Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Allaway. So, Tracy, you know,
Speaker 1: we haven't talked about it in a while, but one
Speaker 1: recurring topic on the podcast over the years has been
Speaker 1: China's efforts to really sort of leap into the lead technologically.
Speaker 1: We've talked about it with a few different guests, invested
Speaker 1: aggressively in airlines, UH, semiconductors, UH and so forth, setting
Speaker 1: us at all the current noise. That's still like one
Speaker 1: of the bigger long term storylines that attempt to sort
Speaker 1: of supplant the US at the lead in the lead
Speaker 1: of a technological manufacturing and development. Yeah, that's right, and
Speaker 1: I think that's where a big portion of the trade war,
Speaker 1: or the Trump administration's trade war with China actually came from.
Speaker 1: And that's why we see so much of it centered
Speaker 1: around technology things like Bye Dance, TikTok and UH of
Speaker 1: course five G and Huawei and UH. Of course we're
Speaker 1: seeing Beijing rolling out it's it's new plans for I
Speaker 1: think it's for the next twenty years or something like that.
Speaker 1: And of course tech dominance features quite highly. Once again,
Speaker 1: absolutely but it also like it takes it takes two
Speaker 1: to tango because in addition to UH China's own endeavors
Speaker 1: to leap frog or surpassed the US in terms of
Speaker 1: technological development, there's also an another element, which is that
Speaker 1: a lot of the US companies that we sort of
Speaker 1: associate with, you know, the great heritage of US manufacturing,
Speaker 1: whether it's Boeing, g E or Intel with chips, all
Speaker 1: of them seemed to be not doing so great. So
Speaker 1: literally going in the other direction. Yeah, so this is
Speaker 1: something that I wasn't that aware of just because I've
Speaker 1: been outside of the US for a while. But Intel
Speaker 1: seems to be struggling. So I think in the summer
Speaker 1: they said they were something like twelve months behind schedule
Speaker 1: when it comes to developing like their new next generation
Speaker 1: of chips, and the share prices come down quite a
Speaker 1: bit since then. And it's sort of the polar opposite
Speaker 1: to what you see happening at some other chip companies
Speaker 1: like t S mc over in Taiwan for instance, they
Speaker 1: seem to be doing quite well during the pandemic, well
Speaker 1: relatively well yeah, I mean you haven't exactly right. There
Speaker 1: seems to be going in the exact opposite direction, falling
Speaker 1: further and further behind, and their stock has really been
Speaker 1: got hammered this summer. So, like what happened is sort
Speaker 1: of an interesting question because we could talk about China's
Speaker 1: research effort, but how this company that basically invented the industry,
Speaker 1: one of the you know, to put the silicon and
Speaker 1: Silicon valley, so to how it lost its lead and
Speaker 1: ability to be one of the world pre eminent manufacturers.
Speaker 1: Is itself pretty interesting storyline here. Yeah, absolutely, And I
Speaker 1: mean I remember during the early two thousand's Intel was
Speaker 1: this massive, massive company and it had the branding and
Speaker 1: the advertising around it and just a huge deal. So
Speaker 1: it's interesting to see it um sort of turning around
Speaker 1: this year. So we're going to talk more about Intel
Speaker 1: and what happened, and I'm very excited about our guest.
Speaker 1: We're going to be speaking with Stacy Raskin. He's managing
Speaker 1: director Senior analyst U s Semiconductors at Bernstein Research, and notably,
Speaker 1: at a recent uh Intel conference call after one of
Speaker 1: their quarters, the company didn't call on him, leading him
Speaker 1: to a subtweet a company on Twitter, which is always
Speaker 1: fun and doesn't happen that often with analysts. So Stacy,
Speaker 1: thank you very much for joining us. Oh my pleasure.
Speaker 1: I'm glad to be here. And by the way, um, uh,
Speaker 1: nobody knows what that tweet was about. Okay, it was
Speaker 1: a subtweet of anything. Okay, So just on the day
Speaker 1: that you didn't get called on by until during their
Speaker 1: quarterly conference call, you tweeted cowards dot dot dot. But
Speaker 1: we'll we'll all pretend that we have no idea what
Speaker 1: that was about. Maybe it was something completely unrelated to
Speaker 1: your professional career. This is one of the mysteries of
Speaker 1: the universe. We'll leave it at that. It'll be a
Speaker 1: mystery forever. We'll just leave that. We'll just leave that tweet. Um,
Speaker 1: but it is true that you didn't get called on
Speaker 1: that part. That is true. So let's forgetting the subtweet
Speaker 1: aside or whether it's a subtweet, what were you going
Speaker 1: to ask? Like, uh, you know, if here's your chance,
Speaker 1: Stacy Raskin at Bernstein Research Europe, what would you have asked? Oh? Boy,
Speaker 1: I don't even remember what I was going to ask
Speaker 1: at this point, and I have to go back and
Speaker 1: look at my question list. Um, I'm sure it was
Speaker 1: something pointed though, Um, it typically as I have a
Speaker 1: reputation I suppose for asking those kinds of questions. And
Speaker 1: it's not really my fault. I can't help it. My
Speaker 1: my BS detection threshold is set kind of low, and
Speaker 1: I tend to forget who I'm talking to once I
Speaker 1: get going, So I can't help it. But it doesn't
Speaker 1: always engender a lot of love. Um, but that's okay.
Speaker 1: I don't have to uh, I don't have to believe
Speaker 1: this is gonna be a good conversation. Yeah, this, this
Speaker 1: should be a great conversation. I'm looking forward to it. Well, well,
Speaker 1: we'll see if that threshold gets hit or not. I
Speaker 1: feel like cell side analysts with low BS detector is
Speaker 1: fairly unusual, or at least we don't get to talk
Speaker 1: to many of them. Um, it goes with the territory.
Speaker 1: Can you set the scene for us, like, how bad
Speaker 1: are things at Intel at the moment? In your view,
Speaker 1: like Joe said, you're sort of noted critic of the
Speaker 1: company recently. What's going on there? How bad is it?
Speaker 1: I mean, it's it's problematic right now. And so you know,
Speaker 1: you started out the beginning of this call talking about
Speaker 1: some of the issues they're having with manufacturing. Um It's
Speaker 1: important to note these are not new issues. So the
Speaker 1: current issues are with seven nimeal seven animeter process, and
Speaker 1: you're right. In July they disclosed further delays there. They
Speaker 1: said the process was was twelve months delayed. They said
Speaker 1: the products, I think it versus the prior road net
Speaker 1: were six months delayed. That being said, this is not
Speaker 1: the first time they've had they've had a problem ten nnimeters,
Speaker 1: which was the prior generation manufacturing technology. And if you want,
Speaker 1: we can go into what the numbers and everything mean,
Speaker 1: but just in general, ten anners was the prior one.
Speaker 1: They had big problems with that one as well. That
Speaker 1: one was delayed for five or six years and forced
Speaker 1: them to sit on on the you know, the two
Speaker 1: generations back, which was called fourteen animeters. They were sitting
Speaker 1: on that one for many more years than they intended.
Speaker 1: But even fourteen nnimeters was delayed a little bit when
Speaker 1: they when they originally launched it, it it was it took
Speaker 1: about a year longer than they had originally anticipated to
Speaker 1: reach sort of like fully manufacturable yields and reach full volume.
Speaker 1: So these are not new problems that Intel. These have
Speaker 1: been building over probably half a decade plus and they
Speaker 1: finally hit a wall. So I mean that that's sort
Speaker 1: of the current state of affairs. So Tracy and I
Speaker 1: aren't technologists, but we see these terms or hear them
Speaker 1: ten men, ten nanimator, seven min nanimator. Why don't you
Speaker 1: take this moment to describe like what these means? I mean,
Speaker 1: I get it, okay, smaller and smaller chips and efficiency
Speaker 1: and all that, but talk to us a little bit
Speaker 1: about like what we're really talking about. Yeah, But so
Speaker 1: in theory, like it used to be, like some measure
Speaker 1: of the size of the transistor there was called the
Speaker 1: gate length that at one point um. In reality, these
Speaker 1: numbers are complete in total marketing. They don't actually mean
Speaker 1: anything in isolation um, and they're not comparable from one
Speaker 1: company to another. So, for example, an Intel tenometer part
Speaker 1: is not the same as as a t SMC ten
Speaker 1: nimet part. I'll give you an example of this, by
Speaker 1: the way, And when when t SMC went from what
Speaker 1: they purport really called twenty nimes to sixteen, they didn't
Speaker 1: shrink the transistors at all. What they did is they
Speaker 1: changed the structure of those transistors. Um. They went from
Speaker 1: what and again, I we can talk about what these
Speaker 1: terms mean. But they went from a transistor that was
Speaker 1: called a planar transistor structure to a three D or
Speaker 1: a fin fet transistor structure. But they didn't make them
Speaker 1: any smaller, They didn't squeeze them closer together, they didn't
Speaker 1: do anything. They just went from planer to fin fet
Speaker 1: and called it sixteen no shrink, know nothing. So that's
Speaker 1: so that's that's the thing that the members themselves actually
Speaker 1: stopped really having actual meaning or more than more than
Speaker 1: a decade ago. It's been marketing ever ever since. What
Speaker 1: you can think about them though, in terms of meaning,
Speaker 1: it is typically some measure of improved transistor density. So
Speaker 1: squeezing more and more transistors onto a given area of silicon,
Speaker 1: it is some measure of that. And with every further note,
Speaker 1: in every further transition in theory, you should be getting
Speaker 1: better performance out of these chips and and better power efficiency.
Speaker 1: This is really what Moore's law is. By the way,
Speaker 1: it's sort of these three legs in the stools. It's
Speaker 1: better performance, better power, and lower cost. And by the way,
Speaker 1: when people talk about Moore's law dying, which is sort
Speaker 1: of the situation we're in right now. It does not
Speaker 1: mean that it's impossible to to to shrink these things
Speaker 1: to make the transistors any smaller. What it actually means
Speaker 1: is that the cost leg of that three legged stool
Speaker 1: is going out the window. So we can still do this,
Speaker 1: like engineers are smart. If there's a if there's a
Speaker 1: business case to shrink, they'll do it. But now we
Speaker 1: have to pay for it, whereas before it we used
Speaker 1: to get it every two years for free. It was fantastic, right,
Speaker 1: But that's kind of the situation of what's going on now.
Speaker 1: So we keep comparing in this discussion Intel to uh
Speaker 1: T SMC. But my understanding is they're they're not exactly
Speaker 1: the same company, right, the business model is slightly different.
Speaker 1: Could you maybe explain how they differ? You bet? So.
Speaker 1: There are two primary um uh semiconductor broad semic connector
Speaker 1: business models in the industry. The first is called they
Speaker 1: called an i DM or integrated device man facturer, and
Speaker 1: these are companies of both design and manufacture their own
Speaker 1: ships like Intel. Right. The issue is, you know, a
Speaker 1: leading edge semiconductor manufacturing facility can cost these days, you know,
Speaker 1: ten billion dollars, Like it's very expensive. And if you're
Speaker 1: going to build a factory that costs that much, you
Speaker 1: better have a lot of revenue in order to put
Speaker 1: through in order to cover those costs, and most most
Speaker 1: semi conduct companies do not. And so decades ago this
Speaker 1: became clear and the supply chain atomized, it split apart,
Speaker 1: and he gave rise to what's known as the fabulous
Speaker 1: foundry model, where you have companies, um say, like an
Speaker 1: Nvidio or a qual Colm. These are referred to as
Speaker 1: fabulous companies in the sense that they do not have
Speaker 1: fabs fab as as a semiconductor manufacturing facility. They only
Speaker 1: design chips and then they outsource the manufacturing to a
Speaker 1: company known as a foundry. This is what t SMC does,
Speaker 1: and they're able because of this model. They can agglomerate
Speaker 1: demand together from many semiconductor companies and build up the
Speaker 1: revenue scale that is required to support them the high
Speaker 1: costs of of of manufacturing um that ordinarily all these
Speaker 1: companies would not be able to support on their own.
Speaker 1: And so that's what t SMC does and it's it's
Speaker 1: been kind of amazing, I mean in the sense that
Speaker 1: you know, for the longest time, Intel talked about being
Speaker 1: an i DM as being an advantage because you could
Speaker 1: verily tightly couple both the process and the design together
Speaker 1: and get really good products. And I guess as long
Speaker 1: as as both of those things were on the right trajectory,
Speaker 1: that was true. The problem is now because they're their
Speaker 1: their manufacturing side has followed by the way side, it's
Speaker 1: actually really impacting them. Not only can they not tightly
Speaker 1: couple those two things together anymore, but it interferes with
Speaker 1: the design because you designed for a specific manufacturing process.
Speaker 1: If the process isn't ready, you gotta throw that stuff out.
Speaker 1: And so the fabuless founding model, the founding model, it
Speaker 1: stuff actually seems to be growing. It's ascending now. Um
Speaker 1: it seems to have the advantage of especially because they
Speaker 1: are able to at least at this moment, to stay
Speaker 1: on their manufacturing road map. So we can kind of
Speaker 1: think of Intel in theory as you know, designing chips
Speaker 1: all in video and also having a fab t SMC.
Speaker 1: What you're saying is it sounds like you can't really
Speaker 1: like sort of neatly divide the two and if they're
Speaker 1: having trouble on the fab side, on the foundry side,
Speaker 1: then that also bleeds through to the design side. Yeah,
Speaker 1: because you don't design in isolation, right, you have to
Speaker 1: design for a specific set There's a set of design
Speaker 1: rules that go with a specific manufacturing process. So, for example,
Speaker 1: if I'm Intel, you know, and we'll probably get to this,
Speaker 1: but until it's talking about using outsourcing potentially in a
Speaker 1: bigger way, until cannot just take their current designs and
Speaker 1: just throw them over the wall to t SMC, they
Speaker 1: have to completely redesign them um to to correspond to
Speaker 1: t SMCS manufacturing process, and and and and and t
Speaker 1: SMCS design. So these two things are are coupled. And
Speaker 1: if you have problems with one that causes problems with
Speaker 1: the other. Sure, Wait, could could we do of into
Speaker 1: the manufacturing problems Intel a little bit more than like
Speaker 1: what exactly is happening there and what's gone wrong? Because
Speaker 1: of course, as we mentioned in the intro, you know,
Speaker 1: Intel was supposed to be the state of the art
Speaker 1: global standard for chip making for many many years, and
Speaker 1: now it seems like it's not. Yes, So so first
Speaker 1: I want to step back and and say, um, this
Speaker 1: stuff is very very difficult to do. So the fact
Speaker 1: that people are having problems is not in and of
Speaker 1: itself a shock. These are the most technologically advanced products
Speaker 1: that humanity has ever devised. And I don't know if
Speaker 1: either of you have ever been in in a in
Speaker 1: a in a semiconductor factory, but you can think about this.
Speaker 1: I mean, if if if I just take these nodes
Speaker 1: sizes as as gospel, which I know they're not, but
Speaker 1: I mean, let's just just take them. You know, at
Speaker 1: at Intel's right now is delivering ten anometer products right
Speaker 1: when when they're actually doing the manufacturing and they're imprinting
Speaker 1: these these features onto the onto the wafers. I'll try
Speaker 1: to be plaistic here, but they use use a laser
Speaker 1: light to to do this. The laser right now has
Speaker 1: a wavelength of a hundred and nine three nimes. So
Speaker 1: they're printing purportedly ten nnimeter features using a wavelength of
Speaker 1: light that's almost twenty times the size of the feature
Speaker 1: that they're trying to print. Like, I'm amazed that any
Speaker 1: of this stuff works at all. So just just to
Speaker 1: get that out of the way, like it's it's it's
Speaker 1: astonishing by the This is why one reason that I
Speaker 1: love this space, because it's it's like I'm just continually
Speaker 1: in awe of the things that that that that humanity
Speaker 1: collectively has has been able to pull together here. But
Speaker 1: in terms of specifically what's going on it Intel. So
Speaker 1: I'll step back at fourteen nimes. Like I said, that
Speaker 1: was a minor delay. Um it was. Like I said,
Speaker 1: it took them about an extra year to yield the process.
Speaker 1: Whether when I when I say yields, that's a simple
Speaker 1: concept that is, you know what, I'm making a silicon
Speaker 1: wafer full of chips. How many of those chips are good?
Speaker 1: That percentages your yield. The more the higher yield, the
Speaker 1: lower your costs. So that's a good thing, um. And
Speaker 1: it's the yield that determine how quickly you ran for
Speaker 1: process into production. Fourteen anometers took a little bit longer.
Speaker 1: We still don't know why, but it didn't hurt them
Speaker 1: because back then they had a genuine five plus year
Speaker 1: process leadership. So they burned a little bit of it.
Speaker 1: But it was fine. With ten n we kind of
Speaker 1: know qualitatively what was what was wrong, um until had
Speaker 1: was using multiple patterning on some of their layers for
Speaker 1: the first time. Again, we can talk about what that
Speaker 1: is if if we need to, but they were using
Speaker 1: a specific type of of of advanced process for the
Speaker 1: first time, and it caused problems. They were using um
Speaker 1: new materials at the time, like cobalt and other things,
Speaker 1: and they were using other techniques to get a much
Speaker 1: greater density improvement that was normal with a normal node transition.
Speaker 1: They their their transistor density transitions permillimeter squared of of
Speaker 1: silicon area typically went up by maybe two point two
Speaker 1: to two point four times. With ten anometers, it was
Speaker 1: a two point seven times improvement. So the way the
Speaker 1: company has discussed this is it was just too big
Speaker 1: of a lead and they bit off more than they
Speaker 1: could chew and it caused problems. UM, I have no
Speaker 1: idea what's going on at seven animeters. All I know
Speaker 1: is that it is it is something that's completely different
Speaker 1: from anything they hit them at ten and seven was
Speaker 1: supposed to fix those problems attend it. It was a
Speaker 1: smaller density improvement, it was only one point seven. They're
Speaker 1: using a new lithography technique that's called EUV or Extreme
Speaker 1: multra violet lithography, that was going to replace that multi
Speaker 1: multi patterning and fix those problems. And so they were
Speaker 1: taking steps in order to to to to learn lessons
Speaker 1: from the ten nnimeter debaucle and and and to repair.
Speaker 1: And that that's why the seven nimeter announcment came as
Speaker 1: such a shock, because they've been telling everybody, you know,
Speaker 1: for a year or seven animeters is on track, we've
Speaker 1: learned the lessons, it's gonna be good, and then they
Speaker 1: came out and just dropped the bomb on us. And
Speaker 1: this is why going forward it's so problematic, because their
Speaker 1: credibility on this stuff is now zero. Right, so when
Speaker 1: they're telling us where we think we've got to handle
Speaker 1: on it, we think we know what's wrong. I mean,
Speaker 1: like nobody knows what to believe anymore. So many good questions.
Speaker 1: I think we're gonna have to extend this episode to
Speaker 1: about two or three hours. But in all seriousness, we saw,
Speaker 1: you know, Tracy mentioned it when they dropped this bomb
Speaker 1: this summer. Uh, the stock took quite a reaction. I mean,
Speaker 1: it was a major plunge. I don't think it's like
Speaker 1: a really recovered very much since then. Was that because
Speaker 1: this was understood to be fundamentally different, as you describe it,
Speaker 1: than those other delays, Because there's this nobody really understand,
Speaker 1: like explain the sort of financial market reaction to this
Speaker 1: one versus the previous setbacks. They've bet, yeah, you you bet,
Speaker 1: and I need to full d A m D. I
Speaker 1: think and do this discussion a little bit. Um. So
Speaker 1: if you go look at A m D stock versus intels,
Speaker 1: their polar opposites, right, and and and part of the
Speaker 1: reason there was a A m D is now on
Speaker 1: a trajectory and and they've come a long way am D.
Speaker 1: You know, four five years ago, the controversy on that
Speaker 1: stock was are they going bankrupt or not? And the
Speaker 1: stock bottomed out, you know, in below two dollars. That's
Speaker 1: that's kind of where it was. The stock now was
Speaker 1: you know, close to eight and it's been it's been
Speaker 1: even higher. The reason is a A m D. Actually
Speaker 1: um uh, they had already gone fabulous back in the
Speaker 1: financial crisis. Um they had been using Global Foundries, which
Speaker 1: is as another foundry and Global Founderies back in the
Speaker 1: time from shot am B in the foot um Global
Speaker 1: Founders had problems with their process technology as well. And
Speaker 1: then A m D. I mean the business was in
Speaker 1: was in total free fall. I mean they're there, their
Speaker 1: revenues a back cut in half. They had four or
Speaker 1: five different rounds of restructuring was pretty awful. They had
Speaker 1: a last Hail Mary effort to get a new architecture,
Speaker 1: which they're delivering now. They're on their third generation UM
Speaker 1: and that architecture was extremely successful, and they made the
Speaker 1: shift from Global Founderies to t SMC. And so now
Speaker 1: you're in a situation where where am D actually has
Speaker 1: a competitive and in some cases even superior architecture, and
Speaker 1: they have a superior process technology. And so they've been
Speaker 1: taking share from Intel both on the client side pecs
Speaker 1: as well as in servers. Right now, the real bulls
Speaker 1: on am D. They have this vision right that A
Speaker 1: and D is gonna go And I'll make up the numbers,
Speaker 1: but I mean twenty two there were twenty three. They'll
Speaker 1: be doing two fifty or three bucks and earnings, and
Speaker 1: by five they'll be doing five or six bucks and earnings.
Speaker 1: And and this is a duopoli market. It's them an
Speaker 1: Intel primarily, so all that would be coming at Intel's expense.
Speaker 1: But am D has been kind of a dream. And
Speaker 1: so before Intel announced these seven animeter issues, it was
Speaker 1: kind of like, well, okay, maybe am you'll get to
Speaker 1: this two or three dollar number. In a few years.
Speaker 1: But by then a Intel will be going harder and
Speaker 1: seven they'll have fix the issues. At ten they gave
Speaker 1: am D an advantage. And at that point, like it's
Speaker 1: all over right, and and Intel is going to be
Speaker 1: back on on on the ascendancy now because of these
Speaker 1: issues with seven animeters, like with A and DNA, you
Speaker 1: you could believe whatever you want, like there's there's no
Speaker 1: pushback because you have no idea what Intel is gonna
Speaker 1: be doing at that point um, and it makes the
Speaker 1: idea of the the x C E six CPU market
Speaker 1: and PCs and service, which today is sort of like
Speaker 1: a nine ten or an eight twenty kind of market.
Speaker 1: You know, if you wanted to believe that it could
Speaker 1: be a true duopoly, a fifty fifth or sixty market
Speaker 1: in fears, if you want to believe that, you can
Speaker 1: and that all comes if it happens at Intel's expense,
Speaker 1: and the driving force behind it is a continued loss
Speaker 1: potentially of competitiveness on Intel's part. And with the seven
Speaker 1: animeter delay, which like I said, was was really a
Speaker 1: bomb that was dropped on people, it becomes very easy
Speaker 1: if you want to believe that sort of thing, to
Speaker 1: believe it, So this was potentially a thesis changing announcement
Speaker 1: for Intel. That's where the stock reacted like it did.
Speaker 1: So is this just I don't know? Is all of
Speaker 1: this just down to Intel doing basically a chip version
Speaker 1: of vertical integration for far too long when other companies
Speaker 1: decided to specialize in various ways. Yeah, so again, I
Speaker 1: don't know why Intel's having this, but it's kind of
Speaker 1: amazing that they are, because they looked. Intel is a
Speaker 1: hundred and thirteen thousand employees. They spend over thirteen billion
Speaker 1: dollars a year in revenue, which which is like almost
Speaker 1: double amb's revenue. And in R and D they Intel
Speaker 1: spends that much, it's almost double ADS revenue. AD's growing. Now,
Speaker 1: I don't, I don't know what's going on, like we
Speaker 1: we don't, We don't know why. And now, by the way,
Speaker 1: it's it's causing bigger problems because like Intel's face with
Speaker 1: a choice now and and we'll find a little bit
Speaker 1: more about this in January. Intel is now mate trying
Speaker 1: to make the decision. Are they going to outsource it
Speaker 1: in in a greater fashion? Right? Intel sources some don't,
Speaker 1: don't get me wrong, Like in Intel's bought companies like
Speaker 1: all Terror and Mobile I that use t smc UM
Speaker 1: And for some of Intel's internal volumes, you know, maybe
Speaker 1: not CPUs, but like chip sets and peripherals and other things,
Speaker 1: they've they've used t SMC So it's not new to Intel.
Speaker 1: But I mean Intel is now talking about if they
Speaker 1: can't fix their seven anime or problems, they may have
Speaker 1: to scrap up it entirely, and and outsources that that
Speaker 1: as well. UM And so there's a lot of unanswered
Speaker 1: questions with into right now. Like right now, I have
Speaker 1: no idea what the company looks like in three years.
Speaker 1: That's probably the biggest problem. Like if they were to
Speaker 1: come out and give us a concrete plan and give
Speaker 1: us certainty that they could execute on it, I think
Speaker 1: the stock still would have fallen, you know, as much
Speaker 1: as it, but maybe you could felt a little more
Speaker 1: comfort with buying it at the bottom. Like right now
Speaker 1: it is. It is very easily a valued trap because
Speaker 1: again we we don't know what's going to happen in
Speaker 1: three years. They're gonna make some announcement in January. We
Speaker 1: don't know what they're gonna say. And in the meantime,
Speaker 1: the competitive problems no matter what they do, we're only
Speaker 1: gonna get worse. A and D is gonna keep taking
Speaker 1: share on some trajectory. Apple made an announcement yesterday, so
Speaker 1: like a good chunk of I wouldn't be surprised if
Speaker 1: three quarters of Apple's notebook business goes away from until
Speaker 1: next year, which I'm not sure as in the numbers.
Speaker 1: I know you didn't want to talk so much about
Speaker 1: short term, but I still think numbers next year, I
Speaker 1: still think people are smoking crack next year. The numbers
Speaker 1: are too high. They need to come down. They may
Speaker 1: need to come down more. So this is dangerous. You
Speaker 1: mentioned that you don't know what until it is gonna
Speaker 1: look like in three years. So how difficult does that
Speaker 1: make your job as an analyst in trying to determine,
Speaker 1: you know, an appropriate price target or a way of
Speaker 1: valuing a company where there is this much uncertainty. Well,
Speaker 1: let me let me step back, because my job as
Speaker 1: an analyst, like my favorite thing, is controversy, right, because
Speaker 1: it gives me a reason to talk to my clients.
Speaker 1: So um, from that standpoint, this is fantastic, right, because
Speaker 1: I don't think this controversy is gonna go away at
Speaker 1: any time. In terms of sizing that I mean, I mean,
Speaker 1: look like I have to sort of like our published
Speaker 1: model right now is status quo, and like I said,
Speaker 1: we're we're decently below I think the streets too high.
Speaker 1: But one thing we can do is sort of like
Speaker 1: run out scenario analysis and like what could things look like?
Speaker 1: We We've done some of this, and it's actually kind
Speaker 1: of interesting because you know, if you sort of step
Speaker 1: back and you say, well, what would an Intel look
Speaker 1: like if they were fablite or if they were fabulous?
Speaker 1: If I had a magic genie that just snapped her
Speaker 1: fingers and they were fabulous tomorrow with the same competitive
Speaker 1: environment as we have, it doesn't necessarily look bad. Like
Speaker 1: gross margins would be lower because they would be paying
Speaker 1: a margin to to a TSOMEC to make the chips.
Speaker 1: At the same time, they wouldn't be having to invest
Speaker 1: nearly as much in their own factories, so you'd save
Speaker 1: cap as you'd probably save R and D because you
Speaker 1: wouldn't be paying for for research and development, for process
Speaker 1: technology development, and so the operating margins and free castles
Speaker 1: could be just as high as they are and if
Speaker 1: not higher, Like that's possible if you had a magic
Speaker 1: genie that made the transition instant. The problem is, I
Speaker 1: don't have a magic genie. It's gonna take years. Whatever
Speaker 1: they do in the meantime, it's gonna throw more uncertainty
Speaker 1: in the road map. And I'm not sure it's appropriate
Speaker 1: to take today's competitive environment, which is already deteriorating, and
Speaker 1: apply it to that, you know, to as an overlay
Speaker 1: to that model. And today where you have, like like
Speaker 1: I said, a nine, ten or twenty model, maybe by
Speaker 1: the time they're finished, it could very easily be a
Speaker 1: sixty forty or fifty fifty model. And so the more
Speaker 1: they talk about this, you know that it's these are
Speaker 1: these are the kinds of things that you can roll
Speaker 1: out as an analyst, and we've done that and we'll
Speaker 1: continue you to do that. Let me ask you broader question.
Speaker 1: I mean, we we started talking about, we started this
Speaker 1: conversation talking about the context of the tech trade war,
Speaker 1: some of the actions the current administration has made against
Speaker 1: Huawei and so forth. Should this be um, you know,
Speaker 1: stepping aside from your your stock up or down hat
Speaker 1: for a second or cell side analysts had per se,
Speaker 1: but if Intel a lot ends up needing to rely
Speaker 1: on Taiwan semi to make its chips. Is that the
Speaker 1: type of issue that you know could rise should rise
Speaker 1: to some level of anxiety and DC, Yes, I absolutely
Speaker 1: think it s because you think about this right right now.
Speaker 1: You know, broadly in the world, there are only a
Speaker 1: few companies that can do leading edge semi manufacturing anymore.
Speaker 1: It's it's Intel, Samsung and TSMC. That is it. Everybody
Speaker 1: else who has ever you know, been at the forefront
Speaker 1: of semi connector manufacturing as exitive the leading edge. That
Speaker 1: doesn't mean that other players don't make stuff. I mean,
Speaker 1: there's there's plenty of folks out there with fabs, but
Speaker 1: in terms of the bleeding edge stuff, it's only those
Speaker 1: three companies anymore. Only one of them is US and
Speaker 1: and the U S one is having problems. And so
Speaker 1: if you think about this, like what does that mean
Speaker 1: for Taiwan. I mean they always used to say like
Speaker 1: data is the new oil. I mean, maybe semi conductors
Speaker 1: are the new oil now, and and Taiwan like if
Speaker 1: this happens, I mean already is kind of turning into
Speaker 1: potentially the most strategically important country on the face of
Speaker 1: the earth. And it's also a hundred and fifty miles
Speaker 1: offshore from China and they kind of think they own
Speaker 1: the ground that it sits on. So yeah, I think
Speaker 1: this is potentially problematic. And and and again, like even
Speaker 1: if Intel wanted to outsource like the bulk of their
Speaker 1: leading edge to Taiwan, like, is it politically viable? Like,
Speaker 1: I don't know, you know, there's other things going on
Speaker 1: in the US now. I mean, like one of the
Speaker 1: few sort of like bipartisan initiatives that are out there
Speaker 1: right now is um around strategic semi conductor investment. Like
Speaker 1: certainly the Chinese are doing this. I mean, semis are
Speaker 1: a big part of there have been a big part
Speaker 1: of their five year plans. Um They've already been pushing
Speaker 1: towards self sufficiency. Everything that's going on in terms of
Speaker 1: the trade war and the sanctions and everything else is
Speaker 1: just going to drive China to push towards self sufficiency
Speaker 1: even more because we have them by the balls right now, right,
Speaker 1: I mean, if if, if if we wanted to completely
Speaker 1: cut chinas semiconductor ambitions off of the knees right now,
Speaker 1: we have the ability to do that by banning semi sales.
Speaker 1: But it's a particular banning SEMIICAP and and and and
Speaker 1: e d A and design software sales. We're already kind
Speaker 1: of doing that to waway. If we want to do
Speaker 1: it broader like, that's it. So they have to move
Speaker 1: towards self sufficiency. And I don't know what the political
Speaker 1: viability of of having like the last bastion of like
Speaker 1: advanced US based semi eductor manufacturing being outsourced to a
Speaker 1: foreign country. I I don't know how the how that's
Speaker 1: gonna fly, like, we'll see, but it's got to certainly
Speaker 1: be on on top of mind for any of the
Speaker 1: policymakers who are looking at this area. On that note,
Speaker 1: do you think there's a role for policy to play
Speaker 1: in I guess, helping out Intel if if you think
Speaker 1: that it's a strategically important industry for the United States,
Speaker 1: well yes and no. So so there is have always
Speaker 1: already been efforts to invest and there were there was
Speaker 1: something called the Chips for America Act, which we actually
Speaker 1: had bipartisan support UM one of the few things UM.
Speaker 1: I think that was subsumed into the National Defense Authorization ACTUM.
Speaker 1: But there is talk of of of funding for semis
Speaker 1: now in terms of Intel's problems. Like Intel's issue right
Speaker 1: now is not having enough it is not not having
Speaker 1: enough money. They've got plenty of money, So throwing money
Speaker 1: at the problem is not going to fix it, right,
Speaker 1: But you know, could you make it easier in general
Speaker 1: for them? I mean they're talking about things like um,
Speaker 1: you know, investments for manufacturing, UM, tax incentives, R and
Speaker 1: D incentives, dark as getting involved that, so all of
Speaker 1: that stuff would would be good. One issue I have
Speaker 1: with some of the things that have been throwing around
Speaker 1: it is I still think they were dropping the bucket.
Speaker 1: So we've seen a few things. There's already some funny
Speaker 1: Now TSMC is going to actually be building a tab
Speaker 1: in Arizona. It's a PR headline right now. It's it's like,
Speaker 1: I can't remember twenty thousand wafers per month. Ultimately they're
Speaker 1: gonna invest like twelve billion dollars or something over eight years.
Speaker 1: I mean that that's a rounding error, frankly. And then
Speaker 1: some of the numbers we saw in some of these initiatives,
Speaker 1: there's really been no funding that's actually been um apportioned.
Speaker 1: Yet they were talking about like whatever it was twenty
Speaker 1: eight billion or thirty billion or something that over a
Speaker 1: number of years. I personally feel like, if the US
Speaker 1: is really serious about this, we need an Apollo moment.
Speaker 1: We need like hundreds of billions of dollars. I'm not
Speaker 1: gonna if we really want to make sure that we
Speaker 1: we we have you know, the majority of manufacturing that
Speaker 1: it's rebased in the U S right now, Well, it's
Speaker 1: all moving in Asia. UM. I don't know that the
Speaker 1: political appetite is there to invest that much money. UM,
Speaker 1: but it's but I'll take whatever we can get at
Speaker 1: this point, Like it's like whatever they want to do
Speaker 1: it to start. UM. So I think, like long stories
Speaker 1: are think dollars would would obviously would help Intel a
Speaker 1: number of other players in the US just to make
Speaker 1: easy but it won't fix that the technology problems that
Speaker 1: are potentially driving the shift. Intel us to do that
Speaker 1: on their own. MM. One of the previous guests we've
Speaker 1: regularly had on the show Dan Wanang. He's a technology
Speaker 1: analyst at gav Kell, and he talks about how like
Speaker 1: technoledge comes in sort of two parts, or manufacturing knowledge
Speaker 1: is in two parts. One is just sort of like blueprints,
Speaker 1: which you can sort of like write down on a
Speaker 1: piece of paper, and then the other is just sort
Speaker 1: of like this like tacit sort of understanding knowledge like
Speaker 1: how to build a factory, which is not something you
Speaker 1: just like write down on a piece of paper. There's
Speaker 1: no like guy that someone can say, oh, this is
Speaker 1: how you build a factory and just follow it. And
Speaker 1: it's something that sort of like exists in the collective
Speaker 1: knowledge of people who have been building factories for their
Speaker 1: whole careers. So going back to the seven animator to bacle,
Speaker 1: is there something that's like identifiable where like this some
Speaker 1: sort of like knowledge or transmission of knowledge from one
Speaker 1: generation of engineers is getting degraded or lost within Intel
Speaker 1: or within US manufacturing. Is there some is there some
Speaker 1: sort of identifiable leak where these things that once used
Speaker 1: to be known and ongoing learnings and improvement is just
Speaker 1: not happening to what it used to be. Well, so
Speaker 1: I'll talk about like um, like more general and more specifics.
Speaker 1: I mean, in general, there's always a learning curve and
Speaker 1: so like like I like, I'll make it up like
Speaker 1: I've got ten animeters done and I'm going to seven, right,
Speaker 1: seven an animeters is going to incorporate all of the
Speaker 1: issues potentially that that that the prior gen the ten
Speaker 1: had plus a whole bunch of new ones. And so
Speaker 1: the fact that they still haven't really fixed ten and
Speaker 1: they and but they really haven't. They're ramping ten animeters
Speaker 1: right now. But it's it's it's it's impacting significantly impacting
Speaker 1: their margins, which tells you that the yields are not
Speaker 1: they have but they have to ramp it. They can't
Speaker 1: wait any longer because of the competitive situation where they
Speaker 1: and B right, so they've got a rampant even though
Speaker 1: the yield aren't good. But if you don't completely nail
Speaker 1: like the prior note, all of those problems are gonna
Speaker 1: still pretty much exist on the on the subsequent plus
Speaker 1: all to new problems. And so that may be part
Speaker 1: of it. And there's there's always learning curves on on
Speaker 1: on this stuff, and if if you're learning curves too shallow,
Speaker 1: it it can impact UM in terms of the employees.
Speaker 1: And you asked like other issues with like knowledge changers.
Speaker 1: So yeah, I I don't know specifically what's going on
Speaker 1: at seven. I do know that in intil had a
Speaker 1: very sizeable layoff, and I know that there were worries
Speaker 1: that they had been laying off like some of the
Speaker 1: more senior employees at the time, and there were lawsuits
Speaker 1: and you can go back and look like there was
Speaker 1: a whole bunch of stuff in the news flow around this.
Speaker 1: So I have no idea what those employees were doing.
Speaker 1: I don't know if they would have had anything to
Speaker 1: do with like the subsequent seven enemies, I don't know,
Speaker 1: but I do know that there was talk of a
Speaker 1: potential brain grain several years back on when when they
Speaker 1: had that lay up. So who knows with with seven again,
Speaker 1: my biggest concern with seven was again they never really
Speaker 1: seemed to nail ten either, um and, and that's going
Speaker 1: to to propagate and it seems like it is. So
Speaker 1: we've discussed all these problems, um and you clearly have
Speaker 1: some concerns about this company. How does management actually go
Speaker 1: about restoring confidence um in the business model? Like, what
Speaker 1: what should they be doing at this moment in time? Well,
Speaker 1: I mean they're they're trying, right. I mean, look, there's
Speaker 1: there's the magic solution, which is like I wake up
Speaker 1: tomorrow morning and they say, hey, we fixed it. It's
Speaker 1: all good. I guess that would solve things. Although I'm
Speaker 1: not holding my breath or something like that. They're doing
Speaker 1: other things. I mean, so you know they're what they're
Speaker 1: doing now is they're they're trying to focus on other
Speaker 1: areas for differentiation, and so it's there. It's not necessarily
Speaker 1: just process, you know, it's process. It's also things like packaging.
Speaker 1: They're doing what's known as a chiplet architecture. Now, where
Speaker 1: I could have a single product that say we'll go
Speaker 1: into a PC someday, that is not a single monolithic
Speaker 1: chip anymore. It's a whole bunch of little chiplets that
Speaker 1: may be made in different places, on different processes, depending
Speaker 1: on whatever is best for that particular functionality, and packaging
Speaker 1: those together in clever ways until it's got good. I
Speaker 1: P there, until they're starting to leverage that. They're also
Speaker 1: trying to leverage software and other things. And like all
Speaker 1: of these things are all important. They always were. Other
Speaker 1: players are also good at some of those other things
Speaker 1: as well. But they're they're gonna try the best they can,
Speaker 1: you know, if process is not going to be the
Speaker 1: end all and be all and everything to to try
Speaker 1: to leverage those those other areas. And now, like I said,
Speaker 1: they're gonna have to make a call like one way
Speaker 1: or the other um in terms of what to do,
Speaker 1: do you give up on decades of of leading edge manufacturing?
Speaker 1: You know, you know, prowess and and and leadership and
Speaker 1: and bite the bullet and and and and and go
Speaker 1: to TIS. I'm like, I don't know. I mean, they'll
Speaker 1: have to make that call, and one way the other
Speaker 1: will will know in a few years if it was
Speaker 1: the right call or not. Things are gonna be pretty high,
Speaker 1: high profile decisions. I also think tactically they need to
Speaker 1: reach personally. And again, if we're just talking about the
Speaker 1: stock for a moment um, I think they need to
Speaker 1: reset expectations. I think numbers are too I and and
Speaker 1: the problem I have right now I mentioned it once before.
Speaker 1: I don't know what it looks like in three years.
Speaker 1: And not only am I below the street next year,
Speaker 1: but I can't tell you with with with confidence that
Speaker 1: next year represents the bottom either. And that's the biggest problem.
Speaker 1: The stock itself is hard to buy unless you feel
Speaker 1: like expectations have been sufficiently reset so they can grow
Speaker 1: off the trough. And I don't think they're there yet,
Speaker 1: and I'm not sure so far the current management team
Speaker 1: has not shown a willingness to sort of like rip
Speaker 1: the band aid off, right, I mean they've they've they've
Speaker 1: seems like they've wanted, you know, to go in dribs
Speaker 1: and drabs, and that's usually not a good way to
Speaker 1: go for stock performance, especially when things are on the decline.
Speaker 1: So we'll see what they do. There's the issue just
Speaker 1: that you know, especially as they don't you know, they
Speaker 1: fall behind in UM, their ability to YEA develop cutting
Speaker 1: edge foundries potentially outsource more. Is the issue just that
Speaker 1: Intel will still be Intel, or Intel will still be
Speaker 1: there and be competitive, but it's just another chip company,
Speaker 1: and there's a Video and t SMC and a m
Speaker 1: D and others, and what was once the sort of
Speaker 1: category defining company is just there's just another player. Yeah,
Speaker 1: I mean, look, so I'm not worried about until going
Speaker 1: to zero, like it's a behemoth skill. I mean even today,
Speaker 1: go look at their numbers. They're doing almost five bucks
Speaker 1: and earnings this year and delivering I can't even remember
Speaker 1: the number, something like eighteen billion plus in free cash flow.
Speaker 1: Right and again, even even if it's on decline, like,
Speaker 1: those are still pretty hefty numbers, right, And they they've
Speaker 1: got a Ton, They've got a hundred and thirteen thousand
Speaker 1: employees and they spend like listen, thirteen billion plus a
Speaker 1: year in r D. It's hard to believe that they're
Speaker 1: not they're not good things embedded within that right that
Speaker 1: have value. But so you have that. But but I
Speaker 1: think you're right. I mean, if you're gonna go to
Speaker 1: a scenario where you know they're no longer differentiated on processed,
Speaker 1: where where their their destiny would at that point would
Speaker 1: now be in t SMC's hands, you know, like they're
Speaker 1: there their ability to ship would be limited by how
Speaker 1: much capacity they could get from t SM at that point,
Speaker 1: similar to how am D is today. Right, that's a problem, um,
Speaker 1: and where they're trying to differentiate and all these things
Speaker 1: where other players are good as well, Yeah, you're you're right,
Speaker 1: it becomes you know, they're they're they no longer have
Speaker 1: that secret sauce necessarily at that point they're competing you know,
Speaker 1: on a much more even footing with lots of other
Speaker 1: players who are also very very very good. And so
Speaker 1: you have that that that kind of a problem. I mean,
Speaker 1: you can go look at other tech comes like an IBM,
Speaker 1: for example, which you and I be, and but I
Speaker 1: used to work at IBM Research, like like way back
Speaker 1: in the days. I mean it's it's it's a great company.
Speaker 1: They've got fantastic I P and everything else. But I
Speaker 1: mean it's been a financial engineering sort of thing for
Speaker 1: for many years. Right, they haven't grown, you know, And
Speaker 1: and and that's kind of what is they've they've they've
Speaker 1: been pulling like increasingly financial levels and sort of manufacturing earnings.
Speaker 1: And you know that that maybe a scenario like if
Speaker 1: Intel can can kind of get their mojo back, we
Speaker 1: may see something like that. Um, it won't go to zero,
Speaker 1: but you're not gonna see a ton of multiple expansion
Speaker 1: like with with with something like that either, Right, And
Speaker 1: this is the thing with Intel right now. I mean,
Speaker 1: like the bull case on it from here is it
Speaker 1: is very cheap and maybe something will go right. It's cheap, hope,
Speaker 1: And both of those things are true. Like it is
Speaker 1: extremely cheap even on my numbers which are below it
Speaker 1: is inexpensive, and maybe something will go right. I mean
Speaker 1: that that's kind of ball, but that that is not
Speaker 1: like a hugely compelling case. You never you never sell
Speaker 1: a tech stock because it's just because it's expensive. You
Speaker 1: never buy a tech stock just because it's cheap. I
Speaker 1: think that's where we are with Intel right now. Anything else,
Speaker 1: sort of other last thoughts Stacy that we didn't hit
Speaker 1: on that you think is sort of important for understanding
Speaker 1: this story. No, I think that covers it for Intel,
Speaker 1: Like if you if you'd like to type talk broader
Speaker 1: and Semmi's I'm happy to come back any time. By
Speaker 1: the way, well, we'll have to do it again sometimes
Speaker 1: because I do feel like that it's a fascinating subject
Speaker 1: and I was pretty transfixed. So I really appreciate you
Speaker 1: joining us, and we'll have you bet you bet my
Speaker 1: pleasure anytime. Yeah, thanks so much. Hopefully hopefully you get
Speaker 1: to go on the next Intel call. Huh. They kind
Speaker 1: of have to let you know. Oh, I figure, like,
Speaker 1: look either either I'm gonna be first in the queue
Speaker 1: where I'm never getting on again, probably after that article.
Speaker 1: But I had no comment to the reporter, like I
Speaker 1: didn't comment on that, and I'm nothing in there was
Speaker 1: for me. Well, thank you for commenting to us. Yeah, yeah,
Speaker 1: I know You've got any time, Tracy. We got to
Speaker 1: do more of these sort of like industry deep dives
Speaker 1: because honestly like seven n animators, ten nimators, all these issues,
Speaker 1: Like I feel like, especially when you have someone like
Speaker 1: Stacy who can explain these things, um, very clearly, I could.
Speaker 1: I could really get hooked up this stuff. Yeah, Stacy
Speaker 1: really stands out. I think, Um, he sort of makes
Speaker 1: self side analysis sound fun, doesn't he. Like you can
Speaker 1: sense the enthusiasm and what he does. Yeah. Absolutely, And
Speaker 1: I think that, like you know, often, um, maybe what
Speaker 1: sort of gets lost uh in cell side is this
Speaker 1: sort of like focus on numbers and margins and all
Speaker 1: that stuff. And I think that he does a really
Speaker 1: good job of connecting the sort of like the hard
Speaker 1: tech questions with the margins. So thinking about like sort
Speaker 1: of like Okay, they're ramping up ten nanometers even though
Speaker 1: the processes aren't great, so the yields are going to
Speaker 1: be lower, so the margins are going to be lower.
Speaker 1: The connecting the dots between the sort of technological debt
Speaker 1: that they have, the technological difficulties that they have with
Speaker 1: what actually falls through to the bottom line. He does
Speaker 1: that really well. Yeah, I agree, Um, and I really
Speaker 1: I mean, having spoken to him, I now feel like
Speaker 1: I need to listen to the next Intel earnings fault
Speaker 1: just to see if they let him on or not. Yeah, No,
Speaker 1: I'm interested that too. Also like his point, Um, you know,
Speaker 1: Taiwan is the most strategically important place in the world
Speaker 1: right now if like that's where all of them you know,
Speaker 1: that's where basically all of the cutting edge semiconductor manufacturing
Speaker 1: is happening, or a huge bulk of it. And it
Speaker 1: just feels like that story is like, we gotta talk
Speaker 1: more about it. I mean that's huge. Yeah, well not
Speaker 1: only the technological angle, but also the geopolitical angle as well.
Speaker 1: That's sort of been heating up recently too. But yeah,
Speaker 1: I agree with that. That's a good way of putting it. Um, Okay,
Speaker 1: shall we leave it there, Let's save it there. This
Speaker 1: has been another episode of the All Thoughts podcast. I'm
Speaker 1: Tracey Alloway. You can follow me on Twitter at Tracy
Speaker 1: Alloway and I'm Joe wisn't Thal. You can follow me
Speaker 1: on Twitter at the Stalwart. Follow our guests on Twitter.
Speaker 1: Stacy Raskin he's at s Raskin. You can see him
Speaker 1: sub tweet companies or not. No one really knows exactly
Speaker 1: what he's saying, but maybe he'll do it again. Um
Speaker 1: so definitely follow him there. Follow our producer Laura Carlson.
Speaker 1: She's at Laura M. Carlson. Follow the Bloomberg head of
Speaker 1: podcast brincesca Levi at Prince just Get Today, and check
Speaker 1: out all of our podcasts at Bloomberg under the handle
Speaker 1: at podcasts. Thanks for listening