Intel Investor Meeting Keynote

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I stopped trusting Intel's words and numbers since Intel's "Contra Revenue" scheme around 2013 through 2015 or 2016. In 2014 alone Intel lost at least $4 billion in the Mobile Computing division and the major cause was this "Contra Revenue" practice. In certain quarters Intel Mobile division even reported negative revenue (note: not negative profit)! I don't know how many Fortune 100 companies can have guts to do it. It's not surprising that once "Contra Revenue" practice stopped, so did Intel customers' mobile chips order.

Another example is Intel Stock Buyback Program.

From: https://www.intc.com/stock-info/dividends-and-buybacks

"We have an ongoing authorization (originally approved by our Board of Directors in 2005 and subsequently amended) to repurchase shares of our common stock in open market or negotiated transactions. As of December 25, 2021, we were authorized to repurchase up to $110.0 billion, of which $7.2 billion remained available."

From 2012 through 2021, Intel spent $67.9 billion to buy stocks and reduced outstanding shares for about 1 billion shares. What has Intel achieved? Now Intel is forecasted to have negative cash flow in 2022 and needs to use Sell and Leaseback to improve liquidity.

Intel's market capitalization is at $181.93 billion today. Compare this $181.93 billion market cap to $67.9 billion (stock buyback spending since 2012) or $102.8 billion (stock buyback spending since 2005), isn't it ridiculous?

And Intel tells us that now is the time taxpayers should give them money so they can save US semiconductor industry!

Intel's Board always has several directors who have strong finance background and experience. How can they knowingly let it happen? Intel's finance department must know the situation very well. But under the guidance of Intel Chairman, CEO, and Board of Directors, they are just a group of loyal soldiers. I hope one of those finance staffs at one point did tell Intel CEO that $67.9 billion or $102.8 billion spent on the stock buyback could have built many advanced fabs.

I think I'll avoid this highly political discussion. I didn't realize you had such strong feelings about these things, and that my simple comment would trigger you.

 

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If you are old enough you probably can remember Boston Chicken/Boston Market. I loved their food and business model so I bought their stocks in hoping McDonald's will acquire them. I thought they were a good fit for what McDonald's didn't have.

Ah, that brings back memories from 1998. I lost a small amount of money in BOST (had to dig around to find the symbol); somewhere I have a stock certificate as a souvenir. You never forget your first investment bankruptcy.

 

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The problem is Intel is betting it all on an IDM business model that doesn't make sense anymore. You can be a successful fabless company or you can be a successful foundry. IDM no longer works.

Some of the automotive / analog semiconductor companies would like a word....

 

[hist78]

Ah, that brings back memories from 1998. I lost a small amount of money in BOST (had to dig around to find the symbol); somewhere I have a stock certificate as a souvenir. You never forget your first investment bankruptcy.

At least you got a piece of paper :-(

 

[tooLongInEDA]

I stopped trusting Intel's words and numbers since Intel's "Contra Revenue" scheme around 2013 through 2015 or 2016. In 2014 alone Intel lost at least $4 billion in the Mobile Computing division and the major cause was this "Contra Revenue" practice. In certain quarters Intel Mobile division even reported negative revenue (note: not negative profit)! I don't know how many Fortune 100 companies can have guts to do it. It's not surprising that once "Contra Revenue" practice stopped, so did Intel customers' mobile chips order.

Another example is Intel Stock Buyback Program.

From: https://www.intc.com/stock-info/dividends-and-buybacks

"We have an ongoing authorization (originally approved by our Board of Directors in 2005 and subsequently amended) to repurchase shares of our common stock in open market or negotiated transactions. As of December 25, 2021, we were authorized to repurchase up to $110.0 billion, of which $7.2 billion remained available."

From 2012 through 2021, Intel spent $67.9 billion to buy stocks and reduced outstanding shares for about 1 billion shares. What has Intel achieved? Now Intel is forecasted to have negative cash flow in 2022 and needs to use Sell and Leaseback to improve liquidity.

Intel's market capitalization is at $181.93 billion today. Compare this $181.93 billion market cap to $67.9 billion (stock buyback spending since 2012) or $102.8 billion (stock buyback spending since 2005), isn't it ridiculous?

And Intel tells us that now is the time taxpayers should give them money so they can save US semiconductor industry!

Intel's Board always has several directors who have strong finance background and experience. How can they knowingly let it happen? Intel's finance department must know the situation very well. But under the guidance of Intel Chairman, CEO, and Board of Directors, they are just a group of loyal soldiers. I hope one of those finance staffs at one point did tell Intel CEO that $67.9 billion or $102.8 billion spent on the stock buyback could have built many advanced fabs.

Wow ... [if your numbers are correct] so that's an average stock repurchase price of $68 per share over 2012-2021 and the current share price is $48 ! A $20bn paper loss in nominal terms before even considering inflation. And they now want US taxpayer cash. To handout more money direct to shareholders in dividends.

 

[hist78]

Wow ... [if your numbers are correct] so that's an average stock repurchase price of $68 per share over 2012-2021 and the current share price is $48 ! A $20bn paper loss in nominal terms before even considering inflation. And they now want US taxpayer cash. To handout more money direct to shareholders in dividends.

The data can be retrieved from Intel website. Here I repost it:
https://www.intc.com/stock-info/dividends-and-buybacks

Additionally, according to my calculation, for the past five years (2017 ~ 2021) Intel spent $44.556 billion to buy stocks back. Did that help Intel's revenue, profit, R&D, manufacturing capability, or competitiveness? If any?

Intel can keep replacing CEO or CFO as they have done in the recent years. But why Intel's Board of Directors allow such dangerous and useless money game to play for so long?

 

[count]

Some of the automotive / analog semiconductor companies would like a word....

The same analog semiconductor industry that hadn't invested in significant improvements or major capacity additions for decades? The same auto industry that is literally shutting down factories because they fumbled when it came to semiconductors?

The problem with the IDM model is that the foundry side of the IDM ends up being internally focused and it's very hard to shift that. Internally focused organizations are seldom as aligned to market needs compared to externally focused organizations. Part of the reason the auto industry is facing it's current semiconductor woes is also internal focus.

 

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The same analog semiconductor industry that hadn't invested in significant improvements or major capacity additions for decades? The same auto industry that is literally shutting down factories because they fumbled when it came to semiconductors?

The problem with the IDM model is that the foundry side of the IDM ends up being internally focused and it's very hard to shift that. Internally focused organizations are seldom as aligned to market needs compared to externally focused organizations. Part of the reason the auto industry is facing it's current semiconductor woes is also internal focus.

OK, I agree with some of your criticisms... but you can't have your cake and eat it too. You said:

You can be a successful fabless company or you can be a successful foundry. IDM no longer works.

There are numerous successful semiconductor companies in the automotive/analog space with their own fabs --- in no particular order: Analog Devices, Texas Instruments, ST, NXP, Microchip, Infineon, ON Semiconductor, Renesas --- where "successful" means they are staying in business, remaining competitive, and making a profit, generally maintaining good gross margins. (caveat: I haven't checked financials lately...) And yes, they're fab-lite rather than completely IDM. (Linear Tech and Maxim were good examples of high-profit fabless analog; they got bought by Analog Devices.)

I don't disagree with you that they share some of the blame for the chip shortages, if by blame you mean they were conservative and did not increase capacity aggressively early on, despite some signs of increased long-term demand.... The lesson over the last 4-5 decades seems to be that in the face of uncertainty, if you're going to make an error judging demand, you can either overestimate demand and pay the price of underutilized capacity, or you can underestimate demand and make smaller profits but at good profit margins. They've apparently chosen to err on the side of good profit margins.

Anyway, which is it? They're unsuccessful? Or they're successful and they're evil and aren't able to support their customers?

I don't think they're either. TSMC may be "better" in the sense that they've gotten their customers to put up $$$ when they want to guarantee production, but it's a different part of the market.

 

[hist78]

OK, I agree with some of your criticisms... but you can't have your cake and eat it too. You said:



There are numerous successful semiconductor companies in the automotive/analog space with their own fabs --- in no particular order: Analog Devices, Texas Instruments, ST, NXP, Microchip, Infineon, ON Semiconductor, Renesas --- where "successful" means they are staying in business, remaining competitive, and making a profit, generally maintaining good gross margins. (caveat: I haven't checked financials lately...) And yes, they're fab-lite rather than completely IDM. (Linear Tech and Maxim were good examples of high-profit fabless analog; they got bought by Analog Devices.)

I don't disagree with you that they share some of the blame for the chip shortages, if by blame you mean they were conservative and did not increase capacity aggressively early on, despite some signs of increased long-term demand.... The lesson over the last 4-5 decades seems to be that in the face of uncertainty, if you're going to make an error judging demand, you can either overestimate demand and pay the price of underutilized capacity, or you can underestimate demand and make smaller profits but at good profit margins. They've apparently chosen to err on the side of good profit margins.

Anyway, which is it? They're unsuccessful? Or they're successful and they're evil and aren't able to support their customers?

I don't think they're either. TSMC may be "better" in the sense that they've gotten their customers to put up $$$ when they want to guarantee production, but it's a different part of the market.

TSMC has started a new (or not so new) approach. The TSMC new Japanese fab will have two minority investors (Sony and Denso) and receive $3.4 billion subsidy from Japanese government. Sony and Denso will bring their extensive customer connections to this joint venture. Also I guess Japanese companies who attend METI (Ministry of Economy, Trade and Industry) New Year party will probably be reminded that Japanese government has given so much love in this fab.

What TSMC has done is to secure funding, partners, market connections, commitments, volumes, and orders before building this new fab in Japan. Denso is owned by Toyota and ranked number 2 in the world in the automobile parts market . The implication to have Denso's participation is significant.

TSMC to increase investment in chip plant in Japan's Kumamoto, Denso to join the TSMC/SONY partnership

Now this new fab will support both 12/16 nm and 22/28nm production. Denso is owned by Toyota and ranked number 2, behind Bosch, in supplying automobile parts worldwide. Kyodo News Plus: TSMC to increase investment in chip plant in Japan's Kumamoto...

semiwiki.com

 

[count]

OK, I agree with some of your criticisms... but you can't have your cake and eat it too. You said:



There are numerous successful semiconductor companies in the automotive/analog space with their own fabs --- in no particular order: Analog Devices, Texas Instruments, ST, NXP, Microchip, Infineon, ON Semiconductor, Renesas --- where "successful" means they are staying in business, remaining competitive, and making a profit, generally maintaining good gross margins. (caveat: I haven't checked financials lately...) And yes, they're fab-lite rather than completely IDM. (Linear Tech and Maxim were good examples of high-profit fabless analog; they got bought by Analog Devices.)

I don't disagree with you that they share some of the blame for the chip shortages, if by blame you mean they were conservative and did not increase capacity aggressively early on, despite some signs of increased long-term demand.... The lesson over the last 4-5 decades seems to be that in the face of uncertainty, if you're going to make an error judging demand, you can either overestimate demand and pay the price of underutilized capacity, or you can underestimate demand and make smaller profits but at good profit margins. They've apparently chosen to err on the side of good profit margins.

Anyway, which is it? They're unsuccessful? Or they're successful and they're evil and aren't able to support their customers?

I don't think they're either. TSMC may be "better" in the sense that they've gotten their customers to put up $$$ when they want to guarantee production, but it's a different part of the market.

I think that comparing to Analog Devices or TI, which are still successful, is looking backwards. It's like saying "streaming music isn't impacting the vinyl business". In the analog semiconductor world change happens much slower it's less of a scale business, and there will probably always be some market for specialized chips that run on specialized processes that don't benefit from the same economies of scale. But I think the shift to fabless will eventually grip the analog companies as well, aside from maintaining the capacity to supply a few customers with very particular needs (like say defense industry).