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Just curious. Since Intel prepaid for a lot of N3 capacity, what will that do for their accounting?
Will the Lunar Lake and Arrow Lake chips look strangely profitable because the costs were already burdened before? (And make the margins look better than they really will be?).
Just curious. Since Intel prepaid for a lot of N3 capacity, what will that do for their accounting?
Will the Lunar Lake and Arrow Lake chips look strangely profitable because the costs were already burdened before? (And make the margins look better than they really will be?).
excellent question. I am concerned on prepays to intel and prepays from intel . In my experience (supplier) a prepay is listed as a liability like a loan
As a customer, i would think you would list it a purchased asset .... which means no impact to expenses (asset transfer).
UPDATE: it should be listed as spending on prepayments and a current asset. when shipped it will be a cost of sales and a reduced asset. thats my guess
Just curious. Since Intel prepaid for a lot of N3 capacity, what will that do for their accounting?
Will the Lunar Lake and Arrow Lake chips look strangely profitable because the costs were already burdened before? (And make the margins look better than they really will be?).
excellent question. I am concerned on prepays to intel and prepays from intel . In my experience (supplier) a prepay is listed as a liability like a loan
As a customer, i would think you would list it a purchased asset .... which means no impact to expenses (asset transfer).
UPDATE: it should be listed as spending on prepayments and a current asset. when shipped it will be a cost of sales and a reduced asset. thats my guess
MKW is correct. Prepays are listed as assets by the payer, and a liability by the receiver. What's undefined with foundry prepays is how the receiver (the foundry) accrues the expense debits (as a lump sum, or over time), and how the payer's account with the foundry is treated similarly.
As for Intel's product-level gross margins, Intel doesn't publish gross or net margins at the product line level. It's considered trade secret information. No chip company wants to make customers aware that the CPU they're paying, for example, $900 for only cost $100 to manufacture.
It might be true that if Intel's Data Center Group, for example, were to fab all of their chiplets at TSMC that their gross margins could be higher than if they used their own fabs, if Intel's fabs actually cost more than TSMC's price, so by outsourcing the manufacturing that could increase the profitability of the Group, and that information is published, but not at the product line level.
It might be true that if Intel's Data Center Group, for example, were to fab all of their chiplets at TSMC that their gross margins could be higher than if they used their own fabs, if Intel's fabs actually cost more than TSMC's price, so by outsourcing the manufacturing that could increase the profitability of the Group, and that information is published, but not at the product line level.
That the balance of outsourcing to a supplier that has lower cost of production is always positive is debatable. You have to add the cost of keeping your internal lines operating at a lower loading, as you cannot easily adapt your overall capacity and cancel fixed costs. In practice, unless you can put in your internal line products with an even higher margin, you may easily be better off overall by keeping the production in house. In other words, in your assumption you look only at the margin of the product group increasing while the losses get on the books of the fab group. Remain to be seen if the balance of the two is positive or negative.
That the balance of outsourcing to a supplier that has lower cost of production is always positive is debatable. You have to add the cost of keeping your internal lines operating at a lower loading, as you cannot easily adapt your overall capacity and cancel fixed costs. In practice, unless you can put in your internal line products with an even higher margin, you may easily be better off overall by keeping the production in house. In other words, in your assumption you look only at the margin of the product group increasing while the losses get on the books of the fab group. Remain to be seen if the balance of the two is positive or negative.
I was just making up a hypothetical example to illustrate what would happen if a product line decision affected Intel division gross margins. I wasn't intending that example to reflect real-world decisions in Intel to use TSMC or internal fabs.
Prepayments are parked in specific accounts and not counted in P&L statements and thus should not alter the gross margin numbers in financial statements.
Revenue recognition (or payment made) only happens when actual products/goods have been shipped and receiver acknowledged/signed-off.
Pre-payments are "only" a transfer of assets (likely cash). In your balance you will always need an account to book it against. Let´s assume TSMC reports this as a liability of some sort.
On your bank account there is no direct assignment for this cash. TSMC now owns this money and can do whatever. If we assume they spend this money on building fabs, this cash will just be converted to other assets on the balance sheet.
Once revenue is generated this will offset the liabilities from the balance sheet.
From a TSMC customer perspective they will book the outflow of assets as a claim against TSMC. This will be offset by future charges for deliveries by TSMC.
My understanding is to entire topic only becomes relevant for P&L once liability (supplier) and claims (customer) are no longer in balance. For example in case Intel is unable to consume the amount of chips they have pre-paid for.
In my old age I seldom laugh about anything anymore. Perhaps now that I'm retired I read the news too much, which is depressing. However, this made me laugh this morning.
These speculative posts in this thread about TSMC prepayments led me to want to investigate more, so I brought up the Google webpage and entered "prepayments to TSMC". As you probably know, Google now uses an LLM to summarize the answer before listing the usual links to web sites or web pages which have relevant information as determined by Google's index. Here's the summary I got:
According to SemiWiki, information about large prepayments to Taiwan Semiconductor Manufacturing Company (TSMC) is considered trade secret information
Directly under this summary was a reference to my own post (#3 of this thread), the one about product-line profitability being a trade secret in Intel. Of course, that particular comment has nothing to do with prepays, and was tangential to this discussion. Prepayments are not trade secret information. I sent Google feedback that they need to tune up their LLM, and that this summary was erroneous.
I was just making up a hypothetical example to illustrate what would happen if a product line decision affected Intel division gross margins. I wasn't intending that example to reflect real-world decisions in Intel to use TSMC or internal fabs.
