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Comment by thunderbird120 | Hacker News Reader

I swear HN's discussions on anything Intel related are always bottom of the barrel. They've been very clear about their messaging over the past few years. They are currently spending large amounts of money on capital expenditures to ensure future competitiveness and that eats into profits. The lack of increased profits during this current chip shortage is not a surprise to anyone paying attention nor is it indicative of anything particularly catastrophic for Intel.

From Reuters

>Intel Corp expects its profit margin to drop this year and then be steady for several years as it invests in new technologies and factories to meet rising chip demand, but added it forecasts climbs from 2025.

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The reason why this comes up is Intel historically as a company built it's market dominance on it's manufacturing processes. This in turn lead to profitability.

I'll use Intel's advertised sizes for processes below, but keep in mind that a smaller number just represents a new manufacturing process. Not that actual size.

Intel switched to a FinFET process with its "22nm node" in 2011, then a few years later in 2014 switched to a "14nm node" that is also FinFET. That was effectively the last profitable manufacturing innovation for Intel. A "10nm node" certainly exists, but is practically a black hole of money when you consider the time invested on it and just how far behind they are at this point.

The only concrete thing Intel did to address this was to just rename all their process nodes to be smaller. That's basically it. A few years from now is a full decade that Intel will have spent without actually introducing a new profitable manufacturing process. You can make all the press releases you want about how it'll be profitable "one day", it doesn't change the fact that Intel can't really seem to design new manufacturing processes.

Intel effectively watched the manufacturing technology move past them and shrugged. The proposed solution to this is to spend several more years doing basically the same thing, but this time they'll hope they get it right. This is magical thinking.

And they renamed 10nm to Intel 7, but it is not EUV. Both TSMC and Samsung have moved to EUV, and until Intel does as well they are going to remain behind. All that money spent is nice, but until they start taking delivery of tons of equipment from ASML it's not going to help them at the leading edge.

EUV is a tool, not a process. TSMC N5 isn't 100 percent EUV either. Intel can hit similar feature sizes with Intel 7 as TSMC can but it requires more steps, hitting their margins and lowering their yields. The chips that come out of the other end are equivalent though.

> EUV is a tool, not a process.

It's kinda both. To be clear, EUV directly refers to a specific type of lithography equipment, ones using extreme UV light sources. However, those changes come with a lot of changes in larger process flow that are all inter-related.

The change in EUV means smaller lithography lines, and also means needing photo resist, etching, cleaning, etc. - many other process steps, that support that size change. Add in that now, with EUV lithography, you are operating lithography under vacuum and its a huge challenge. Suddenly you have to have vacuum ready materials.

One of Intel's mid 2010 wins was getting immersion litho to work better than peers - similar thing just wet wafers rather than vacuum wafers.

EUV is a tool/technology, one used only on critical layers where that precision matters (e.g., gate patterning). But the larger (entire) manufacturing process has to be designed to enable the use of that tool/technology.

Leading edge processes are not where the shortage exists -- it's trailing process nodes that are used heavily for support chips and automotive. Support chips like voltage regulators sure as hell don't need a 5nm or 7nm process, but they are critical components to any piece of electronics being able to ship. Older processes are ideal for these needs because they are very well characterized / understood, making them excellent for chips with an analog component. And older processes were cheap until demand exceeded supply.

Edit: and Intel doesn't and won't play into the market for support chips. There's no way in hell that they can support Intel's required profit margins.

To add on: Older processes also have lower static current consumption due to less leakage from bigger features. They are quantitatively better in many applications for low power or high precision.

EUV is coming with the Intel 4 process node. Intel is also the lead customer for ASML's High-NA EUV, which is supposed to be the next generation EUV.

I wouldn't say they shrugged, they tried but this stuff is hard. It was an engineering failure. Though engineering failures are often caused by organizational failures.

Not just engineering. I listened to an earning's call once. The CFO or someone in that area was claiming that "14nm was the most profitable process ever!". My thought was "well yes, it's also the most long lived process. I'd hope you haven't been operating at a loss for all these years"

I don't think the average user or custom cares all that much about what node they are actually on. Yes, of course battery life and efficiency matters. But if Intel can make some decent incremental improvements I just don't see them completely going away.

AMD and Intel have been trading the throne for years and every single time everyone says one of them is about to die. Yet here we are.

Via still exists and they never had the throne so I don't think either AMD or Intel are likely to die any time soon. The more interesting bet is if either will still be valued at ~$200 billion in 5 years or if these recent performance challengers end up making a large portion of the existing revenue generating x86 products look like Via CPUs did before they manage to get stronger grips into other product markets like GPUs and networking.

Also, it's really not like Intel is doing badly profit wise. They made $20 billion last year. That is 125% of AMDs entire revenue and 75% of nvda's. All this talk of growth opportunity for nvda/amd seems to ignore that the pretty much best case scenario for them is to become what intel already is profitability wise.

They also only have a P/E of 7.3 with a 3.3% dividend yield.

That's stock market language for low expected growth in a company that is doing OK now but doesn't look good in the future.

Of course. Everything is a stochastic process and the markov property holds true in all instances, your brain is useless. Markets have it all figured out.

My post was in terms of relative valuation compared to AMD and NVDA but I didn't feel like spelling it out. I mean can one really be an order of magnitude certain of profits vs AMD and NVDA either?

Of course this is not a democracy. It has to be the minority game takes hold. https://arxiv.org/search/advanced?advanced=&terms-0-operator...

More like 11.2 billion in free cash flow

https://www.intc.com/news-events/press-releases/detail/1522/...

> nor is it indicative of anything particularly catastrophic for Intel.

Well, it's indicative of the slow-moving catastrophe that was their 10nm farce. Intel is spending a lot of money to recover from that, because they need to make drastic changes to regain their dominant position. If they weren't sacrificing profits in a big way right now, the most reasonable expectation for their future would be an IBM-style slow decline from relevance.

Agreed.

> They are currently spending large amounts of money on capital expenditures to ensure future competitiveness and that eats into profits.

Which is precisely why understanding more than just an Income Statement (i.e. Earnings) is important to understanding how much companies "make".

Hilariously this article was published in Jan. Intel just (April) recorded its highest quarterly earnings ($8B).

https://www.intc.com/news-events/press-releases/detail/1541/...

Financial media is such a trash-heap.

> They've been very clear about their messaging over the past few years

They were very clear about "finally" shipping 10nm every year for half a decade. Their messaging doesn't mean squat. I'm not sure why there are still people who believe everything Intel says.

There “messaging” can be anything they want. By missing mobile, they are stuck just competing in the PC space which is minuscule compared to mobile.

There are about 280 million PCs sold in a year.

https://www.gartner.com/en/newsroom/press-releases/2021-01-1...

Apple alone will be selling that many ARM chips in a year between phones, tablets, computers, set top boxes, monitors (the latest displays have the same processors that are in the iPhone 11), etc.

Apple is only 15% of the phone market. All of the major cloud providers are trying to move to ARM wherever possible.

The world is moving toward more power efficient chips. Something Intel can’t do.

Not seeing the bottom of the barrel discussion you’re referring to, in fact someone else already pointed this out. However, I really feel like this viewpoint is too charitable still. Sure, they are definitely investing in R&D to stay competitive, and that has eaten into profits. What exactly does that say about their corporate strategy before recently? If you really put two and two together, it’s hard to come up with anything but the most cynical answer: they cut R&D too short and maximized short term profits like crazy.

I don’t feel like it’s any more reasonable to take Intel’s own rhetoric at face value any more than NVIDIA or AMDs. They’re all trying to paint the best picture for investors.

Plus, none of this really discounts the valid points from the article either…

>What exactly does that say about their corporate strategy before recently?

I get the impression that people think that Intel's stagnation after 14nm was due to complacency and the desire to avoid taking risks. That is literally the exact opposite of the truth because almost all of their problems with the 10nm node stemmed from it being far too ambitious. It incorporated a large number of extremely cutting edge technologies which were leaps ahead of anything else being attempted at the time. This over-ambition lead to nearly half a decade being wasted because, as it turns out, they were a bridge too far. If Intel had been able to pull off what they originally intended with 10nm when they intended it they would have been absurdly far ahead of all of their competition but unfortunately that choice actually resulted in them falling behind.

The first half of their post-14nm stagnation was because they were overly ambitious for 10nm. But the second half of that era was because of their hubris, denial that things weren't going to plan, and inability to adjust plans. They eventually admitted defeat (to some extent) and back-ported one of their 10nm designs to 14nm as a stopgap, but they started that effort at least two years later than they should have.

I’m not denying most of that, but it feels extremely one-sided. I feel like I’m reading Intel investor relations right now. I am not suggesting Intel was not working on cutting edge technology, but so were other companies, and some of them succeeded where Intel failed. Meanwhile, Intel had multiple business units with similar issues, especially their modem business, and I doubt the postmortem said “Oops, we were too ambitious!” Bullshit. They had organizational issues and complacency. I’m sure 10nm was plagued with many problems that weren’t complacency too. That’s part of the table stakes when you are in the business of defying physics.

The financials tell a different story.

Intel’s process technology lead was the core of their strategy and explains 95% of what’s gone wrong. The 5G modem design was an irrelevant sideshow that had no impact on 10nm.

I’m not suggesting the same exact thing happened, but it’s hard to believe there weren’t some overarching management issues going on, and it seems likely they contributed to problems further down the line. A couple blunders could’ve been a fluke, but I think we’re past the “it could’ve been a fluke” stage.

Of course, this is all pure conjecture, but nobody can really be all that sure. I’m sure even people at Intel have differing opinions about what was wrong.

Word on the street is also that the 14nm death march resulted in a lot of engineers taking early retirement which left them in a worse position to pursue 10nm.

From what I've heard, that was Intel's doing. They intentionally pushed older engineers into early retirement to save money.

"These geese lay nice, gold eggs but cost too much to feed. Let's get rid of them."

Well the old guard were the ones who screwed up 14nm, so were they really the geese?

In this case, we'd expect them to have gotten some R&D out of those overambitious failures, right? So we should hope to see some really snappy progress in post-10nm nodes?

People forget that around the 14nm timeline Intel was completely DOMINATING in terms of performance. And this was not THAT long ago. Will be interesting to see where everything is in 2 years

There is a balance a business needs to keep. Under spend on your future (e.g., R&D) and you'll have higher profits. Until you don't have something great to sell in a few years. It's short term. Over spend on the future and you won't have money for your share holders which they won't like.

Intel is expanding what they do (i.e. fabing chips for others). This is a business opportunity that wan't overly visible a few years ago. Global economics have changed and that presents a new opportunity they are positioned for and jumping on.

They also under invested in R&D. Many companies do and go through cycles of it. They are playing some catch up. But, they seem to be serious about it which is good in many respects.

If you're a short term share holder you might not like it because there are lower short term profits. If you're a long term share holder you might like it because they'll have a more diverse portfolio and better future product (and sales) potential.

Fabing for others has been visible for decades. Apple tried to get Intel to fab its ARM processors in 2007. But Intel thought that the margins were too small.

> "...fabing chips for others). This is a business opportunity that wan't overly visible a few years ago. Global economics have changed and that presents a new opportunity they are positioned for and jumping on."

That's not really true, and it's not even the first time Intel has offered foundry services. There was Intel Custom Foundry a decade ago.

https://newsroom.intel.com/news-releases/altera-and-intel-ex...

>I swear HN's discussions

Hardware Discussions on HN has been trending towards mainstream media since forever or arguably 2016/7. At least this being upvoted to the top suggest there are still a silent majority who knew what is going on and didn't bother commenting.

Hackernews and reddit discourse seems to desperately want to believe the Intel vs. AMD, blue versus red, style narrative.

Maybe Intel deserve it, I don't know, but it's silly to think these companies are your team.

Intel stumbled pretty hard, but they seem to have self-righted. The fact that their stumble didn’t really cost them all that much is a testiment to the company.

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