:26:56,200 --> 00:26:58,359
Speaker 1: new innovations. It's gonna have something called a gate all

568
00:26:58,400 --> 00:27:01,480
Speaker 1: around transistor structure, which we could talk about what that is,

569
00:27:01,560 --> 00:27:04,119
Speaker 1: but it's a new type of structure to on the

570
00:27:04,160 --> 00:27:07,480
Speaker 1: transition to get higher performance and and everything. And so

571
00:27:07,600 --> 00:27:09,760
Speaker 1: that's that's one thing. The industry, by the way, is

572
00:27:09,800 --> 00:27:13,480
Speaker 1: wrestling with that technology. Samsung has at the roadmap intels

573
00:27:13,520 --> 00:27:15,399
Speaker 1: now putting it on the roadmap, and they're gonna have

574
00:27:15,400 --> 00:27:17,920
Speaker 1: something called back backside power, which again we can talk

575
00:27:17,920 --> 00:27:20,960
Speaker 1: about without some innovations there. And what they're basically saying

576
00:27:21,240 --> 00:27:23,480
Speaker 1: is by that time frame, by that sort of like

577
00:27:24,920 --> 00:27:27,360
Speaker 1: five time frame, when we introduced this twenty A process

578
00:27:27,520 --> 00:27:30,240
Speaker 1: using this you know, this gate all around orchanization, we

579
00:27:30,320 --> 00:27:32,280
Speaker 1: will have we will have caught up and then surpassed

580
00:27:32,400 --> 00:27:34,040
Speaker 1: t SMC at that point. So they put up this

581
00:27:34,160 --> 00:27:37,359
Speaker 1: roadmap that says, in like four or four or five years,

582
00:27:37,640 --> 00:27:39,480
Speaker 1: we think we can close the gap with t SMC

583
00:27:39,640 --> 00:27:43,240
Speaker 1: and and and beyond we will surpass it. So a

584
00:27:43,359 --> 00:27:45,880
Speaker 1: couple of things with that number one. Even even though

585
00:27:45,920 --> 00:27:48,800
Speaker 1: it's it sounds good, it's a very aggressive roadmap. Like

586
00:27:48,840 --> 00:27:51,040
Speaker 1: I said, it's sort of four iterations in five years

587
00:27:51,680 --> 00:27:55,159
Speaker 1: and they're there, you know, trajectory and execution of the

588
00:27:55,280 --> 00:27:57,840
Speaker 1: last decade. You know, this would be a big change.

589
00:27:57,920 --> 00:28:00,119
Speaker 1: So more power to that they can do that. But

590
00:28:00,200 --> 00:28:02,320
Speaker 1: the problem is that even if they can execute on it,

591
00:28:02,400 --> 00:28:04,320
Speaker 1: and it's not a done deal, they basically came out

592
00:28:04,359 --> 00:28:06,040
Speaker 1: and told everything, we're still gonna be behind for the

593
00:28:06,119 --> 00:28:09,320
Speaker 1: next four years, right, So the window is still for

594
00:28:09,440 --> 00:28:11,760
Speaker 1: everybody else to attack us is still open for at

595
00:28:11,840 --> 00:28:14,080
Speaker 1: least like four years. So that was the was the

596
00:28:14,400 --> 00:28:16,119
Speaker 1: dark side of what they were saying. So even if

597
00:28:16,119 --> 00:28:18,480
Speaker 1: they execute on it perfectly, the windows still open for

598
00:28:18,520 --> 00:28:20,520
Speaker 1: four years or more. And if they don't execute on it,

599
00:28:20,560 --> 00:28:22,960
Speaker 1: they're screwed. But he had to come out and put

600
00:28:23,119 --> 00:28:27,760
Speaker 1: a credible, like a semi credible like like statement out

601
00:28:27,800 --> 00:28:29,159
Speaker 1: that this as we can close they got because his

602
00:28:29,200 --> 00:28:32,199
Speaker 1: alternatives to laid out and die right, because if they

603
00:28:32,280 --> 00:28:35,840
Speaker 1: can't catch up by that or whatever, they'll they'll ever

604
00:28:35,920 --> 00:28:37,800
Speaker 1: catch up. That that's it, right. So that's that's one

605
00:28:37,880 --> 00:28:40,120
Speaker 1: thing that they're doing. Um. The other thing they're doing

606
00:28:40,200 --> 00:28:42,320
Speaker 1: is they're they're making more use of outsourcing. And again

607
00:28:42,400 --> 00:28:44,240
Speaker 1: when they it's they're they're doing a lot of stuff

608
00:28:44,280 --> 00:28:46,680
Speaker 1: in house. They're doing some more more stuff at t

609
00:28:46,800 --> 00:28:48,960
Speaker 1: SMC and so they're booking capacity I guess three n

610
00:28:49,000 --> 00:28:51,560
Speaker 1: animated capacity at t SMC and so we'll see what

611
00:28:51,640 --> 00:28:53,360
Speaker 1: kind of products they make. They're actually doing some graphics

612
00:28:53,360 --> 00:28:54,760
Speaker 1: stuff over there now, and they're gonna be doing some

613
00:28:54,840 --> 00:28:57,320
Speaker 1: other things. And then thirdly they're gonna be focusing on

614
00:28:57,520 --> 00:29:02,000
Speaker 1: on specialized packaging. What's what's what's called chiplets where I'm

615
00:29:02,080 --> 00:29:05,440
Speaker 1: disaggregating the chip into various types of functionalities and making

616
00:29:05,480 --> 00:29:08,960
Speaker 1: each of those smaller pieces potentially different places and then

617
00:29:09,000 --> 00:29:11,560
Speaker 1: combining those together. And this is something we're intel things.

618
00:29:11,640 --> 00:29:13,760
Speaker 1: They have an advantage and they've got very good. This

619
00:29:13,800 --> 00:29:15,880
Speaker 1: is packaging and they've got very good packaging technology, but

620
00:29:15,960 --> 00:29:18,280
Speaker 1: so do others. And so we'll see all this works out.

621
00:29:18,360 --> 00:29:20,520
Speaker 1: So that that that's sort of the plan, right, and

622
00:29:20,600 --> 00:29:22,120
Speaker 1: then and then and then and then they're gonna be

623
00:29:22,120 --> 00:29:24,240
Speaker 1: building out all this foundry stuff and to do that,

624
00:29:24,360 --> 00:29:26,920
Speaker 1: they're gonna be getting subsidies. Right, So this is the

625
00:29:27,000 --> 00:29:29,400
Speaker 1: other the other things. So that in general that the strategy,

626
00:29:29,520 --> 00:29:33,200
Speaker 1: like like some simplified, is to try to stabilize the roadmap,

627
00:29:33,640 --> 00:29:36,360
Speaker 1: try to put out some sort of credible path to

628
00:29:36,440 --> 00:29:38,680
Speaker 1: catching up, and and thirdly to beg for money from

629
00:29:38,680 --> 00:29:42,000
Speaker 1: the government, which whether it's not a dumb idea, right

630
00:29:42,040 --> 00:29:44,000
Speaker 1: if if anybody, if there's any time right now they

631
00:29:44,080 --> 00:29:46,920
Speaker 1: to go get money from from governments to build out

632
00:29:46,920 --> 00:30:04,320
Speaker 1: sending a capacity. Now is the time. So this is

633
00:30:04,360 --> 00:30:07,560
Speaker 1: something that the Biden administration has been you know, specifically

634
00:30:07,640 --> 00:30:10,760
Speaker 1: calling out and targeting, um the idea of making the

635
00:30:10,960 --> 00:30:15,600
Speaker 1: US stronger in semiconductor manufacturing. Like how much of a

636
00:30:15,680 --> 00:30:22,800
Speaker 1: difference could that make to future supply demand balance? Well,

637
00:30:22,920 --> 00:30:25,360
Speaker 1: they probably I was right now. It's fifty two billion

638
00:30:25,440 --> 00:30:27,200
Speaker 1: dollars I think is the number on the tip, which

639
00:30:27,200 --> 00:30:29,800
Speaker 1: which frankly is a rounding error. Again, t SMC is

640
00:30:29,800 --> 00:30:31,880
Speaker 1: talking about one single company. They're going to go spend

641
00:30:31,960 --> 00:30:35,520
Speaker 1: fifty sorry a hundred billion dollars over three years one company.

642
00:30:36,320 --> 00:30:38,680
Speaker 1: So the US right now is saying fifty two billion dollars,

643
00:30:38,720 --> 00:30:40,880
Speaker 1: which is manufacturing and lady in a bunch of stuff

644
00:30:41,640 --> 00:30:43,840
Speaker 1: over like a five year period for the entire US

645
00:30:43,880 --> 00:30:46,000
Speaker 1: based industry. So, I mean, it's that kind of gives

646
00:30:46,040 --> 00:30:48,560
Speaker 1: you an idea of the scale. Um, it's probably not

647
00:30:48,640 --> 00:30:50,840
Speaker 1: gonna make much of a difference, but but it's a start.

648
00:30:50,920 --> 00:30:53,040
Speaker 1: You gotta start somewhere. And then like I said, well

649
00:30:53,120 --> 00:30:55,160
Speaker 1: we'll see like like how they get spread out between

650
00:30:55,200 --> 00:30:58,200
Speaker 1: Intel and Samsung and TSMC. And it's funny, you know, Intel,

651
00:30:58,280 --> 00:31:00,200
Speaker 1: like they did a paid article in police to Co

652
00:31:00,840 --> 00:31:03,320
Speaker 1: a little while back where I mean gals was basically saying,

653
00:31:03,360 --> 00:31:05,360
Speaker 1: don't give the money to foreign companies, give it to

654
00:31:05,480 --> 00:31:08,360
Speaker 1: us because like TSMC, like they're gonna build it. They're

655
00:31:08,360 --> 00:31:10,720
Speaker 1: building this factory Arizona. It's five nanimeters. By the time

656
00:31:10,720 --> 00:31:12,280
Speaker 1: they bring it online, that's gonna be lagging edge and

657
00:31:12,320 --> 00:31:14,480
Speaker 1: they're gonna leave all the leading edge I P off shore,

658
00:31:14,960 --> 00:31:16,840
Speaker 1: And so you should give the money to loss effectively,

659
00:31:16,880 --> 00:31:18,880
Speaker 1: it was saying that which which is? I personally think

660
00:31:18,920 --> 00:31:22,120
Speaker 1: if we're really interested in building up the US like

661
00:31:22,200 --> 00:31:24,920
Speaker 1: supply chain in semis, you need to make it resilient.

662
00:31:24,920 --> 00:31:26,320
Speaker 1: I don't think he can bet on one company. I

663
00:31:26,360 --> 00:31:27,960
Speaker 1: think you need to spread the wealth around and guys

664
00:31:28,000 --> 00:31:31,000
Speaker 1: like TSMC and Sam's they already have customers, like really,

665
00:31:31,040 --> 00:31:33,240
Speaker 1: and Intel's talked about they're gonna work with Qualcomm and

666
00:31:33,320 --> 00:31:37,239
Speaker 1: some others like in like five years, like maybe we'll see, right,

667
00:31:37,520 --> 00:31:39,800
Speaker 1: TSMC and these other guys have customers today, So I'm

668
00:31:39,800 --> 00:31:42,520
Speaker 1: of the opinion it would probably be better to spread

669
00:31:42,600 --> 00:31:44,920
Speaker 1: that wealth around um and and we'll see a fifty

670
00:31:44,960 --> 00:31:47,280
Speaker 1: two billion dollars is where it stops? Like I don't know,

671
00:31:47,360 --> 00:31:48,920
Speaker 1: Like I think if we really want to make a difference,

672
00:31:48,960 --> 00:31:51,440
Speaker 1: we need more. But but it's a start, so we'll

673
00:31:51,480 --> 00:31:53,440
Speaker 1: so we'll, you know, well we'll see. You know, there's

674
00:31:53,440 --> 00:31:55,400
Speaker 1: some other issues with within tel. We talked about the stock.

675
00:31:55,440 --> 00:31:57,760
Speaker 1: I mean, the strategy sounds credible, so you could ask

676
00:31:57,800 --> 00:31:59,600
Speaker 1: this on wise of Stock been like such a dog.

677
00:32:00,200 --> 00:32:01,720
Speaker 1: The problem is that he's you know, they've been running

678
00:32:01,760 --> 00:32:03,840
Speaker 1: around like trying to draw up excitement for what this

679
00:32:04,000 --> 00:32:06,400
Speaker 1: vision could look like and I get that, but I'm

680
00:32:06,440 --> 00:32:08,280
Speaker 1: of the opinion they're about that they have to drop

681
00:32:08,360 --> 00:32:11,120
Speaker 1: a hammer on us because you start thinking about this

682
00:32:11,240 --> 00:32:12,960
Speaker 1: this stuff, like what what's gonna what's gonna happen in

683
00:32:13,120 --> 00:32:16,160
Speaker 1: terms of capital and capital intensit is going up, free

684
00:32:16,200 --> 00:32:18,800
Speaker 1: cash is going down, Gross margins next, you're way too high.

685
00:32:18,880 --> 00:32:21,400
Speaker 1: They need to come down. Um. They're talking about they

686
00:32:21,440 --> 00:32:23,960
Speaker 1: think PCs are gonna grow next year. I personally think

687
00:32:23,960 --> 00:32:26,320
Speaker 1: that they're saying that because like they're screwed if PCs

688
00:32:26,360 --> 00:32:30,440
Speaker 1: don't grow next year. Right, Um, I think numbers need

689
00:32:30,480 --> 00:32:32,520
Speaker 1: to need a fairly sizeable reset. And we've got they've

690
00:32:32,560 --> 00:32:35,040
Speaker 1: got an Animals Day coming up in November when everybody's

691
00:32:35,040 --> 00:32:38,600
Speaker 1: sort of widely expecting them to give us like the model,

692
00:32:38,680 --> 00:32:40,520
Speaker 1: like what is the vision for what this thing looks

693
00:32:40,560 --> 00:32:43,360
Speaker 1: like during the transition as we go from where we

694
00:32:43,400 --> 00:32:45,680
Speaker 1: are now to where maybe we're going in in five

695
00:32:45,800 --> 00:32:48,800
Speaker 1: years or whatever. Um. And people are really hesitant to

696
00:32:48,920 --> 00:32:50,680
Speaker 1: do anything with the stock in front of the anialyst

697
00:32:50,760 --> 00:32:53,280
Speaker 1: day because we don't actually know how low things like

698
00:32:53,320 --> 00:32:55,560
Speaker 1: gross margins and free cash flow and everything are gonna go.

699
00:32:56,040 --> 00:32:57,480
Speaker 1: But you can make the case that they need to

700
00:32:57,520 --> 00:32:58,960
Speaker 1: go that they need to go a lot lower than

701
00:32:59,000 --> 00:33:02,000
Speaker 1: they're getting modeled right now. So so this sort of

702
00:33:02,080 --> 00:33:05,720
Speaker 1: brings back you know, even prior to so okay, during

703
00:33:05,800 --> 00:33:09,440
Speaker 1: the last eighteen months of COVID and so forth, chip

704
00:33:09,520 --> 00:33:12,920
Speaker 1: industry demand has been extremely strong, and that's contributed to

705
00:33:12,960 --> 00:33:16,240
Speaker 1: the tightness. And one of the themes that we that

706
00:33:16,400 --> 00:33:20,160
Speaker 1: was discussed even prior to COVID was that the chip

707
00:33:20,240 --> 00:33:24,960
Speaker 1: industry seemed to be getting less less cyclical overall. And so,

708
00:33:25,280 --> 00:33:28,160
Speaker 1: you know, for years the eighties and nineties, I think

709
00:33:28,280 --> 00:33:31,400
Speaker 1: chips were seeing as this classic boom bust industry and

710
00:33:31,520 --> 00:33:34,080
Speaker 1: then for years going uh, you know, I don't know.

711
00:33:34,120 --> 00:33:36,560
Speaker 1: The last decade there's just been the secular growth in

712
00:33:37,120 --> 00:33:40,400
Speaker 1: semiconductors overall because they get put into like everything from

713
00:33:41,040 --> 00:33:44,600
Speaker 1: cars to refrigerators to computers, bcs, two chairs and so forth.

714
00:33:45,200 --> 00:33:49,680
Speaker 1: Is there any is that fundamental theme expected to continue

715
00:33:49,760 --> 00:33:52,840
Speaker 1: that regardless of what happens, the secular growth of chips

716
00:33:53,240 --> 00:33:55,680
Speaker 1: is going to continue, or are there concerns that at

717
00:33:55,760 --> 00:33:59,760
Speaker 1: some point some of these boom bust cycles might return.

718
00:34:01,520 --> 00:34:03,760
Speaker 1: I don't think that those two things are mutually exclusive,

719
00:34:03,880 --> 00:34:05,880
Speaker 1: and so I'll give you my own just a number one.

720
00:34:06,960 --> 00:34:09,440
Speaker 1: Let's let me put the near term cyclical concerns aside

721
00:34:09,520 --> 00:34:13,120
Speaker 1: for a moment. Long term, I'm actually more positive on

722
00:34:13,320 --> 00:34:15,640
Speaker 1: on Semi's coming out of COVID than I've been in

723
00:34:15,680 --> 00:34:17,920
Speaker 1: a long time in terms of that secular growth theme.

724
00:34:18,040 --> 00:34:20,799
Speaker 1: I am. And look, you know this, the sector I mean,

725
00:34:20,920 --> 00:34:23,480
Speaker 1: like last year was four and forty billion dollars. And

726
00:34:23,600 --> 00:34:26,239
Speaker 1: off the base, even if Semis just grew five percent

727
00:34:26,280 --> 00:34:28,840
Speaker 1: a year over the cycle, you have a trillion dollar industry.

728
00:34:28,840 --> 00:34:32,000
Speaker 1: By and by the way, this year, Semis are probably

729
00:34:32,000 --> 00:34:34,040
Speaker 1: not gonna grow five percent. They they may grow twenty

730
00:34:34,080 --> 00:34:36,600
Speaker 1: five percent this year off off of that four and

731
00:34:36,680 --> 00:34:38,480
Speaker 1: if they did, we we get pretty close to five

732
00:34:38,719 --> 00:34:41,080
Speaker 1: d and fifty billion dollars. And so well, we'll see

733
00:34:41,120 --> 00:34:43,000
Speaker 1: what things do, right, but you're gonna have a lot

734
00:34:43,080 --> 00:34:45,120
Speaker 1: of growth this year, and so like even if we

735
00:34:45,200 --> 00:34:48,000
Speaker 1: go into a downturn next year, who knows, maybe we

736
00:34:48,040 --> 00:34:50,680
Speaker 1: we could right sure, um, you think about like that runway,

737
00:34:50,719 --> 00:34:53,480
Speaker 1: We're we're likely still be well over five billion dollars

738
00:34:53,520 --> 00:34:55,600
Speaker 1: would be my guessing, even in a downturn scenario, which

739
00:34:55,600 --> 00:34:58,520
Speaker 1: is much higher than we were. Um and and and

740
00:34:58,640 --> 00:35:00,839
Speaker 1: long term, this idea of like, is the industry someday

741
00:35:00,840 --> 00:35:03,040
Speaker 1: a trailion dollars? I think absolutely it will be a

742
00:35:03,080 --> 00:35:05,680
Speaker 1: trailion dollar. And whether it's twenty thirty five or like

743
00:35:05,760 --> 00:35:08,080
Speaker 1: what what have you. Um I think a lot of

744
00:35:08,120 --> 00:35:10,239
Speaker 1: the trends were seeing a real this whole idea of

745
00:35:10,920 --> 00:35:13,960
Speaker 1: of of of content increase and and and digitization and

746
00:35:14,040 --> 00:35:16,800
Speaker 1: everything else. Some I'm a firm believer, and more so

747
00:35:16,920 --> 00:35:19,520
Speaker 1: than I have been. UM So I'm pretty positive long

748
00:35:19,600 --> 00:35:22,160
Speaker 1: term and semilies now the near term cyclical. This is

749
00:35:22,200 --> 00:35:23,960
Speaker 1: kind of interesting because you kind of mentioned like semis

750
00:35:24,000 --> 00:35:25,600
Speaker 1: used to be really really cyclical and then they got

751
00:35:25,680 --> 00:35:27,920
Speaker 1: less cyclical. What we used to see we used to

752
00:35:27,960 --> 00:35:30,479
Speaker 1: see these big supply cycles where like supply would exceed

753
00:35:30,600 --> 00:35:33,000
Speaker 1: demand and pricing would would would follow when you get

754
00:35:33,040 --> 00:35:35,960
Speaker 1: these really big swings. And the last really major supply

755
00:35:36,040 --> 00:35:38,720
Speaker 1: cycle we had was was the tech bubble, like two thousand,

756
00:35:38,760 --> 00:35:41,360
Speaker 1: two thousand one. Mostly since then we had what we

757
00:35:41,440 --> 00:35:43,560
Speaker 1: are it called inventory cycles against semis are the back

758
00:35:43,600 --> 00:35:46,400
Speaker 1: of the supply chain, and you get fluctuations in demand

759
00:35:46,440 --> 00:35:49,000
Speaker 1: that can propagate backwards and you get bigger swings and

760
00:35:49,160 --> 00:35:52,600
Speaker 1: and usually was inventory cycle happens when like the customers

761
00:35:52,640 --> 00:35:54,800
Speaker 1: of the channel starts to bleed or build inventory, and

762
00:35:54,880 --> 00:35:58,560
Speaker 1: so they they reduced purchases of semis for a little bit,

763
00:35:58,560 --> 00:36:00,840
Speaker 1: and they bleed out inventory where they increased purchases, and

764
00:36:00,880 --> 00:36:04,080
Speaker 1: they build inventory, and so semi's overship or undership demand,

765
00:36:04,400 --> 00:36:06,279
Speaker 1: but it's much shorter. They tend to last a quarter

766
00:36:06,440 --> 00:36:08,560
Speaker 1: two or three and and and they show up as

767
00:36:08,640 --> 00:36:10,439
Speaker 1: kind of like resets, You sort of reset the base

768
00:36:10,880 --> 00:36:13,120
Speaker 1: either up or down, rather than these big swings. You

769
00:36:13,200 --> 00:36:15,000
Speaker 1: look what's going on right now. We're we're having a

770
00:36:15,120 --> 00:36:17,640
Speaker 1: good old fashioned supply cycle right now. We haven't had

771
00:36:17,680 --> 00:36:20,400
Speaker 1: one of these for a long long time. So I

772
00:36:20,440 --> 00:36:22,279
Speaker 1: don't know how this is a ladin Like Historically, they

773
00:36:22,360 --> 00:36:24,960
Speaker 1: tend to end badly, you know, And so we'll we'll see.

774
00:36:25,360 --> 00:36:27,439
Speaker 1: Although I could also argue that, like I said, maybe

775
00:36:27,480 --> 00:36:30,080
Speaker 1: some of the secular drivers of the industry are and

776
00:36:30,160 --> 00:36:31,320
Speaker 1: they you know, they were if you go back to

777
00:36:31,360 --> 00:36:32,919
Speaker 1: when we used to have big supply cycles, I would

778
00:36:32,920 --> 00:36:34,440
Speaker 1: I would argue the secular growth in the US it

779
00:36:34,480 --> 00:36:36,560
Speaker 1: was pretty strong back then too, so maybe you have

780
00:36:36,680 --> 00:36:38,319
Speaker 1: that to try to offset it somewhat. But I mean,

781
00:36:38,360 --> 00:36:40,520
Speaker 1: we we've we've got a supply cycle going on right now.

782
00:36:41,080 --> 00:36:42,919
Speaker 1: We haven't had seen one of these outside of memory

783
00:36:42,960 --> 00:36:45,760
Speaker 1: in a long long time. But you you can believe

784
00:36:45,800 --> 00:36:48,759
Speaker 1: that and be be nervous about the neartive medium from

785
00:36:48,800 --> 00:36:51,320
Speaker 1: cyclical and still have a positive long term view in

786
00:36:51,440 --> 00:36:53,279
Speaker 1: terms of like secular growth of the industry. They're not

787
00:36:53,360 --> 00:36:57,120
Speaker 1: mutually exclusive. Well, just stacy any other big sort of

788
00:36:57,160 --> 00:36:59,160
Speaker 1: thoughts things that we should watch for next. I mean,

789
00:36:59,200 --> 00:37:01,840
Speaker 1: you mentioned the Intel Analyst day, you know, like what

790
00:37:01,960 --> 00:37:03,880
Speaker 1: else is on your radar? We we should do like

791
00:37:03,920 --> 00:37:05,759
Speaker 1: a whole one of these calls somebody just probably on

792
00:37:05,880 --> 00:37:08,279
Speaker 1: semicap on way for fabrication equipment. That's a whole other

793
00:37:08,320 --> 00:37:10,920
Speaker 1: part of the industry, right, Yeah, and I want to

794
00:37:11,000 --> 00:37:13,719
Speaker 1: do one on you know, the one that we never

795
00:37:13,880 --> 00:37:17,600
Speaker 1: did in the original series was the SML uh and

796
00:37:17,719 --> 00:37:19,640
Speaker 1: so maybe we got at some point we got to

797
00:37:19,719 --> 00:37:21,960
Speaker 1: do that one too. That's like the one big company

798
00:37:22,000 --> 00:37:24,839
Speaker 1: we've never really I would I would be thrilled, Yeah,

799
00:37:24,920 --> 00:37:26,759
Speaker 1: I would be thrilled. I don't cover a SML. I

800
00:37:26,840 --> 00:37:28,160
Speaker 1: have a colleague amend that is, but we can talk

801
00:37:28,200 --> 00:37:31,680
Speaker 1: about it. And like the semiicap industry in general, again,

802
00:37:31,760 --> 00:37:33,719
Speaker 1: it's it's even farther back than this supply since you

803
00:37:33,800 --> 00:37:36,640
Speaker 1: do get you get cicklicality there. But again like that,

804
00:37:36,760 --> 00:37:38,760
Speaker 1: that's another one of these areas like long term I'm

805
00:37:38,800 --> 00:37:41,799
Speaker 1: I'm like that that long term secular story on semicap

806
00:37:41,960 --> 00:37:45,640
Speaker 1: capital intensity going up, which has implications i'm across the

807
00:37:45,719 --> 00:37:49,800
Speaker 1: value chain. Um, I think is hugely is hugely interesting.

808
00:37:49,880 --> 00:37:51,759
Speaker 1: That'll be uh, that'll be the next one we do.

809
00:37:52,360 --> 00:37:54,000
Speaker 1: You you let me know when I'll be there. We

810
00:37:54,040 --> 00:37:56,920
Speaker 1: can talk about it. Sounds good, Stacy, Thank you so

811
00:37:57,120 --> 00:37:59,920
Speaker 1: much for coming back on our lot. You met my

812
00:38:00,000 --> 00:38:18,320
Speaker 1: pleasure anytime. That was great, Thanks Stacy, Tracy. I always

813
00:38:18,560 --> 00:38:21,239
Speaker 1: like talking to Stacy obviously, you know, I think one

814
00:38:21,320 --> 00:38:25,080
Speaker 1: of the interesting things that you know, he pointed out

815
00:38:25,120 --> 00:38:27,360
Speaker 1: which I hadn't really thought of or appreciated before. He's like,

816
00:38:27,880 --> 00:38:30,359
Speaker 1: just how far deep in the cycle the chipmakers are

817
00:38:30,400 --> 00:38:34,200
Speaker 1: and how little visibility they have into and demand and

818
00:38:34,320 --> 00:38:36,879
Speaker 1: so on top of everything else, you can really see

819
00:38:36,960 --> 00:38:40,680
Speaker 1: why so deep into this crisis, things aren't really smoothed

820
00:38:40,719 --> 00:38:44,480
Speaker 1: out yet. Yeah. Um, And also of course now you

821
00:38:44,560 --> 00:38:46,520
Speaker 1: have this issue of double ordering and how much of

822
00:38:46,560 --> 00:38:49,719
Speaker 1: the demand is real versus people stockpiling. It feels like

823
00:38:49,800 --> 00:38:52,160
Speaker 1: that's just going to cloud it up and make it

824
00:38:52,360 --> 00:38:55,080
Speaker 1: much more difficult in the future. And you know, it

825
00:38:55,160 --> 00:38:58,120
Speaker 1: kind of reminded me of um, this is very like

826
00:38:58,920 --> 00:39:01,000
Speaker 1: add lots stuff. But it reminded me a little bit

827
00:39:01,239 --> 00:39:04,000
Speaker 1: of the corporate bond market, where when there's a big

828
00:39:04,080 --> 00:39:07,120
Speaker 1: sale of like a bond that everyone wants to get,

829
00:39:08,000 --> 00:39:11,880
Speaker 1: people normally put in like padded orders so that they

830
00:39:11,960 --> 00:39:14,319
Speaker 1: can get quite a lot. So you know, they might

831
00:39:14,360 --> 00:39:17,520
Speaker 1: not actually need five million or something like that, but

832
00:39:17,600 --> 00:39:19,719
Speaker 1: they'll put in a massive order hoping that they get

833
00:39:19,880 --> 00:39:22,360
Speaker 1: some of that. You know, I kind of wonder like

834
00:39:22,480 --> 00:39:25,239
Speaker 1: maybe that started because there was one really hot deal

835
00:39:25,400 --> 00:39:27,760
Speaker 1: and then it just became normal behavior in the corporate

836
00:39:27,760 --> 00:39:29,800
Speaker 1: bond market. I kind of wonder if this is a

837
00:39:29,880 --> 00:39:34,120
Speaker 1: permanent shift for customers who are ordering semiconductors. Yeah, you

838
00:39:34,160 --> 00:39:37,440
Speaker 1: should write about that, Tracy. That's very like int essential

839
00:39:38,080 --> 00:39:42,120
Speaker 1: Tracy analogy, the connection between the bowl whip effect and

840
00:39:42,200 --> 00:39:47,680
Speaker 1: semiconductors and um book building in the big corporate concept

841
00:39:48,040 --> 00:39:52,160
Speaker 1: you got you gotta I think that like I'm imagining

842
00:39:52,200 --> 00:39:54,880
Speaker 1: the ven diagram of people who read about semi conductors

843
00:39:55,000 --> 00:40:00,640
Speaker 1: and corporate contessential Tracy. But no, I mean I did

844
00:40:00,760 --> 00:40:03,120
Speaker 1: think that was really interesting. Also, like this idea that

845
00:40:03,239 --> 00:40:06,840
Speaker 1: like you know, there used to be UM free cancellations

846
00:40:07,239 --> 00:40:10,080
Speaker 1: or the idea that you know, and also that the

847
00:40:10,160 --> 00:40:13,440
Speaker 1: manufacturers then try to game it the other way, so

848
00:40:13,600 --> 00:40:16,680
Speaker 1: that if you know, if a client makes a hundred

849
00:40:16,719 --> 00:40:20,600
Speaker 1: million dollar order, they might only make fifty million on

850
00:40:20,719 --> 00:40:23,200
Speaker 1: the assumption that this is really just a fifty million

851
00:40:23,239 --> 00:40:27,120
Speaker 1: dollar order in disguise, And so yeah, you can see

852
00:40:27,160 --> 00:40:29,759
Speaker 1: why that on top of everything else, and then of

853
00:40:29,880 --> 00:40:33,279
Speaker 1: course the emergence of the delta variant, the fact that

854
00:40:33,760 --> 00:40:38,120
Speaker 1: chips crossed so many borders during their manufacturing just for

855
00:40:38,239 --> 00:40:42,360
Speaker 1: like the production itself and packaging and put in component.

856
00:40:42,880 --> 00:40:47,239
Speaker 1: I'm not surprised or recording this septemb that we're still

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Speaker 1: seeing so many issues. M I mean, one thing I

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Speaker 1: will say is that I think the virus situation is

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Speaker 1: improving in Malaysia, so maybe that will help and maybe

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Speaker 1: at a minimum, as these sort of delta outbreaks start

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Speaker 1: getting under control in Asia, hopefully that will allow people

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Speaker 1: to see how much of the current tightness in the

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00:41:06,600 --> 00:41:10,879
Speaker 1: market is driven by COVID disruptions versus the bull whip

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00:41:10,960 --> 00:41:14,120
Speaker 1: effect UM that's been ongoing for like more than a

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Speaker 1: year now. Yeah, exactly right, well, we definitely got to

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Speaker 1: get Stacy back or for the semicap a SML episode,

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Speaker 1: and um, you know this story is not over yet. No,

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Speaker 1: it definitely isn't. All right, shall we leave it there?

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Speaker 1: Let's leave it there. This has been another episode of

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Speaker 1: the ad Thoughts Podcast. I'm Tracy Alloway. You can follow

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00:41:36,120 --> 00:41:39,680
Speaker 1: me on Twitter at Tracy Alloway. And I'm Joe Wiesenthal.

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00:41:39,719 --> 00:41:42,680
Speaker 1: You can follow me on Twitter at the Stalwart. Follow

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00:41:42,719 --> 00:41:45,920
Speaker 1: our guest on Twitter, Stacy Raskin. He's at s Raskin.

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00:41:46,280 --> 00:41:49,880
Speaker 1: Follow our producer Laura Carlson. She's at Laura M. Carlson.

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00:41:50,160 --> 00:41:53,880
Speaker 1: Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today,

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00:41:54,280 --> 00:41:57,160
Speaker 1: and check out all of our podcasts at Bloomberg under

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00:41:57,200 --> 00:41:59,760
Speaker 1: the handle at podcasts. Thanks for listening.