Chartbook 306 Nodes, rebar and private equity- How Intel, the weak link in the chip strategy of Bidenomics, is resorting to financial engineering to raise billions for fabs.
Chartbook 306 Nodes, rebar and private equity- How Intel, the weak link in the chip strategy of Bidenomics, is resorting to financial engineering to raise billions for fabs.
Amidst the market focus on AI, Nvidia and the fab 7, and the political cycle which is directing attention towards VP-picks and rallies, I worry that a big story of last week may get swept under the rug: the catastrophic news out of Intel.
You're right about Intel, but the Chips Act also funded projects in the US by other well run Chip manufacturers:
The companies that benefited from the CHIPS Act
Company Amount Factory locations
Intel $8.5 billion Arizona, New Mexico, Oregon, Ohio
TSMC $6.6 billion Arizona
Samsung $6.4 billion Texas
Micron $6.14 billion New York
Global Foundries $1.5 billion New York, Vermont
Microchip Technology $162 million Colorado, Oregon
Polar Semiconductor $120 million Minnesota
BAE Systems $35 million New Ham
So your general attack on Bidenomics is a little overblown. The Chips Act has helped create more high tech h Chip manufacturing in the US which even if by foreign companies is still a strategic and economic benefit to Americans.
I just read this article in NY Times about the difficulties TSMC is having. Beyond the typical NY Times misleading headline of doom, the article is basically saying TSMC is having some difficulties in recruiting sufficient employees skilled in high tech manufacturing in the Phoenix area. The glaringly obvious reason is that we abandoned high tech chip manufacturing in the US over the past few decades so obviously it's going to take sone time to rebuild a workforce with the skills to meet this new demand. So without the CHIPs Act we wouldn't even be having this "problem" but it really shows that we need more CHIPs Act legislation to rebuild our high skilled manufacturing base and workforce.
So we should do nothing? That makes absolutely no sense at all. If you study how Silicon Valley manufacturing emerged in the mid 20thc you seriously that it was heavy government funding primarily through the military that allowed small start ups to develop revolutionary technology and created a manufacturing hub of high skilled workers. It is not impossible for us to do this again. We need more government funding for high tech development in our country because the private sector on its own won't do it.
Too late. China graduates as many engineers in a day than the US graduates in a year.
The rot isn’t just in high tech jobs, it’s also on the bottom. Tradespeople, the people building the buildings and running machines that doesn’t require an engineering degree.
America has outsourced manufacturing for decades, and rather than educate engineers, they’re imported through Visa waiver programs. Rather than educate tradespeople, illegal immigrants are hired.
In any case it’s too late. The manufacturing base is mostly gone and with it, decades of institutional knowledge. There are some things you can’t buy your way out of, no many how many billions of dollars of taxpayer money you throw at it.
(Ever wonder WHY no smartphones are produced in America? Wages are the smallest part of it.)
Imagine the culture shock when a company that has meritocracy and working hard ingrained into their corporate culture, suddenly runs into American officialdom and politburo mandates.
Meanwhile Samsung is investing over 200 billion dollars in Asian fabs
Apparently preferring to invest their own money, rather than get handouts from Biden and told how many men in dresses, women, brown people and ex convicts they need to hire.
I know squat about economics but I do appreciate your reports and make an effort to better understand how economies work, albeit at a below layperson's comprehension. I read this twice, and lacking further understanding, I too caught the whiff of criticizing bidenomics, the policies of which seem to be to be nothing but well intentioned. Have any Republicans presidents made such efforts to ramp up manufacturing of anything except fossil fuels in comparison to the intentional efforts as recent Democrats have? I would love a larger comparison/analysis. Thank you.
“Well intentioned” doesn’t mean squat. Bidenomics is burning taxpayer dollars to support giant corporations who’d be unprofitable without the public teet.
Intel is also facing problems with some of their new CPUs which is not good news for their business future. Oh for the good old days when Andy Grove ran Intel. He had that great quote that only the paranoid survive.
Just to expound on Intels “problems”. They knew they had a problem for TWO YEARS with their chips, and didn’t say a word. When Intel chips started failing and people started investigating, Intel at first tried to blame their partners, then released a statement about “There was a problem in manufacturing that they discovered in 2023, but no worries, it’s TOTALLY cool.”
They’ve never expounded on WHEN that manufacturing problem began, or what serial numbers of chips are affected.
On top of all that, they’ve only extended the warranty on a minority of chips, and fight customers who want a refund tooth and nail.
All of this indicates a massive institutional failure.
If you’re buying an Intel CPU, even one of their newer models, you’re basically asking for it.
Maybe I missed it in the article, but what about the billions upon billions Intel burned up, wasted, threw away in an orgy of profligacy in the form of stock buybacks over the past 20 years?
It seems that a lot of people are missing the forest for the trees.
The reason WHY TSMC is so profitable, isn’t their newer nodes. The vast majority of their profit comes from older nodes, that have already been paid for, and are therefore basically printing money. (Like their current 3&5 nm nodes will in a decade.)
THAT is why TSMC is successful.
(Older, larger nodes are the vast majority of chips being produced. In every phone with one leading node chip, there’s a dozen chips made on older, larger nodes.)
Intel doesn’t have anything like that. Their older nodes were designed to make Intel chips. Not created for contract manufacturing.
Well at least he is quoting the Old Testament. Seriously, is he attempting to follow the old stale General Electric playbook? I don't think you are attacking Bidenomics. I think you are gently highlighting a danger many of us have silently (I am of the Silent Generation) and nervously wondered about --- thank you!
The thing with getting financed by powerful predatory investors, is they give the borrower only enough to get halfway where they're trying to go to really make their business case. When they return for the second half, in a few years, the borrower will be committed with no way out, and at the mercy of the current round of creditors - who will then take over control.
There was a recent very critical research report written critiquing Intel's CEO and his strategy etc but I cannot remember where I saw it. Might you know off it Adam? And great article. 👍
You're right about Intel, but the Chips Act also funded projects in the US by other well run Chip manufacturers:
The companies that benefited from the CHIPS Act
Company Amount Factory locations
Intel $8.5 billion Arizona, New Mexico, Oregon, Ohio
TSMC $6.6 billion Arizona
Samsung $6.4 billion Texas
Micron $6.14 billion New York
Global Foundries $1.5 billion New York, Vermont
Microchip Technology $162 million Colorado, Oregon
Polar Semiconductor $120 million Minnesota
BAE Systems $35 million New Ham
So your general attack on Bidenomics is a little overblown. The Chips Act has helped create more high tech h Chip manufacturing in the US which even if by foreign companies is still a strategic and economic benefit to Americans.
Both TSMCs and Samsungs investments have so far been a failure, largely in part to American bureaucracy and environmental/DEI requirements.
I just read this article in NY Times about the difficulties TSMC is having. Beyond the typical NY Times misleading headline of doom, the article is basically saying TSMC is having some difficulties in recruiting sufficient employees skilled in high tech manufacturing in the Phoenix area. The glaringly obvious reason is that we abandoned high tech chip manufacturing in the US over the past few decades so obviously it's going to take sone time to rebuild a workforce with the skills to meet this new demand. So without the CHIPs Act we wouldn't even be having this "problem" but it really shows that we need more CHIPs Act legislation to rebuild our high skilled manufacturing base and workforce.
So we should do nothing? That makes absolutely no sense at all. If you study how Silicon Valley manufacturing emerged in the mid 20thc you seriously that it was heavy government funding primarily through the military that allowed small start ups to develop revolutionary technology and created a manufacturing hub of high skilled workers. It is not impossible for us to do this again. We need more government funding for high tech development in our country because the private sector on its own won't do it.
Too late. China graduates as many engineers in a day than the US graduates in a year.
The rot isn’t just in high tech jobs, it’s also on the bottom. Tradespeople, the people building the buildings and running machines that doesn’t require an engineering degree.
America has outsourced manufacturing for decades, and rather than educate engineers, they’re imported through Visa waiver programs. Rather than educate tradespeople, illegal immigrants are hired.
In any case it’s too late. The manufacturing base is mostly gone and with it, decades of institutional knowledge. There are some things you can’t buy your way out of, no many how many billions of dollars of taxpayer money you throw at it.
(Ever wonder WHY no smartphones are produced in America? Wages are the smallest part of it.)
great point
https://www.nytimes.com/2024/08/08/business/tsmc-phoenix-arizona-semiconductor.html
Do you have any articles that support your saying that TSMC and Samsung's investments in the US via the CHIP Act have been failures?
https://www.theguardian.com/business/2023/aug/28/phoenix-microchip-plant-biden-union-tsmc
Imagine the culture shock when a company that has meritocracy and working hard ingrained into their corporate culture, suddenly runs into American officialdom and politburo mandates.
Meanwhile Samsung is investing over 200 billion dollars in Asian fabs
https://www.sammobile.com/news/samsung-invest-usd-230-billion-make-world-biggest-chip-factory/
Apparently preferring to invest their own money, rather than get handouts from Biden and told how many men in dresses, women, brown people and ex convicts they need to hire.
incredibly silly and melodramatic. the culture wars have melted your brain
I know squat about economics but I do appreciate your reports and make an effort to better understand how economies work, albeit at a below layperson's comprehension. I read this twice, and lacking further understanding, I too caught the whiff of criticizing bidenomics, the policies of which seem to be to be nothing but well intentioned. Have any Republicans presidents made such efforts to ramp up manufacturing of anything except fossil fuels in comparison to the intentional efforts as recent Democrats have? I would love a larger comparison/analysis. Thank you.
“Well intentioned” doesn’t mean squat. Bidenomics is burning taxpayer dollars to support giant corporations who’d be unprofitable without the public teet.
You could probably do with an economic primer (viz. Mazzucato) -- newsflash, ALL successful businesses rely upon "the public teat."
Intel is also facing problems with some of their new CPUs which is not good news for their business future. Oh for the good old days when Andy Grove ran Intel. He had that great quote that only the paranoid survive.
https://www.tomshardware.com/pc-components/cpus/intel-cpu-instability-crashing-bug-includes-65w-and-higher-skus-intel-says-damage-is-irreversible-no-planned-recall
Just to expound on Intels “problems”. They knew they had a problem for TWO YEARS with their chips, and didn’t say a word. When Intel chips started failing and people started investigating, Intel at first tried to blame their partners, then released a statement about “There was a problem in manufacturing that they discovered in 2023, but no worries, it’s TOTALLY cool.”
They’ve never expounded on WHEN that manufacturing problem began, or what serial numbers of chips are affected.
On top of all that, they’ve only extended the warranty on a minority of chips, and fight customers who want a refund tooth and nail.
All of this indicates a massive institutional failure.
If you’re buying an Intel CPU, even one of their newer models, you’re basically asking for it.
Maybe I missed it in the article, but what about the billions upon billions Intel burned up, wasted, threw away in an orgy of profligacy in the form of stock buybacks over the past 20 years?
It seems that a lot of people are missing the forest for the trees.
The reason WHY TSMC is so profitable, isn’t their newer nodes. The vast majority of their profit comes from older nodes, that have already been paid for, and are therefore basically printing money. (Like their current 3&5 nm nodes will in a decade.)
THAT is why TSMC is successful.
(Older, larger nodes are the vast majority of chips being produced. In every phone with one leading node chip, there’s a dozen chips made on older, larger nodes.)
Intel doesn’t have anything like that. Their older nodes were designed to make Intel chips. Not created for contract manufacturing.
That is why, in the long run, Intel is toast.
Well at least he is quoting the Old Testament. Seriously, is he attempting to follow the old stale General Electric playbook? I don't think you are attacking Bidenomics. I think you are gently highlighting a danger many of us have silently (I am of the Silent Generation) and nervously wondered about --- thank you!
Is prayer a strategy?
The thing with getting financed by powerful predatory investors, is they give the borrower only enough to get halfway where they're trying to go to really make their business case. When they return for the second half, in a few years, the borrower will be committed with no way out, and at the mercy of the current round of creditors - who will then take over control.
There was a recent very critical research report written critiquing Intel's CEO and his strategy etc but I cannot remember where I saw it. Might you know off it Adam? And great article. 👍