Which is it? The chip market is slowing, or Intel just trying to squeeze the Commerce Department? I still can't believe Intel is going to agree to the government's restrictions on stock buybacks, opening it's facility-level books, and potentially sharing profits anyway.
Intel Delays its Ohio fabs
- Thread starter blueone
- Start date
Which is it? The chip market is slowing, or Intel just trying to squeeze the Commerce Department? I still can't believe Intel is going to agree to the government's restrictions on stock buybacks, opening it's facility-level books, and potentially sharing profits anyway.
US companies do share buybacks to:
1. Reduce shareholder dilution from employee stock options and RSUs.
2. Bypass the double taxation in the US tax code of dividends. (Companies pay corporate income tax on their net income, and then stockholders pay income tax on the dividends.) Since buybacks reduce the number of shares outstanding they improve the Price/Earnings ratio of the company's stock because net income is divided by a smaller number of shares, which enriches shareholders and defers taxation until the stock is sold.
3. By buying hundreds of thousands or millions of their own shares, usually during price dips, they effectively raise the market price of their shares, making stockholders happier.
The local governments get no benefit. Progressive Democrats in Congress generally hate stock buybacks because they think the strategy only benefits corporate executives and the very rich. They are grossly mistaken. Warren Buffett said this about them: “When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive)”
But the progressives in the current administration are against buybacks, so the Commerce Department's implementation of CHIPS Act places restrictions on them for companies taking the subsidies.
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So there is no benefit to those providing the subsidy then?
Not surprising they not so keen to have tax payers money used to fund them then no?
Companies can do as they wish, but if they taking taxpayers money then they must surely have to accept some conditions.
If they cannot accept , then just go and get funding from elsewhere no?
From share buybacks? That's complicated. Buybacks help raise the companies' market capitalization, which gives them more financial flexibility, and essentially makes them healthier. But what the federal government gets is fabs in places where they wouldn't be built purely on economic justification. Local governments get high-paying high-tech jobs with relatively clean manufacturing. Most US voters don't understand the massive complexity and international interdependencies of the chip manufacturing pipeline, so it also makes voters think that the placement of fabs solves more national security problems than in reality they probably do.
That's the fear Congress has, that, for example, Intel will just use the CHIPS funding to finance buybacks. Frankly, I think it's a silly fear. My understanding is that the CHIPS Act doesn't pay out unless you're spending the subsidy on manufacturing facilities.
I think the USG is being overly intrusive. I agree with the national security concerns, but assuming greedy bad actors will be predisposed to misuse government money IMO isn't productive. Also, I think there are a lot of IP concerns relating to the creation of the NSTC by the CHIPS Act.
But that costs money, either in the form of interest on loans, joint ownership agreements, or issuing stock (which dilutes ownerships and deflates the share price), so CHIPS Act money is a big attraction. I also believe these manufacturers think they can pressure the Biden Administration into watering down the requirements to get maximum positive press in a presidential election year.
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hist78
Well-known member
Some other reasons I believe are also in Intel's mind:
1. Intel will have too many fabs and capacity while there is no matching and committed market demand for it.
2. Intel can't afford to have so many new fabs even with subsidies from various countries. A $20 billion fab/site still needs Intel to invest $14~16+ billion. Considering Intel's shrinking revenue, it's a very risky situation.
I think Japan is a place Intel should have gone to build fabs. But despite Japan's strong semiconductor ecosystem, highly educated workforce, and 50% government subsidiary, Intel keeps its long standing policy to avoid building a fab in East Asia (except mainland China). From a pure for profit business point of view, I don't' think Intel can blame Uncle Sam for not giving whatever amount Intel wanted when Intel skips Japan's 50% subsidy.
The delay is very simple!
Given Intel’s internal demand and usage of external foundry as well as currently no whale customers means no need for these fabs. Actually even two years ago the need was minimal unless Intel could get a Qualcomm, MediaTek or other whale. Let’s be serious Nvidia and AMD nor Microsoft, Amazon, FB or Google likely would never use IFS for advanced silicon they are competing with Intel to displace their own product team.
Given Intel’s internal demand and usage of external foundry as well as currently no whale customers means no need for these fabs. Actually even two years ago the need was minimal unless Intel could get a Qualcomm, MediaTek or other whale. Let’s be serious Nvidia and AMD nor Microsoft, Amazon, FB or Google likely would never use IFS for advanced silicon they are competing with Intel to displace their own product team.
tooLongInEDA
Moderator
Excuse the dumb question from a Brit ... why don't they just fix the tax code so dividends aren't taxed twice ?
These tax code anomalies like preferring debt financing to equity (an effective subsidy to private equity and leveraged buyouts) and tax policies that enourage massive offshore profit holdings seem to create more problems than they solve ...
Obviously, share buybacks should be used to fully fund employee stock options. I don't see why ordinary shareholders should be subject to dilution in the first place. But it's not clear to me just why public companies should be spending resources on this in the first place. If employees want to buy shares in their company, they can already do so just like everyone else. I don't see why companies and governments should participate in subsidising this.
You posit any interesting idea, I like it. I wonder if the Japanese gov would be willing to even do that for intel? Japan has a long history of favoring it's own industry over foreign, so would they fund intel fabs especially when they have their own national champion and IDMs there? Granted they fund Micron, but that is because they bought out the Japanese memory IDMs when they bankrupted themselves, so they have no other choice. They also funded TSMC, but also in the minds of politicians they are decades ahead of everyone else and N7 was some alien tech that has never been done by anyone else until this mythical SMIC thing appeared out of thin air. So if that is the demographic we are talking about I don't know if they would really buy any story intel could spin.
It might already be. They said they have like 5-7 (don't remember). Meanwhile wafers are only 6.
That is a poor understanding of their business model. The cloud guys don't care who makes or designs their chips (as evidenced by still buying alot of non in-house CPUs and the like when it makes sense to do so). All they care about is minimizing their TCO. That is the whole reason they went custom was that they wanted to pick a feature set and IPs that are perfectly suited to their needs, and not the general market's needs like with a Xeon or EPYC. Additionally they also can get a cheaper price by cutting out the middle man to the fabs. When that is your whole reason for being in the chip design business (and the fact that they only use off the shelf IP) I can't fathom why they would be scared of "IP theft from IFS".
As for NVIDIA, why would they have test chips with intel if using IFS is something they would never even consider doing? If they do use intel for something in the future, who knows. What I can say with certainty is at least at one point in time they had considered it since they spent the engineering effort to get a test chip designed.
Intel’s biggest interest and profit center is data center and AI if they can get back into that game.
So you want me to believe IFS and IDM 2.0 won’t have a conflict or potential conflict if Intel is presented to manufacture advanced TO for Nvidia or other company who’s new chip is directly displacing likely a potential Intel chip? Or with limited capacity IFS much choose between making wafer starts for Intel Product or Nvidia or other be it wafer or package ? Of course people put in contracts but we already know how poor companies are in forecasting demand two years out and it takes more than that these days to put leading edge capacity in place.
delong.height
Active member
they won't. they are serving two different markets, the mass, and the fabless (including hyperscaler that would definitely be pursuing their own custom silicon, and Apple).
And just as PG said, internal design team can choose external foundry, IFS can also prioritize external fabless clients if they offer a better deal than internal team. Both need to survive, so they will find the best to cooperate and be a partner of.
Actually, that's a great question. The US tax codes for individuals and corporations desperately need simplification, but Congress uses tax policies to win votes. Many voters in the US think big public corporations are evil, and lowering taxes for them in any way would be very controversial. For example, President Biden and his left wing have been fanning the flames of corporate blame for a long time, accusing corporations of being a major cause of inflation in the US, like yesterday:
Biden takes aim at grocery stores for 'ripping people off' amid continued high prices: 'Played for suckers'
President Joe Biden blamed grocery stores for "ripping people off" with high pricing, saying that people are "tired" of being "played for suckers" by big corporations.
www.foxnews.com
(Fox News is not my idea of a great news site, but the better ones are behind pay walls.)
Biden's argument is quite lame. For example, Kroger Co, the largest grocery store chain in the US, had a net profit ratio of 1.9% in their last reported quarter. That's a pathetic profit percentage of sales, and the US grocery industry has been operating with low margins for decades.
Socialist US senator Bernie Sanders makes the same argument on a broader scale:
Our economic crisis isn’t inflation, it’s corporate greed and the GOP will only make that worse » Senator Bernie Sanders
By: Bernie Sanders, Fox News As we enter the final week of the midterm election, voters are expressing deep concern about the state of the economy and inflation. They should. Today, we live in an economy in which the billionaires are getting much richer while working families fall further...
www.sanders.senate.gov
There are so many foolish statements in his website post. Just for example, the largest fraction of profits made by US companies are not made by those making consumer staples, they are made by companies in the information technology sector. Smartphones alone probably make more total profit that the entire grocery industry.
Given this level of strident disagreement, I suspect our tax laws won't get better anytime soon.
It's complicated...
I don't remember Intel or TSMC saying building in AZ and OH was contingent on CHIPs Act funding but it is an excuse not to build now? I do understand the overbuilding concern. As I have said, if all of the fab builds that were announced since the pandemic were actually built we would have a capacity glut and I predicted there would be empty fab shells. So here we are.
Maybe Intel will be using TSMC N3 for longer than imagined? Good thing for chiplets! The whole chip does not need to be bleeding edge silicon and not even from the same fab. Progress!
Maybe Intel will be using TSMC N3 for longer than imagined? Good thing for chiplets! The whole chip does not need to be bleeding edge silicon and not even from the same fab. Progress!
From a margin and revenue growth perspective sure. But I suspect that CCG will always be the main operating income driver for the company just due to the shear volume differential.
I'm just saying what I see. And what I see is Jensen Huang saying he liked what he was seeing. Does NVIDIA's prior positive statements on IFS mean they must use intel? No. But if NVIDIA thought that IP theft was a concern that made IFS a nonstarter, then why would they have their engineers waste their time designing a testchip and then testing said testchips in their labs? Said testchip might also have "steal-able" IP
Part of your question was cloud vendors making their own silicon. They themselves do not compete with intel, they are not selling their chips to anybody, and as a result they aren't a merchant chip vendor. Intel competes with them but not the other way around. As an example AWS will use the best CPU for any given AWS instance. If the chip with the best TCO/TVO is a Xeon so be it, and if it is Graviton they will use that. So for them their is no competitive risk of their IP leaking to DCAI. Inversely if DCAI wanted their IP, they could steal a mask set... OR they could just licence the IP AWS licenced from ARM et al. to build the chip since the cloud guys have no native IP development capability.
Lastly I would like to hear an actual chip designer weigh in on this, but I am skeptical of how much information a chip designer can gain from looking at someone else's mask set. There is nothing you couldn't learn from the mask set that you couldn't learn from cutting open the realized product. And without the context of it working and what the original design's intent was I don't know if you can really draw a whole ton from seeing the mask set pre launch. Another area that I think would hinder reverse engineering would be the evolutionary nature of chip designs. Using NVIDIA as our example: what if intel graphics had with ADA's and they wanted to get the same RT performance as NVIDIA? Their whole GPU arch is build differently with different implementations of different render features. I wouldn't doubt if I was wrong on this, but I assume you can't just slap NVIDIA's RT cores onto an intel GPU, because their GPU,drivers, and pipeline was built around doing it their way. Redoing all of that wholesale sounds way harder than just developing a better arch. Funnily enough that was the same conclusion AMD came to when they first started designing their own CPUs
You have just answered your own question. Contracts are legally binding agreements. If intel signed a deal saying hey we will give you x wafers at y time; then their only way out of said agreement is to renegotiate the deal with their customer, or choose not to deliver to the terms of the contract. If they go with the later option, well okay, have fun losing a lawsuit where the customers get their money back. Oh and also IFS would never get another customer again... So in other words if they want to survive they have to follow their contract. Intel said they have over 10B in deal value and by my count they have announced like 13 customers for IFS. Okay imagine the legal fees for 13 cases that they will almost certainly lose and will then they need to comp any of the $10B they got for product that they haven't delivered plus any damages sustained by the customer. At current rates that is nearing a whole quarter of revenue down the drain, and for what? To sell like $2B worth of units. If intel did something so dumb they deserve to be out of business.
TSMC said something to the tune of "We are only building in AZ with the understanding that the USG will subsidies our cost delta to TW.". Intel for its part said something to the tune of "Two fabs are guaranteed but the speed of the build out depends on subsidies as well as if/when they will build the other modules.".
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Chiplets are an awesome tool for many designs. Network switch ASICs are one of the best examples. I/O chiplets are a good example of where a process targeted for logic performance is probably not the best choice.
hist78
Well-known member
It's not just Japan, Intel has been avoiding to have a fab in East Asia (except mainland China) altogether. But Intel has no problem to build fabs in Ireland, Israel, and Germany.
Considering the East Asia's semiconductor supply chain, engineering talents, and manufacturing environment, I believe Intel made a big mistake and missed many great opportunities. Now after Intel committed to build or expand more fabs in Germany, Ireland, Israel, Ohio, and Arizona, I don't think Intel can afford to build another fab in Japan or Singapore or in any other East Asian countries. No mater it's 40% subsidy or 50% subsidy from the local government.
Japan is an interesting study. If the Japan Government says buy Japanese they will. Unlike the US., Korea is like that as well. Just about everything in Korea is Samsung, even tooth brushes! Not kidding.