Intel has officially entered the grin and bear it phase of its recovery

On Monday, Intel's share price surged on word it was spinning out its foundry biz as an independent subsidiary and signing AWS and the DoD as customers. But while Wall Street celebrated, Chipzilla's road to recovery is far from over and everyone involved, whether they are shareholders, employees, or partners, are going to have …

[nautica]

This one sentence could have been the article's headline:

From the end of the article:

"...And even if Intel did try to sell off Foundry, who would possibly be crazy enough to buy a company that’s losing billions each quarter?..."

[DS999]

Re: This one sentence could have been the article's headline:

Its losing money now because they have barely any foundry customers. They have always targeted their 18A node as the start of real foundry operations, and it isn't online yet. But it costs billions to build and equip the new fabs that are required to provide the necessary capacity to begin taking on customers.

You'd buy a company that is losing billions if you believed it would get those customers and be making billions in a few years. I mean, Tesla was losing money for years and investors were still driving up its stock price. It didn't finally achieve profitability until after they had first sold a million cars in a year. Not sure if it has yet to have made enough money to fully "pay back" all the losses it had in its early years. It had a market cap of hundreds of billions BEFORE it logged its first profitable year.

[Like a badger]

Re: This one sentence could have been the article's headline:

"Not sure if it has yet to have made enough money to fully "pay back" all the losses it had in its early years"

Tesla certainly has.

https://www.macrotrends.net/stocks/charts/TSLA/tesla/retained-earnings-accumulated-deficit

However, recouping your early losses is one thing, it doesn't mean Tesla really has a viable business model for the long term. History often shows that being first mover is something of a curse, with the fast followers really taking the spoils of change. Looking at how Tesla haven't sorted out service and parts after selling cars for around 14 years, how their model line up looks both stale and far too alike between models, persistent quality problems, idiotic distractions like the Cybertruck, toxic CEO and culture, I can't see how they'll survive against those companies that really understand the motor industry, like Toyota, VW, Merc, Ford etc.

[rcxb]

Re: This one sentence could have been the article's headline:

I can't see how they'll survive against those companies that really understand the motor industry, like Toyota, VW, Merc, Ford etc.

This seems to be wishful thinking. Tesla has the majority of the market, the most loyal customers, and keeps driving EV prices lower.

The listed legacy automakers are struggling terribly with their EV transitions, delaying scale-up and even lobbying for pushing back regulatory deadlines. VW's recent $5bln investment in Rivian is quite telling... With the success of Tesla and Chinese EV makers, it's looking like those established automakers might not even have a future, just an extended decline as they delay their EV transitions to maximize present-day profits.

[DS999]

Re: This one sentence could have been the article's headline:

Tesla no longer has the majority of the market. Even beyond Musk's shenanigans which have totally turned off those on the left who are the most likely buyers of EVs the models are seen as dated now, and they've never figured out "build quality" - it has actually gotten worse as the repeated price cuts they've been forced to make due to competition/lack of sales growth have caused them to try to cut costs to maintain profitability.

[Charlie Clark]

Merger with GlobalFoundries and then sell it to Lockheed or General Dynamics

This would be typical of how US national security deals with industrial policy.

[bofh1961]

Deeply intertwined with American national security policy...

Basically, how much is Uncle Sam and the American taxpayer prepared to subsidise the foundry operation and at what point will they consider it just throwing good money after bad? Encouraging TSMC and Samsung to build leading edge fabs in the US may be a better long-term investment.

[Tron]

Hmmm.

It is of no benefit to the US for the EU to have its own FABs. Better for them to be dependent upon the US.

If governments are going to go the whole nationalist hog, copying the Chinese, there is no reason why Intel shouldn't make them pay for it, entirely. They have them over a barrel. If the EU want their own boutique FABs, Intel would build them, but the EU would have to foot the entire bill, up front, and cover all risks.

Most industrial processors do not need the latest FAB tech, as they are much simpler devices. You can do most of the day-to-day desktop computing you want to with 1990s era processors (or Pi chips) and a stripped back Linux release, if you remove the assorted tech lock-ins implemented to sell newer kit. If the EU wanted domestic resilience, they wouldn't be using a US OS like Windows or the MacOS anyway. But it's worth noting that mutual dependencies in trade (including US/Taiwan/China) prevent major wars. Removing them increases the chance of war.

I think it likely that, in the future, there will be much less tech development and much less access to tech, as governments regard all that 'empowerment' as a threat to their control. So, fewer chips required and less money in it. Perhaps time for GAFA to start investing its cash piles in non-tech areas, or they may go the way of Commodore, Atari and Sinclair.

[heyrick]

Re: Hmmm.

"but the EU would have to foot the entire bill, up front, and cover all risks"

Fine, but it's our fab, not yours. We'll bake your silicon for you, but you need to pay us for doing so.

"Better for them to be dependent upon the US."

For the US, yes. For us, time to start to look at depending on ourselves. I think the Russian incursion into Ukraine and what that did to gas prices (and by some weird bullshit excuse, electricity prices) was a bit of a wake-up to some that having important things entirely reliant upon the whims of external forces "simply because it's the cheap option" is not great planning.

"They have them over a barrel."

You forget that Intel is not the only game in town and that the x86 world has a lot less dominance these days. The best bet is to be friendly with us and keep that Intel silicon coming at a price we're willing to pay (which often means swapping the dollar symbol for a pound or euro one).

"If the EU wanted domestic resilience, they wouldn't be using a US OS like Windows or the MacOS anyway."

It's where the software currently is, and anyway aren't you guys supposed to be our allies? Because this message is sounding like something inspired by Trump.

"as governments regard all that 'empowerment' as a threat to their control."

Double edged sword. A fair bit of that tech keeps the proles placated. Give them their footy on Sky, mail order beer, and home delivered fast food and they'll not have time to think much about doing things that might upset the government.

However tech can, and has, been used to stir up trouble. The recent riots being an example. So I think the development and access to tech will continue, but certain specific things will be targeted with increasing ferocity. Expect more stories here regarding "encryption BAD nothing to fear think of the children".

[O'Reg Inalsin]

Re: Hmmm.

Germany can perhaps get TSMC to open a plant there? Japan already has at least one TSMC already open in the past year, and one or more in line.

The US cannot seem to do that - perhaps partially because of Intel's jealousy, but also certainly because of US political economic incompetence. A new plant is announced, there are photo ops and credit taking, a promise that some of the subsidies will be used for childcare (not for all companies over all society, just the tiny fraction which would be getting chip subsidies), and then everything is forgotten and nothing happens.

Tron said "They have them over a barrel" - don't be offended, just leapfrog the US. The US doesn't currently even have said barrel. I am a true blue American but I know that the EU succeeding with foundries would be a kick in the ass the US needs.

[Yet Another Anonymous coward]

Re: Hmmm.

>Tron said "They have them over a barrel" - don't be offended, just leapfrog the US. The US doesn't currently even have said barrel.

I'm sure Kodak and the Polaroid-Land company will soon overtake ASML when it comes to making domestic EUV optics

[Charlie Clark]

Re: Hmmm.

TSMC is already building a fab in Dresden, but it's mainly for older components as used in industry. The costs are enormous and there's a big question mark over whether sufficient qualified employees can be found and kept.

[Anonymous Custard]

Re: Hmmm.

ESMC (the TSMC plant in Dresden) broke ground a few weeks ago.

It's mostly TSMC, but there are partner inputs there from NXP, Bosch and especially Infineon. Hence the E (European) rather than T (Taiwan) in the name.

ESMC is literally next door to Bosch, and just down the road from Infineon (and GlobalFoundries). Plus both of them are also investing in their own Dresden fabs.

Indeed Intel were the somewhat outlier with their foundry fab in Magdeburg (an hour or so away from Dresden, about half way up towards Berlin), but that is now looking on even more dodgy ground than when the newts were actually found on the ground and got somewhat in the way of the initial investigative work.

Oh and there is already a TSMC fab in America as well. It's just outside Phoenix, again just down the road from the Intel one there in Chandler.

[Charlie Clark]

Re: Hmmm.

I know but didn't see the need for the details. But your geography is wrong: Dresden is pretty much due south of Berlin; Magdeburg is quite a bit more than an hour to the northwest. Water supplies for any factories in the Elbe valley and north into the Brandenburg/Mecklenburg plain (raised sea bed) makes the future viability of many of these factories, including Tesla, look dubious.

[rcxb]

Re: Hmmm.

time to start to look at depending on ourselves. I think the Russian incursion into Ukraine and what that did to gas prices (and by some weird bullshit excuse, electricity prices) was a bit of a wake-up to some that having important things entirely reliant upon the whims of external forces "simply because it's the cheap option" is not great planning.

You've learned entirely the wrong lesson...

Dependency on Russia was always an obviously bad idea. The US was lobbying Europe to install natural gas terminals for decades, so there could be multiple sources of energy supplies, even if not quite as cheap. Instead, leaders (like Merkle) preferred to gamble that they'd become self-sufficient with green energy before there was any interruption to flows from Russia. They lost that bet.

High-tech fabs need scale, and the EU doesn't have the population to make it work with just their own domestic market. Trying to compete against fabs in Taiwan, Korea, and now the US simultaneously is guaranteed to be a losing battle. While an EU fab would be domestic, is would still a single-source and single point-of-failure, particularly vulnerable to failing to keep-up with newer processes (like Intel has).

A better strategy would be for the EU to partner with the US on fabs. Let the US build new fabs domestically this time around, with the EU supporting that development and contracted to buy a certain number of chips from them... with the agreement requiring that the next subsized fab will be somewhere in the EU. Alternating back-and-forth would mean each side only has to provide half as much subsidy, both will have a second-source of chips outside of Asia, and each is only a single node-shrink behind in the event of any kind of disruption of Atlantic trade or political relations.

[Charlie Clark]

Re: Hmmm.

After the oil crisis of the 1970s, the US was not really interested in exporting oil and gas to anyone and banned it. It only got interested in Europe as a potential market when shale gas and oil began to be developed. And this is why it was pushing back on the the Nordstream pipelines. It was the Baltics and Poland who were really worried about the risk of dependency.

If only Merkel (and others) had pursued a sensible renewables policy then the shock after the Ukraine wouldn't have been half so great. Merkel got back into nuclear and then back out of it and considerable expense to taxpayers. It agreed to phase out coal, whilst hamstringing wind energy and penalising the areas, like Northern Germany that built it out anyway. It was a policy designed by industry for industry and aimed at largely maintaining the status quo.

I agree that Europe is probably not going to build large fabs, but it can still improve its position in supplying the equipment to the fabs and chip design.

[rcxb]

Re: Hmmm.

1970s, the US was not really interested in exporting oil and gas to anyone

Building terminals would NOT have resulted in dependency on the US... Several middle-eastern countries ship gas. And Russian gas would still be there. But with competition, instead of a single source.

a sensible renewables policy then the shock after the Ukraine wouldn't have been half so great

It's easy to say in hindsight now that we have a hard date, but what if Russia had cut-off gas supplies years earlier?

[O'Reg Inalsin]

Re: Hmmm.

OK up until "I think it likely that, in the future, there will be much less tech development and much less access to tech, as governments regard all that 'empowerment' as a threat to their control." which I think doesn't hit the mark. Sure there is a tendency to deny consumers access to some tech, but those in charge (not necessarily government) generally want more tech to exercise their leverage.

A separate issue is that an unhealthy proportion of the US economy is focused around short term gains enabled through financial leverage. In that environment, foundry business, requiring large capital investment and and ROI times of 5 years or more simply cannot compete. The problem for the US is that "short term gains enabled through financial leverage" is a zero sum game, similar to musical chairs. Sure, it draws a lot of foreign money, but that money is stuck in the short term financial game pot, and the source of the payouts, averaged over time, is US national debt.

Consider this article from Yahoo Finance - "Rich Americans like Mark Zuckerberg, Elon Musk, Jay-Z get mortgages for homes they can easily afford — here’s why". Even though the interest on the mortgage is 6.2% in 2024, that is still less than can be reliably gained in short term investment market, if you have a big enough wad of cash.

The counter argument is those > 6.2% returns actually represents some incredible profitability powered by the US business strength and future prospects. But with all the layoffs and no room for competition with the biggest companies, the future prospects looks uncertain.

Foundry in the US will grow organically if/when the bubble bursts, but only if the the response is not to, once again, hard over wads of cash to prop up the stock market rebirthing the same problem.

[Pascal Monett]

As usual, long-term thinking is not in the MBA mindset

Yes, building a foundry is costly. Yes, it will take years, maybe a decade before said foundry actually makes a return on investment.

Guess what ?

Some things take time to be realized and, if you can't wait, you won't reap the benefits.

Too bad for you.

[Yet Another Anonymous coward]

Re: As usual, long-term thinking is not in the MBA mindset

That's what government ownership of the means of production / subsidies / infrastructure investment back-handers to swing states are for

[Gmanton]

Re: As usual, long-term thinking is not in the MBA mindset

Second that. This is a long haul play. And a costly one at that. Spinning off the foundry is a good move, builds a natural firewall between their chips and customer's.

Frankly, it's too early to know how this will shake out. But I'm rooting for Gelsinger - an engineer, who's all in. And audacious as hell.

[Justthefacts]

Re: As usual, long-term thinking is not in the MBA mindset

Investment….I do not think that word means what you think it means.

Investment is not simply giving money to plausible projects, and assuming the magic roundabout gives back double in a decade. If your judgement is poor, *or even average* it’s just shovelling cash into a hole in the ground, and you never get anything back at all, let alone break even. In the silicon industry *most* companies just lose vast sums of money for five or ten years, then go broke. Only a couple make decent profits, those with an edge. What is your edge? You do not have one.

In poker, if you look around the table and can’t spot the sucker, you are the sucker. Same in business.

[An_Old_Dog]

"Secure Enclave"

When I read/hear "Secure Enclave", my first thought is of the "secure enclaves" supposedly established via Intel's Software Guard Extensions ("SGX"), but were not, because that system is flawed.

And Uncle Sam has named a multi-billion-dollar program after it. LOL.

[O'Reg Inalsin]

Re: "Secure Enclave"

Surely it is actually the same old technology which will get a few new tweaks.

[user555]

Buying every High-NA machine

without any of them earning an income probably hasn't helped the finances.

[Ace2]

“This arguably makes the company the single most important chipmaker in the country”

Arguably? What would be the counter-argument?

[nautica]

Warren Buffet categorically refuses to invest in the semiconductor marketplace.

Any questions?

[Anonymous Coward]

Brain drain?

I do not work for Intel, nor have I ever. However, I do reside in a tech region with a significant Intel presence...and tech is a surprisingly small industry.

I have had several friends get "the offer" from Intel. All are past their fourth sabbatical (Intel gives employees a paid break every 7 years), so you can ascertain how far along they are in their careers. Intel is treating them fair on the way out the door, and "the package" allows most of them move in to early retirement. Good, I am happy for them.

While I completely understand the math of getting rid of people who are at their peak career earning, I do wonder if it will cause a long term loss of talent that may be difficult to replace.

[Anonymous Coward]

Re: Brain drain?

I think that last year they tried to avoid losing top talent, by asking staff to take a temporary 10% pay cut. Letting senior technical people go is often very damaging because of the loss of institutional knowledge, so the company must be expecting to have cashflow struggles for a long stretch of time.