It's so weird that an oligopolistic industry with the largest barriers to entry (your average CPU factory will cost $5/10+ billions, and that's just the factory) have the lowest margin, by far. Why is that so?
Through TSMC for example has margin >40%. Which isn't that surprising I mean there is not much competition. Intel doesn't (yet) provide their capabilities to anyone else, and the other competition is behind enough to not be an option for many things, especially high end and/or high efficiency.
What is quite fascinating is that while TSMC is a close to monopoly(/duopoly if you count Intel) in many sectors and takes advantage of it they seem to have successfully resisted the common problem of such companies stopping/slowing innovation and similar problem. I'm not sure if it's related to the additional pressure of them being on of the main lifelines for Taiwan or if they have just pretty good management or if it's because they still competition oligopoly main customers do push them to do so.
Also, TSMC hasn't been around long enough to become the slow behemoths that other big monopolies have become.
And Intel was a company that was still shoving billions into r&d, yet still got stuck
So much of the tech industry has Moore's law baked into the supply chain forecasts, so lots of incentive to deliver on it.
It makes a big difference to a few competitive customers so TSMC gets paid well for that first mover advantage, but yeah it’s not well secured monopoly.
ASML tech is a tool, one essential for new better chips but not sufficient
You also need to have a lot of know how about how to best use the tool, integrate it in workflows etc. where TSMC seems to be somehow ahead of Intel.
Additionally the custom tooling in the steps leading up to the use of ASML tooling are also hugely important and TSMC is quite a bit ahead of intel with that. It turned out having multiple different customers with different needs which all collaborate with TSMC to optimize the tools in their workflows.
But all those factories have to be paid for no matter income.
So if income goes down your profit margin goes to terrible.
Intel has been burning their cash to try and catch up in both Foundry and CPU business.
Probably better if those % were Non-GAAP numbers. But that is another debate.
Rule 1: Margins are as large as a company can get away with them being
Rule 2: The primary thing that brings down prices (thereby shifting consumer demand) is another company competing offering lower prices
Rule 3: Fewer companies are able to maintain a unified front of higher-than-required margins for longer, owing to fewer individuals needing to agree to make the prsioner's-dilemma-esque status quo hold. Any one of them can take business from the others by lowering their prices, but at the cost of reduced margins for everyone (including themselves).
Margin pricing in general is "sticky". When it goes down, its difficult for it to rise. That's why companies jump on inflation as an excuse to raise prices - usually much more than inflation. Similarly, see power prices in Europe after ukraine war - record profits despite attributing price rise to rising supply chain costs.
Yes, this doesn't follow your economics 101. This is economics 102.
As soon as there is an "excuse", companies make massive profits and margins rise. This will also cut into demand as price-sensitive consumers drop out. This is seen as fine. Sometimes, it is better to make more money from less work than grow less efficiently.
They’ve been betting the farm on delivering the highest performance chips on the market for the last 25 years.
For many years, they were unopposed technically. Now, though, their technological advantage is starting to erode.
Intel is in deep shit as a business. How much runway they have is anyone’s guess. But they’re in trouble.