Is this an accounting trick to look profitable or is it normal and reasonable?

> Effective January 2023, Intel increased the estimated useful life of certain production machinery and equipment from five years to eight years. When compared to the estimated useful life in place as of the end of 2022, Intel expects total depreciation expense in 2023 to be reduced by $4.2 billion. Intel expects this change will result in an approximately $2.5 billion increase to gross margin, a $400 million decrease in R&D expenses and a $1.3 billion decrease in ending inventory values.

fwiw Google did the same trick with their servers

Likewise Nvidia...buried in supplemental CFO commentary[1] circa FY23 Q4:

> Starting in fiscal 2024, we are extending the useful lives of a majority of our servers, storage, and network equipment from three years to a range of four to five years, and assembly and test equipment from five to seven years. As a result, we expect favorable impact to operating income of approximately $26 million in the first quarter and $133 million in fiscal 2024 from a reduction in depreciation expense based on equipment balances as of January 29, 2023. The favorable impact will be primarily in operating expense, and to a lesser extent in cost of goods sold.

[1] https://www.sec.gov/Archives/edgar/data/1045810/000104581023...

>Is this an accounting trick to look profitable or is it normal and reasonable?

It seems normal and reasonable to me with their change in direction to making chips for others. Previously Intel (for the most part) needed to rapidly depreciate hardware and move to the next process node to stay competitive. Now they can continue running a process node far beyond what they would have historically to create a cheaper chip-line for third parties.

They have been talking about being a foundary for external use for a while, years... yet i have not heard of a single customer yet, just an announcement today that intel and ericsson have a partnership.

It feels like yes they want to become a external foundary, but they just havent fully committed to that task yet.

>They have been talking about being a foundary for external use for a while, years

Correct, Gelsinger announced roughly a month after returning to Intel their new strategy (~2 years ago). Believe it or not, pulling apart the financials of a company the size of Intel can't be done overnight - and I would guess legally they needed some customer contracts built on the old process technology before they could depreciate assets.

>yet i have not heard of a single customer yet, just an announcement today that intel and ericsson have a partnership.

Did you spend any time looking? 30 seconds on google shows Mediatek signed up last year:

https://www.forbes.com/sites/patrickmoorhead/2022/08/10/inte...

Yep, i feel like i am just a bit skeptical. I would have just liked to see multiple chips out in the wild (from different companies outside of intel) using the intel fabs.

This smells of mark to market accounting aka Enron book cooking

The CEO allegedly wants them to be an external foundry. His direct reports may not be as enthusiastic.

Arm has announced a partnership with Intel Foundry Services: https://www.intel.com/content/www/us/en/newsroom/news/intel-...

IBM also.

ARM isn't a customer though. It's IP that Intel's potential customers can use.

The A18 node will be the first node that IFS will deliver to external customers. That node was recently pulled in and is scheduled now for H2 2024. What you heard so far, like from Ericsson, are design wins. Presumably Intel is working with many more customers that we don’t know about yet.

Disclaimer: long Intel, recently increased my position.

The article said that foundry did about a quarter of a billion dollars in revenue

That's what, ~5k wafers a month?

Well they only announced that they would be doing this two years ago. You can’t set that up overnight, when your fabs are intimately intertwined with the rest of your operations and you need both to separate proprietary IP and document processes (and set up the ability to work closely with external customers).

A financial quarter of $250MM a couple of years after that is pretty fast.

They had been doing this before that point. Altera had been on Intel's foundry service since 2013.

5k wafers after ten years of foundry service is pretty abysmal.

Could be a benefit from being stuck on the same node for longer

Interesting that this is allowed under GAAP.

If they’re lying about the life of these machines, that will come back to bite them later on when their forecasted expenses don’t match the reality.

It is both normal and reasonable and an accounting trick. The entire concept of depreciation is an accounting trick. Albeit a useful trick if you ask me.

Look at cash flows if you don't like accounting tricks.

I came to a conclusion that most accounting trickery is just for tax purposes.

How much of this is due to salary cuts, benefits/bonus cuts, and layoffs? I live in an area with a lot of Intel campuses and I know a ton of people that were laid off, had their salary cut, no bonuses, etc.

David Zinsner, Intel CFO, said, “Strong execution, including progress towards our $3 billion in cost savings in 2023, contributed to the upside in the quarter. We remain focused on operational efficiencies and our Smart Capital strategy to support sustainable growth and financial discipline as we improve our margins and cash generation and drive shareholder value.”

From: https://www.intc.com/news-events/press-releases/detail/1637/...

To make profits look better. It's why analysts tend to build Thier own p&l from the accounts and focus on the free cash flow instead.

Imagine being down 15% YoY and STILL making 12.9 billion

Intel made money this quarter, but only because of a $2 billion dollar tax rebate. Without that they're still losing money.

More discussion over here: https://news.ycombinator.com/item?id=36899622

Comments moved thither. Thanks!