Intel exits memory business, sale to Hynix for $9B
news.skhynix.com
news.skhynix.com
Fluffy hardware drives demand for fancy semiconductors. Intel valuation wouldn’t be where it is without... eh, what?
And this is where the skeleton in the closet is. For a major silicon vendor, it becomes more, and more scary to not simply get on the wrong side with chip manufacturer, but even just missing on the next best deal possible.
Companies that actually make all those chips don't matter as much when you are a 3rd-4th-5th tier company in your niche, and they don't care much about you. But the moment you become a bigger fish, your stakes become much, much higher. If a popular part (like a cellphone SOC) vendor gets a 10% worse fab deal than its competitor, that part vendor is likely on the way out.
In fact, it's a long going "conspiracy theory" in the industry that chip makers keep playing their biggest clients against each other to prevent any of them getting too much negotiating power.
VCs won't do that, it's not their business model. The only way out is government funding - the way it has been for decades.
In China the state pushes for own hardware and they dont care about patents.
The US still has Apple, Nvidia, Tesla, etc. All doing world-leading stuff. I would say US tech is far from dead.
Nowadays the countries of origin are more diverse, and the proportion made in the USA has fallen. The biggest single change though was moving from US made Samsung CPUs to TSMC chips from Taiwan.
I believe some of the more sophisticated assembly and QA test equipment is US made, or at least used to be but can't find a reference for that online.
[0]https://www.lifewire.com/where-is-the-iphone-made-1999503
> Back in the day as much as about 40%...
40% sounds too high -- I think 18% at max is more realistic. Apple's A chip cost was estimated between $12-$20 or about 7%-8% of total BOM. Aside from Apple's A chips fabbed by Samsung and baseband/RF/sensors by Qualcomm/Skyworks, I can't think of any other significant US components in Apple's mobile product. The most valuable components in the iPhones in those days were DRAM/NAND flash storage (about 30% of BOM) and displays and they came from either Japan or South Korea. Micron wasn't an significant supplier until Apple's relationship with Samsung soured.
Sure, who can forget Tim Apple's rare CBS interview where he proudly declared the engines of their portable devices were made in the US, after which Apple promptly outsourced it to TSMC in Taiwan. I suspect that that was a calculated move to make the final defense of their outsourcing practices before moving that out of the US as well.
Samsung = South Korea
ironically, Taiwan falling to the PRC probably makes the US the inheritor of at least down to TSMC's 5nm node. That DoD backed foundry in Arizona then being orphaned would probably mean it either spins off as a US company or goes on the market in some backroom deal.
Actually making the wafer into proper chips is multi-multi-step proces ( like 50 - 100 steps ).
TSMC, Samsugn, Intel are all relying on ASML.
Apart from these inaccuracies however I'd mostly agree that us-american manufacturing is not in a great position, to put it mildly. That's not neccessarily where the real value lies, however: That's usually exactly in the designs, where the USA are strong.
Likewise, oil and gas aren't all that helpful if you can't get them out of the ground because your equipment is broken and all the replacement parts are made in China.
I say this as a patriotic American. Comparisons to WWII are fairly off-base because in the 1930's and 40's we were much less reliant on foreign countries for manufactured goods.
Can you grow semiconductors on corn plants? Big moats don't help with embargoes, and if your economy is based on international trade (like the globalization crowd has championed), an embargo would be crippling.
Around WWII, they used to call America the "workshop of the world," but China has that title now.
Also, you seem to be forgetting that long range, intercontinental missiles and bombers exist now, when they didn't during WWII.
Intel has 4 fabs in the US
Global Foundries has 3
Also, ICBMs fly both ways. But while nobody decides to press the "End Game" button, the US with its self sufficient continent can weather more punches than any other country in any conceivable conventional war scenario.
You are focusing too much on the war aspect instead of what happens at home.
What happens to companies like Apple and nVidia when for whatever reason they can no longer manufacture in China. Apple luckily has a rainy day fund to fund itself until heat death of the universe, but other companies may not be so lucky.
I’m sure it would take decades at this point to develop the talent, infrastructure and scale in manufacturing that China currently has
Sure, the US military has maintained low-volume domestic manufacturing capability in those areas to meet peacetime military demand.
However, you mentioned WWII. Did the US fight that with just its preexisting military-allocated production capacity? It did not. You had jukebox companies drafted into making rifles and car companies into building tanks and airplanes. Electronics are key to most modern military equipment, and guess who has the spare manufacturing capacity in that area now?
> Also, ICBMs fly both ways. But while nobody decides to press the "End Game" button, the US with its self sufficient continent can weather more punches than any other country in any conceivable conventional war scenario.
Attacks with long-range conventional missiles are also a distinct possibility.
You also used that word "self-sufficient" again. The issue here is contemporary Western politico-economic dogma has abandoned the idea of self-sufficiency in favor of interdependence and free trade. China, has not done that, and appears to have deliberate industrial policy with the goal of modernized self-sufficiency. IIRC, its main imports are raw materials, which it may still be able to obtain through trade (e.g. Russian oil and gas) or military capture in a hot war.
Furthermore for all the Chinese efforts for self sufficiency, it lacks that in high tech manufacturing.
Hypothetical non-nuclear WWIII is terrible for everybody but the US, with the ability to control oceans that aren't within a few thousand miles of the Chinese mainland, is probably in a better position than China is to recover economically.
This is less an argument against civilization, and more like a wake-up call: America has multiple interlocked badly broken systems that all need massive reform. Forget about justice, I think its necessary for our civilization to survive. It is urgent that we reform our judicial system (where any involvement IS the punishment), our medical system (where getting sick is a prelude to bankrupcy), our social safety net (where getting fired without a personal support net means homelessness), consumer rights (where deregulation and arbitration clauses leave individual consumers to fight alone against huge well-funded interests), the tax system (which is too large and complex for anyone to use properly), and education (where students must take enormous debt to get educated, and so much of that debt funds administrative overhead). Personally, I don't even think these things should be about your location on a politcal scale - right or left, these are table stakes for a 21st century democracy. The lack of on-shore manufacturing, particularly for big infrastructure projects, e.g. things like roads, the electrical grid, tall buildings, and factories, is merely a symptom, I think, of all the rest. Yeah, the consumer market is strong, but for the everyday Joe, it is painful to deal with all these broken systems on a day-to-day basis.
I think you're spot on, but I want to point out the above situation was created by design. IIRC, part of the creation of a modern market system was the demolition of traditional social safety nets, so peasants were put in the situation where the alternative to selling their labor in the market was starvation. Early market advocates understood this clearly, and praised the motivating power of an empty stomach.
https://en.wikipedia.org/wiki/List_of_countries_by_trade-to-...
Also, surprisingly, more people in the US work in manufacturing today than in 1939. And obviously the $ value of that manufacturing is much higher due to increased productivity.
https://thelevelfield.com/dashboard/us-manufacturing-employm...
Any conflict would be terrible and should be avoided, but its not like the US became very vulnerable recently.
First, it is funny accounting, second, it is LOWER productivity of most companies, not higher, which is counter-weighted in statistics by few supergiant companies like Boeing, third, it is slow shift to lower value goods, and processes in smaller companies, and sky higher ones in big ones.
The real loss is that industrial enterprises employ a lot of people who are exposed to hard problems. I'm skeptical that the current set of "design"/"marketing" only hardware businesses will last much longer than the international trade pacts that support US patent law.
because that worked so well for the weimar republic?
The 100-year history of strategic bombing theory has consistently held that once you start strategic bombing, the enemy's will or ability to fight will collapse very quickly. The actual application of strategic bombing has consistently failed to live up to those expectations, with the atomic bombings of Japan being the only example people give of countries capitulating due to strategic bombing, and even then it's still debatable what factors induced it to surrender.
It should also be pointed out that people saying great power wars will be swift and decisive is usually followed by a great power war that is exactly the opposite of swift and decisive.
Right now we're just talking about economies and being able to have a well off society where people don't struggle to make ends meet. And from that point of view, the future of the US as it continues to lose competitive advantage to other countries doesn't look as good as it used too.
Are we saying the US plan in case this trend reaches extreme levels is to start a war?
Chinese tech exports have been typically low value added assembly jobs. They import components from Taiwan, South Korea, Japan, EU and the US and assemble them together at the PCB level and up. Few years ago, only 4$ per iPhone was left in China when you subtracted the value of imported parts from the exported value.
Chinese are climbing the value chain and sanctions force them to climb them faster.
I think you mean PCB, not PCP
That's been mostly true, but Nvidia's latest chips are coming from Samsung's fabs. Nvidia will probably switch back to TSMC when openings appear.
https://www.sammobile.com/news/samsung-8nm-process-nvidia-ge...
It's almost like a chip company launching at this point and building its own fab.
So, Tesla just will not be able to scale up like a a software company or a company like apple that doesn't own a fab.
(and tesla does make their own chips)
At the end of 2019, Tesla's cumulative global sales were 891,000 units. They are targeting 500,000 for 2020 alone, so will be well over a million by now.
Tesla are very much in the process of scaling up, with massive factories under construction in Germany and Texas, and major expansion underway at the Shanghai factory. These factories will each be able to produce more than 500,000 vehicles per year.
The enabler of present day Boeing is the market has long since made implicit guarantees part of their overt modeling and client analysis.
The sickly results include a management insulated from even catastrophic mistakes.
For example GM went through chapter 11 in 2009. This helped their sales rather than hurt it.
Pre-packing can be as easily applied to Ch. 7 as 12, if the insolvency court agrees.
But there's no management continuity or parachute in Chapter 7.
I nearly added union agreementd to the sacrifices of Ch. 7, but I'm really not sure if you can be so cavalier with well written agreements like union concessions made in order to enable management to work thru difficulties. At least instinctively I believe that creates a equitable interest.
Which makes me wonder if working out the union position in Chapter 7 wouldn't put the necessary fire under complacent managers.
Obviously the distributed manufacturing introduced with the 777 meant it became possible to argue that the ideal management perch is virtual. But this was a profound separation from tradition and I sold my shares on learning of the new HQ.
The problem is that real engineering often absorbs "the fluffy stuff" in hardware. Server composition with independent subsystems accessible over the network is such a compression of OS services in controllers. This is when the value added IP gets recaptured, particularly in standards dependant technology which enables you to play snakes and ladders across the ecosystem board.
Why is the IP element to close only in 2025? Without looking, I suspect that Intel has booked some very high goodwill and other intangible values on the NAND IP that realistically are wishful thinking about that fluffy stuff.
Eventually that money gets recycled into funding earlier stage companies. (If a company buys back stock, the old investors have to put the money somewhere)
OpenCAPI, SMT4... and POWER10 has those GDDR modules coming for ~1000GBps memory bandwidths.
Indeed. But they shot themselves in the foot when they replaced their experienced, expensive staff with low-wage Indian workers (not to pick specifically on Indians... there are certainly Pakistanis and other Asian cultures represented in that cohort).
This happens over and over, intel wasn't willing to bet on low margin phone SoC's at the expensive of their laptop/server business. Now those low margin SoC providers are selling a billion chips a quarter and financing a manufacturing behemoth that intel can't keep up with. Same thing with IBM, porting zos/ztpf/aix/i5/etc to x86 and making servers wasn't something they could justify, so they spun the business off to lenovo which grew it 5x, and now IBM is stuck with hardware they can't get enough volume on in a shrinking (but high margin!) business.
If they were selling POWER10 blue pi's for $50 they might have a chance in the edge space or IoT, but that might cannibalize the business elsewhere.
They are still so far ahead in Hardware I dont see how they are not innovating.
Software, Marketing, Sales, Operation, Management ..... well pretty much everything apart from CPU / Big Iron related really.
The more you cram together the people networks, culture, knowledge, tooling and practices of how to create all this stuff into a single ecosystem, the more they start making Burke-like Connections. Thinking you can Jira-innovate your way to dominance on an ever-narrowing technology stack is architecture astronaut'ing on a strategic corporate scale.
If Amazon had outsourced their IT operations to an IBM, would their internal culture still have de novo evolved the nascent devops principles back then into AWS?
It isn't what Intel gives up now by selling this business that will hurt their innovation. It is the options that suddenly get a lot more expensive to investigate in the future for future innovation. Technology innovation is evolution: extremely messy, more dead ends than successful adaptations, enormously energy-intensive from lots of majority-repetition, and highly organic. You can certainly optimize around the edges to make it slightly less jagged-edge, but innovation sparks at the tiny interstices, usually not at the top.
Somehow the innovation spurred by capitalism from the freewheeling, chaotic free market is suddenly amenable when it crosses the corporate threshold to sprints, top-down grand corporate architectural visions, and five-year plans. I wish as much as anyone innovation wasn't such a massively, messily, wasteful, organic process. But after decades of experience bashing my head against the wall with everyone else trying the top-down, bottle-it-up-and-sell-it hopeium, I've been pleasantly surprised with "letting go" and letting the "floor" mix it up, take input from it, feed back into it, and create a constantly-boiling stew of ideas. The finance management part in me has to be locked away in the padded cell here and there for their own good, but they and I can't argue with the results.
In any case, we absolutely should not let our natural inclinations towards an underdog story cloud our judgement. China isn't an underdog anymore.
Half of the people in America look at foreign policy through the lens of naive capitalism and the other half look at foreign policy through the lens of naive morality. Both are incredibly foolish, as China has taught us.
To be clear, the current administration has matched rhetoric about "winning" with some very stupid moves. I'm not a fan of stupid moves, but I see people object to both smart and stupid moves on the basis that they aren't good, or right, or fair -- and I object to that. Politics is amoral.
this is pretty unlikely. big government projects (.mil, .nasa) are better at kick starting the hard stuff.
america has gotten so fragmented though that I doubt we'll ever have a moon-shot scale project ever again.
What's a damn shame is Intel's StrongARM / XScale division in the early-to-mid-2000s. Methinks the world would be very different today if they continued investment in that sector - and we'd have more than just Qualcomm and Apple to contend with.
An interesting case of alternative history would be:
What if Jobs asked the CEO to make the processors, and the CEO went to the employees to get feedback on the idea. My guess is that the engineers would be like ‘yeah let’s do this, we will learn so much!’ and the marketing/business folk would be like ‘is this a $100M opportunity? nope, don’t engage’
The amount of fiddling and coddling that is done to "protect" the director and GM level folks is incredible. With each level respinning the facts to match a pre-approved mileiu.
Given that the practical survival of technology megacorps depends heavily on internal competition and making unpopular internal moves, I'm surprised that megacorps today still don't foster internal competition and encouraging the propagation of negative opinions as much as they should.
As an example of an org that does it _right_ (even if I have absolutely no idea _how_ they do it), look at Apple: when the iPhone was ready for release they made the gut-wrenching decision to axe the superbly profitable and hugely popular iPod product line. It's hard to imagine another company doing something as drastic at that, especially when the bright future of the iPhone wasn't really established until after the defeat of Blackberry and Windows Phone by 2013.
This was amid the height of the RISC - CISC drama and hardly noticed at the time.
The sad bit is, it will lead to consolidation at the hand of few players which would be worse for customers. Intel used to have good products in flash space.
All of that is ignoring the fact that there is absolutely a benefit for Intel to have vertical integration in this area. They make countless products that rely on flash storage - from NICs to switches. The second they have to rely on an outside party they have to pay markup for that company's margin and they're at that company's mercy from an R&D perspective.
This whole thing feels penny wise, pound foolish to me.
It is important to note Optane is manufactured in partnership with Micron. The partnership is that Intel still owns part of the IP, but actual manufacturing with guarantee capacity is still done by Micron. And judging from previous Micron Investor notes, Intel hasn't been keeping up with their Optane Sales and buying agreement. So that means Intel will no longer be doing any NAND / Optane manufacturing by themselves.
Few other point worth noting,
Intel has one of the best Enterprise / DC SSD range on the market. And they are extremely popular in wholesales channel as well as with System vendors. Intel has been using these SSD as weapons / incentives by giving away SSD with enough Xeon CPU volume. One of the few reasons why AMD EPYC hasn't been gaining much ground at all in Enterprise segment.
The NAND Plant is in China. Wroth pointing out in the current geopolitical climate.
NAND is a commodity market. It doesn't swing up and down like DRAM in the old days mostly due to less players in the market and HyperScaler's volume creating enough buffer. But generally speaking Intel doesn't like commodity business. May be not commodity market per se, but Intel doesn't like margin fluctuation.
Overall I think it is a good move. Most of the time I am very cynical of CFO running companies. But I give Bob Swan some credit because so far things seems to be moving in the right direction. While the pace might not be fast enough. ( Mostly due to inertia ) But at least it is better than BK's era.
By late 1990s the press releases dropped off and the idea of consumers running solid state drives went pOoF! for another decade.
I'm sure they still find some use for their no-longer-brand-new fabs, but this kind of examination of each business line in isolation doesn't take into account synergies like that. I can easily imagine Intel doing one "makes good business sense" decision after another, until they are no longer able to manufacture competitively at all.
Oh, wait, maybe that already happened a couple years ago...
Personally I believe Intel needs some big wins as they're basically getting their lunch eaten from all sides. Fortunately they're still highly profitable which affords them a lot of opportunity for investments, if they can't do that their future may be dependent on others successes of their intelcapital.com arm, which worked well for Yahoo! who at the end, most of their value came from their Alibaba investment.
[1] https://newsroom.intel.com/news-releases/nand-memory-news/
>Although, not so clear now whether it means they're on another course to greatness...
This is the $64,000 question. Intel got out of the memory business when it was clear by 1985 that CPUs were its future. I didn't write x86 because Intel itself wasn't convinced of this; see iAPX 432, i860, Itanium, and StrongARM/Xscale. All failed to give Intel the backup/alternative to x86 that it has repeatedly sought.
It is not an exaggeration to say that Intel has failed, or at least failed to distinguish itself, in every single market it has entered since IBM chose the 8088 forty years ago. Besides the above alternative instructional sets/architectures and flash memory, antivirus (still perhaps the most mystifying move in Intel history), servers/motherboards, and GPUs come to mind. The most successful non-x86 business for Intel is ... Ethernet cards? Meanwhile, it's embarrassed itself with discrete GPUs at least three separate times. A few years ago buying Nvidia would have been a savvy move; now it can no longer do so, and it's not impossible to imagine Nvidia buying Intel in the future.
Even within the one market Intel does dominate, what saved the company 15 years ago amidst Itanic and Pentium 4 was 1) AMD Thunderbird being just as inefficient as Pentium 4 and, more importantly, 2) an Intel Israel skunk works project to improve on the Pentium 3. There is no such out-of-the-blue miracle this time.
Of all of the others, StrongARM/Xscale seems obviously the biggest missed opportunity. Threw it away one year before the iPhone.
Intel can even stop investing further into flash R&D, and it will be years, and years before they will be outpriced, even with discount for their lower performance.
https://www.newegg.com/intel-d3-s4510-1-92tb/p/0D9-002V-003V...
https://www.amazon.com/Samsung-PM863a-Enterprise-Internal-MZ...
"For Intel, this transaction will allow us to further prioritize our investments in differentiated technology where we can play a bigger role in the success of our customers and deliver attractive returns to our stockholders."
[1] https://newsroom.intel.com/news-releases/nand-memory-news/
Because as far as I know non of the state of the at chip manufacturing is fine in CCP controlled territory.
There are a bunch of chip fabs in China but that all lack behind as much or likely more then Intel.
Maybe they need money to sink in their 7nm/5nm new projects, but it seems they're losing their hand there
Intel seems to have a great timing for doing the wrong thing at the right time. E.g. their sale of their Arm division
(Intel is of course not doing their best at their core, but this does not seem to be an instance of it IMO. This is more analogous to exiting the DRAM business early in their existence)
Because that "commodity" gives a company a steady revenue stream. The less diversification a business has, the more vulnerable it is in case of issues (e.g. the fiasco that is the new fab process sizes), market demand shifts or other external events (wars, tariff / trade wars, pandemics, economic crises).
Intel is now trading that revenue stream for a one time cash injection, probably to get back on their feet regarding the mentioned new fab processes - but if that bet fails, they're out of all the money they spent AND don't have that revenue stream anymore.
In my opinion this is a dangerous short-sighted move driven by bean counters with next-quarterly-only incentives...
"For Intel, this transaction allow us to further prioritize our investments in differentiated technology ... and deliver attractive returns to our stockholders."
[1] https://newsroom.intel.com/news-releases/nand-memory-news/
The core of Intel's business is x86.