Management seems to be betting on a strategy of promising the world to gain government subsidies while in reality cutting costs and letting the business wither and die and I don’t know if that justifies the valuation.
The thing that made them big is pretty obvious: high-margin premium priced x86 CPUs, which is a position they were able to hold for decades due both to manufacturing excellence and being able to shepherd the standard. They simply can't do it anymore-- execution has stumbled, and the market for x86 is gradually weakening, especially in spaces outside the cut-throat, lower margin, consumer/corporate desktop "it must run Windows and my line-of-business software/Call of Skyrim" vortex.
They could have been using decades of margin to build and consolidate positions in other segments of the market, just to be sure that the next clever new device comes out with an Intel chip, even if it's non-x86. They didn't.
Rather than, say, taking the ARM licenses they ended up flogging and building a competitive mobile CPU on their leading process, they invented weird Atom chips that ended up in like 3 phones.
Okay, flash is huge now, but it's a low margin game maybe not worth their investment. But they chucked out Optane, which still had some possibility as a "halo product" and for some commercial price-is-no-object markets.
It remains to see how sticky Arc graphics will be; they got a boost by the tight market conditions last year where people would grudgingly take any card they could afford. Will people come back to them out of explicit preference? I also wonder if the Larrabee/Xeon Phi adventure set them back or ahead-- trying to make a GPU architecture out of x86 was an interesting take on "GPUs are hard to program", but did it yield a lot of useful knowledge?
> They could have been using decades of margin to build and consolidate positions in other segments of the market.
That seems pretty simplistic. Optane and Larrabee were bold efforts. (Heck, so was Itanium). It's not like they didn't try throwing money and R&D at things. But that isn't always enough.
> Rather than, say, taking the ARM licenses they ended up flogging and building a competitive mobile CPU on their leading process, they invented weird Atom chips that ended up in like 3 phones.
They made a decent effort with Xscale too, to be fair.
Sure, but they threw it away about a year before the iPhone came out.
Yeah, they did try a lot of bold efforts, but they've pretty much all been mis-steps. They always had factions that were "x86 forever" and when things weren't going great those factions would come in and say "hey, why are we working on this thing that's not our x86 bread-n-butter?" and they'd either kill it or they'd only half-heartedly keep it going until the underinvestment killed it.
It took Intel way too long to get the power consumption on the Atom processors down (not ops/Watt, but total Watts), back when Atom had a chance in the phone market. (A difficult task, which is why I bought ARM Holdings stock shortly after Android came out because I realized (1) nearly everyone was going to soon have a smartphone and (2) whether iPhone or Android won, it was going to be very difficult for Intel to get competitive in the smartphone market fast enough to prevent ossification of the market around ARM. Unfortunately, SoftBank took ARM private and closed out my trade.)
Now, the same dynamic of the low-end x86 processor eating its way up the stack to threaten the high-margin mainframe and RISC servers is playing out with low-end ARM eating its way up the stack and displacing a lot of uses for the high-margin x86 server chips.
Uh, probably fortunately. Softbank bought ARM for $32b 7 years ago, and fat chance it's worth that inflation-adjusted now.
Yep. Intel salaries were already on the low side. To some extent they could get away with this in the past because many of their locations were outside of silicon valley in places where there really weren't a lot of (or any) other companies where you could work at the same level. For example, say you worked at their Folsom, CA or Hillsoboro, OR locations - if you were going to change to a different company that pretty much meant you were moving. But now that a larger proportion of jobs are remote that strategy for keeping salaries low isn't going to work.
Intel could be valuable to America but the problem is the damned word could and it's not essential.
I mean, if you were TSMC's CEO/Board, knowing full well that your country of birth is highly dependent on your presence for its defense posture, would you do allow this to change?
After Intel sold its NAND division to SK Hynix, South Koreans were upset because the US government was trying to impose sanctions on Chinese chip factories. Koreans believe that Intel sold it to South Korea after consulting with the US government, knowing that Intel's Dalian fab in China would be affected. It is some kind of insider trading or fraud.
Then passing the IRA and pressuring Samsung Electronics and SK Hynix to build semiconductor factories on US soil is not an allied attitude.
And I wouldn’t just be worried about something simple and direct like “the United States losing influence over Taiwan’s semiconductor industry.” The concern is more like “the United States losing its global influence and thus its ability to almost unilaterally enforce a particular global order including (among other things) relatively safe global ocean freight.”
As a matter of fact, he published a video today talking about this topic in some detail. You can find it on YT with the title "Semiconductors: China's the Odd Man Out".
I don't know what a "business machine" is, but you probably aren't intimately familiar with organizations that have been directly purchasing large amounts of processors or processor containing devices over the last several years. For many such entities, AMD has made way more sense than Intel.
Basically at this point, the big players are TSMC, Intel, and maybe Samsung. No one else can afford what it costs to be constantly upgrading their factories and doing the necessary basic research to get high quality and consistent yields.
Dividends are silly in a world where you can achieve the same result and save everyone 20% tax by doing stock buybacks instead. It's also silly to strongly differentiate between dividend paying stocks and non dividend paying stocks as opposed to focusing on the business' cash flow, unless you're purposely avoiding dividend paying stocks because they suck from a tax perspective.
Yet, dividends are entrenched in many investor's psyche. Even official regulatory training in the US teaches registered representative that it's a good idea to recommend dividend bearing stocks to people who want "income" from their investments, which is a fallacy. Large mutual funds also have special categories for stocks providing high dividend yields.
It's sad to see them focus on confused investors as opposed to leveraging the incredible opportunity they have from their fabs.
Yes this is a shit situation for Intel, but public companies should be paying dividends, IMO.
> Artificial financial results: The impact on earnings per share can give an artificial lift to the stock and mask financial problems revealed by a closer look at the company’s ratios.
> Abuse: Companies can use buybacks as a way to allow executives to take advantage of stock option programs while not diluting EPS. However, there isn't much evidence supporting the widespread belief that this happens.
> Price bumps: Buybacks can create a short-term bump in the stock price that some say allows insiders to profit while suckering other investors. This price increase may look good at first, but the positive effect is usually temporary, with equilibrium regaining when the market realizes that the company has done nothing to increase its actual value. Those who buy in after the bump can then lose money.
Basically there is a greater potential for price distortion and abuse with buybacks than dividends. Of course dividends can be gamed too, but as a relatively unsophisticated buy-and-hold investor I feel a lot more confident about buying a stock with a solid yield and long history of increasing dividends than I do about buying a stock with no yield whose valuation has shot up recently and is sitting near its record high.
[1] https://www.investopedia.com/articles/financial-advisors/121...
1. There have been a studies that show companies are very good at doing buybacks near market highs rather than market lows so they are not efficient use of capital. Note that there have also been studies that try to claim stock buybacks do deliver long term value, but I have not found them convincing.
2. To build on the price bump point, the biggest beneficiary is actually short term activist investors and traders(who conveniently have similar time horizons as the executives) rather than long term shareholders.
3. Frequently buybacks are funded by draining reserves and/or with debt(especially when interest rates were low), this leaves companies weak when economic shocks happen like when the pandemic hit and we had to bail out the airlines who had no cash because they had been spending all their spare cash on buybacks. This could happen with dividends too but it is harder because it is an ongoing 'expense' you have to plan for because you pay it out every quarter rather than allow large sudden expenditures like you have with buybacks.
https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...
I wonder whether this sentiment also contributed to the meme stocks popularity, since outside the US nobody really buys US stock with high dividends and are pushed to speculate on volatile stocks ala "stonks go up"..
In theory you can claim it back, but it's a major pain in the ass. Some ETF issued outside the US and holding US stocks will do it.
Other strategies to avoid this annoyance include:
1. selling on the ex-dividend date and buying the next day.
2. buying a long-date call and selling a put instead of holding the stock
3. simpler version of 2: buy a deep in the money long-dated call, you won't be paying all that much for the convexity, and you don't have to think about dividends.
I’m sure the key people won’t hurt as much, but hardware people are pretty screwed overall. Your mastery of some Intel process has not much value in the market.
I worked at a tenant in a well funded facility doing semiconductor manufacturing R&D and prototyping. The nicest cars on that lot belonged to the tradesmen running wire and pipe for the tools. A few execs drove fancy cars in their special lot.
Also it is highly likely TSMC pays much less than Intel's process/fab side of the house and works its process/fab teams a lot harder.
When everyone around you is laying thousands of people off, your top talent isn't likely to leave you, regardless of what indignities you heap on it.
The more plausible risk is people mentally checking out, and not giving much of a crap about their work.
I don't think optimizing the performance of banks the create trillions of debt and were bailed out trillions of dollars is "in the interest of taxpayers".
It seems surprising that Intel either doesn't think that retaining top talent is in the interest of shareholders, or thinks that investors aren't able to understand the investment. I would assume that investors who are still invested in Intel were holding out for the prospect that Intel would recover its former glory, but maybe it is mostly investors interested in near term dividend yields, or institutional investors that are sensitive to metrics other than something that is difficult to quantify like narratives or some notion of employee quality.