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WASHINGTON (Reuters) - Republican Senator Rick Scott on Wednesday asked Intel CEO Pat Gelsinger for more details on the company's plans to cut more than 15,000 jobs despite being set to receive nearly $20 billion in U.S. grants and loans to boost chip production.
In a letter seen by Reuters, Scott questioned if the Commerce Department's planned awards had failed "to include real metrics that would protect taxpayer dollars from going to companies that could not meet high standards for U.S. manufacturing and job creation."
Republican Senator Rick Scott on Wednesday asked Intel CEO Pat Gelsinger for more details on the company's plans to cut more than 15,000 jobs despite being set to receive nearly $20 billion in U.S. grants and loans to boost chip production. In a letter seen by Reuters, Scott questioned if the...
I don’t think it’s too much trouble. Intel’s finances are in the dumps, they have more employees than Nvidia, TSMC, and AMD combined, and they’re very clearly struggling with a market cap bellow book value. Senators can pen all the letters they want but Intel’s back is against the wall. They could cancel the grants, and just entirely kill the only US fab chasing leading edge, or they can remember what Morris Chang said: the Chips act is far too little to accomplish it’s goals.
I don’t think it’s too much trouble. Intel’s finances are in the dumps, they have more employees than Nvidia, TSMC, and AMD combined, and they’re very clearly struggling with a market cap bellow book value. Senators can pen all the letters they want but Intel’s back is against the wall. They could cancel the grants, and just entirely kill the only US fab chasing leading edge, or they can remember what Morris Chang said: the Chips act is far too little to accomplish it’s goals.
I don’t think it’s too much trouble. Intel’s finances are in the dumps, they have more employees than Nvidia, TSMC, and AMD combined, and they’re very clearly struggling with a market cap bellow book value. Senators can pen all the letters they want but Intel’s back is against the wall. They could cancel the grants, and just entirely kill the only US fab chasing leading edge, or they can remember what Morris Chang said: the Chips act is far too little to accomplish it’s goals.
Remember all the Chips Act grants awarded so far are not binding and not final decisions. Commerce Department and DoD might know very well in advance about Intel looming difficulties when they review Intel's application. Each Chips Act applicant is required to submit accurate yet sensitive financial, market, and operation information through the application and review process.
Politically US government and Congress must do something to show they are serious on spending taxpayers' money. Especially this Chips Act grants are not intended to be a bailout money.
One of the possibility is to put a hold or reassign the $3.5 billion from the "secure enclave" fab promoted by Intel to other companies. Intel wants to build that fab in Ohio specifically for DoD. But DoD didn't want it and declined to participate it. The $3.5 billion grants for building Intel's "secure enclave" fab was taken from Applied Materials' application.
That's really the crux of the issue in my mind. This isn't about bailing out a company, its about leveling the playing field for an industry. When other countries put their financial might behind an industry if you don't do something to level the playing field then you should plan on losing that industry. We allowed Japan to undercut the cost structure of the US steel industry and it died. Japan provided support for their steel industry by importing machinery and equipment ,implemented tax exemption measures, exempted Imported machinery from import duties along with clauses that allowed for special depreciation in corporate tax. In addition, reductions were made to the municipal property taxes for participating enterprises.
Semiconductors have/will be no different if we follow the same course. Since we have already allowed the industry to erode to the point where Intel is the only (close to) leading edge manufacturer of logic we either invest in Intel, or throw in the towel and accept the consequences.
That's really the crux of the issue in my mind. This isn't about bailing out a company, its about leveling the playing field for an industry. When other countries put their financial might behind an industry if you don't do something to level the playing field then you should plan on losing that industry. We allowed Japan to undercut the cost structure of the US steel industry and it died. Japan provided support for their steel industry by importing machinery and equipment ,implemented tax exemption measures, exempted Imported machinery from import duties along with clauses that allowed for special depreciation in corporate tax. In addition, reductions were made to the municipal property taxes for participating enterprises.
Semiconductors have/will be no different if we follow the same course. Since we have already allowed the industry to erode to the point where Intel is the only (close to) leading edge manufacturer of logic we either invest in Intel, or throw in the towel and accept the consequences.
Or you set up a completely new pure play US foundry *that is not Intel*. Or at least have a clear roadmap to create one from the Intel fab business.
I still struggle with the idea that a company with Intel's history and mindset/culture/DNA will ever be a good fit for pure play foundry. That's before factoring in the conflicts of interest inherent in combining a foundry with a product company.
But none of how this is playing out particularly surprises me. The CHIPS Act plan for Intel here seems fundamentally unsound. In the Japanese example, you had a very strong and competent government agency (MITI) directing industry. Similar in other Asian countries. In the US case, you have a rather less stellar, more politicised and ad hoc government structure being out-manuevered by big US corporations like Intel. Not the same thing at all. The US model is political and opportunistic. The Asian model is strategic and long term.
I still struggle with the idea that a company with Intel's history and mindset/culture/DNA will ever be a good fit for pure play foundry. That's before factoring in the conflicts of interest inherent in combining a foundry with a product company.
It may not work. For a long time Intel was the only true winner in the Intel/OEMs relation. Take a look at Intel's OEM customers' net profit margin history. They are horrible!
Intel must change its business model to let customers/partners to make decent profit.
"My observation is that Intel operates with wrong business model, high cost, wrong product mix, and/or bad strategies. Take a look on the table I created below. TSMC maintains a decent net profit margin while most TSMC's major customers are doing well. On the other hand Intel's (and AMD's) major customers, such as Lenovo, HP Inc., DELL, Asus, and Acer are always making meager net profit. In order to compete against TSMC and Samsung, Intel Foundry service may need to cut the price and cause Intel's net profit margin to go down further."
It may not work. For a long time Intel was the only true winner in the Intel/OEMs relation. Take a look at Intel's OEM customers' net profit margin history. They are horrible!
Intel must change its business model to let customers/partners to make decent profit.
"My observation is that Intel operates with wrong business model, high cost, wrong product mix, and/or bad strategies. Take a look on the table I created below. TSMC maintains a decent net profit margin while most TSMC's major customers are doing well. On the other hand Intel's (and AMD's) major customers, such as Lenovo, HP Inc., DELL, Asus, and Acer are always making meager net profit. In order to compete against TSMC and Samsung, Intel Foundry service may need to cut the price and cause Intel's net profit margin to go down further."
I think we are comparing apples to orange here. The OEMs at the bottom of that list buy from both Intel and AMD. It isn't like Intel is choking the life out of them all on their own. Intel during this time frame should be compared to a combination of both AMD and TSMC profits as the purchases made by those OEMs support both AMD's profits and the funds that AMD pays to TSMC to build their chips. That said, I won't deny it will be a huge culture shift for Intel to truly embrace the idea that they win be ensuring their customers win. They also don't have a great history of listening to their customers and their foundry effort is dead if that doesn't change.
Or you set up a completely new pure play US foundry *that is not Intel*. Or at least have a clear roadmap to create one from the Intel fab business.
I still struggle with the idea that a company with Intel's history and mindset/culture/DNA will ever be a good fit for pure play foundry. That's before factoring in the conflicts of interest inherent in combining a foundry with a product company.
But none of how this is playing out particularly surprises me. The CHIPS Act plan for Intel here seems fundamentally unsound. In the Japanese example, you had a very strong and competent government agency (MITI) directing industry. Similar in other Asian countries. In the US case, you have a rather less stellar, more politicised and ad hoc government structure being out-manuevered by big US corporations like Intel. Not the same thing at all. The US model is political and opportunistic. The Asian model is strategic and long term.
I will freely admit that when you compare the way Japan supported the growth of their steel industry, the approach was fundamentally different. It was almost all built around reducing cost of operations, not distribution of funds. I would have preferred to see the CHIPS act structured along similar lines, but that isn't the way our government works. The idea that government should be kept at arms distance from industry is a pretty firm belief in the US.
Which is also why the government setting up a pure play foundry is a non-starter. The idea of a government backed agency/company competing with private companies would create a huge backlash. Pushing that would be a political death sentence for anyone that touched it. Even if it might be a more pragmatic solution.
finance.yahoo.com
