>> From theCUBE Studios in Palo Alto in Boston,
bringing you data-driven insights from theCUBE and ETR,
this is "Breaking Analysis" with Dave Vellante.
>> If it weren't for Pat Gelsinger,
Intel's future would be a disaster.
Even with his clear vision,
fantastic leadership, deep technical and business acumen,
and amazing positivity,
the company's future is in serious jeopardy.
It's the same story we've been telling for years.
Volume is king in the semiconductor industry,
and Intel no longer is the volume leader.
Despite Intel's efforts to change that dynamic
With several recent moves,
including making another go at its Foundry business,
the company is years away
from reversing its lagging position
relative to today's leading foundries and design shops.
Intel's best chance to survive as a leader in our view,
will come from a combination of a massive market,
continued supply constraints, government money, and luck,
perhaps in the form of a deal with apple in the midterm.
Hello, and welcome to this week's
"Wikibon CUBE Insights, Powered by ETR."
In this "Breaking Analysis,"
we'll update you on our latest assessment
of Intel's competitive position and unpack nuggets
from the company's February investor conference.
Let's go back in history a bit
and review what we said in the early 2010s.
If you've followed this program,
you know that our David Floyer sounded the alarm for Intel
as far back as 2012,
the year after PC volumes peaked.
Yes, they've ticked up a bit in the past couple of years
but they pale in comparison to the volumes
that the ARM ecosystem is producing.
The world has changed
from people entering data into machines,
and now it's machines that are driving all the data.
Data volumes in Web 1.0 were largely driven
by keystrokes and clicks.
Web 3.0 is going to be driven
by machines entering data into sensors, cameras.
Other edge devices are going to drive enormous data volumes
and processing power to boot.
Every windmill, every factory device,
every consumer device, every car,
will require processing at the edge
to run AI, facial recognition, inference,
and data intensive workloads.
And the volume of this space compared to PCs
and even the iPhone itself is about to be dwarfed
with an explosion of devices.
Intel is not well positioned for this new world in our view.
Intel has to catch up on the process,
Intel has to catch up on architecture,
Intel has to play catch up on security,
Intel has to play catch up on volume.
The ARM ecosystem has cumulatively shipped
200 billion chips to date,
and is shipping 10x Intel's wafer volume.
Intel has to have an architecture
that accommodates much more diversity.
And while it's working on that,
it's years behind.
All that said,
Pat Gelsinger is doing everything he can and more
to close the gap.
Here's a partial list of the moves that Pat is making.
A year ago, he announced IDM 2.0,
a new integrated device manufacturing strategy
that opened up its world to partners for manufacturing
and other innovation.
Intel has restructured, reorganized,
and many executives have boomeranged back in,
many previous Intel execs.
They understand the business
and have a deep passion
to help the company regain its prominence.
As part of the IDM 2.0 announcement,
Intel created, recreated if you will, a Foundry division
and recently acquired Tower Semiconductor
an Israeli firm,
that is going to help it in that mission.
It's opening up partnerships
with alternative processor manufacturers and designers.
And the company has announced major investments in CAPEX
to build out Foundry capacity.
Intel is going to spin out Mobileye,
a company it had acquired for 15 billion in 2017.
Or does it try and get a $50 billion valuation?
Mobileye is about $1.4 billion in revenue,
and is likely going to be worth more
around 25 to 30 billion, we'll see.
But Intel is going to maybe get $10 billion in cash from that,
that spin out that IPO
and it can use that to fund more FABS
and more equipment.
Intel is leveraging its 19,000 software engineers
to move up the stack and sell more subscriptions
and high margin software.
He got to sell what he got.
And finally Pat is playing politics beautifully.
Announcing for example, FAB investments in Ohio,
which he dubbed Silicon Heartland.
Brilliant!
Again, there's no doubt that Pat is moving fast
and doing the right things.
Here's Pat at his investor event in a T-shirt
that says, "torrid, bringing back the torrid pace
and discipline that Intel is used to."
And on the right is Pat at the State of the Union address,
looking sharp in shirt and tie and suit.
And he has said,
"a bet on Intel is a hedge
against geopolitical instability in the world."
That's just so good.
To that statement,
he showed this chart at his investor meeting.
Basically it shows
that whereas semiconductor manufacturing capacity
has gone from 80% of the world's volume to 20%,
he wants to get it back to 50% by 2030,
and reset supply chains in a market
that has become important as oil.
Again, just brilliant positioning
and pushing all the right hot buttons.
And here's a slide underscoring that commitment,
showing manufacturing facilities around the world
with new capacity coming online in the next few years
in Ohio and the EU.
Mentioning the CHIPS Act in his presentation
in The US and Europe
as part of a public private partnership,
no doubt, he's going to need all the help he can get.
Now, we couldn't resist the chart on the left here
shows wafer starts and transistor capacity growth.
For Intel, overtime speaks to its volume aspirations.
But we couldn't help notice
that the shape of the curve is somewhat misleading
because it shows a two-year (mumbles)
and then widens the aperture to three years
to make the curve look steeper.
Fun with numbers.
Okay, maybe a little nitpick,
but these are some of the telling nuggets
we pulled from the investor day,
and they're important.
Another nitpick is in our view,
wafers would be a better measure of volume
than transistors.
It's like a company saying we shipped 20% more exabytes
or MIPS this year than last year.
Of course you did,
and your revenue shrank.
Anyway, Pat went through a detailed analysis
of the various Intel businesses
and promised mid to high double digit growth by 2026,
half of which will come from Intel's traditional PC
they center in network edge businesses
and the rest from advanced graphics HPC,
Mobileye and Foundry.
Okay, that sounds pretty good.
But it has to be taken into context
that the balance of the semiconductor industry,
yeah, this would be a pretty competitive growth rate,
in our view,
especially for a 70 plus billion dollar company.
So kudos to Pat for sticking his neck out on this one.
But again, the promise is several years away,
at least four years away.
Now we want to focus on Foundry
because that's the only way
Intel is going to get back into the volume game
and the volume necessary for the company to compete.
Pat built this slide
showing the baby blue for today's Foundry business
just under a billion dollars
and adding in another $1.5 billion for Tower Semiconductor,
the Israeli firm that it just acquired.
So a few billion dollars in the near term future
for the Foundry business.
And then by 2026,
this really fuzzy blue bar.
Now remember, TSM is the new volume leader,
and is a $50 billion company growing.
So there's definitely a market there
that it can go after.
And adding in ARM processors to the mix,
and, you know, opening up
and partnering with the ecosystems out there
can only help volume if Intel can win that business,
which you know, it should be able to,
given the likelihood of long term supply constraints.
But we remain skeptical.
This is another chart Pat showed,
which makes the case that Foundry and IDM 2.0
will allow expensive assets to have a longer useful life.
Okay, that's cool.
It will also solve the cumulative output problem
highlighted in the bottom right.
We've talked at length about Wright's Law.
That is, for every cumulative doubling
of units manufactured,
cost will fall by a constant percentage.
You know, let's say around 15% in semiconductor world,
which is vitally important
to accommodate next generation chips,
which are always more expensive at the start of the cycle.
So you need that 15% cost buffer to jump curves
and make any money.
So let's unpack this a bit.
You know, does this chart at the bottom right
address our Wright's Law concerns,
i.e. that Intel can't take advantage of Wright's Law
because it can't double cumulative output fast enough?
Now note the decline in wafer starts
and then the slight uptick,
and then the flattening.
It's hard to tell what years we're talking about here.
Intel is not going to share the sausage making
because it's probably not pretty,
But you can see on the bottom left,
the flattening of the cumulative output curve
in IDM 1.0 otherwise known as the death spiral.
Okay, back to the power of Wright's Law.
Now, assume for a second that wafer density doesn't grow.
It does, but just work with us for a second.
Let's say you produce 50 million units per year,
just making a number up.
That gets you cumulative output to $100 million in,
sorry, 100 million units in the second year
to take you two years to get to that 100 million.
So in other words,
it takes two years to lower your manufacturing cost by,
let's say, roughly 15%.
Now, assuming you can get wafer volumes to be flat,
which that chart showed, with good yields,
you're at 150 now in year three,
200 in year four,
250 in year five,
300 in year six,
now, that's four years
before you can take advantage of Wright's Law.
You keep going at that flat wafer start,
and that simplifying assumption we made at the start
and 50 million units a year,
and well, you get to the point.
You get the point, it's now eight years
before you can get the Wright's Law to kick in,
and you know, by then you're cooked.
But now you can grow the density
of transistors on a chip, right?
Yes, of course.
So let's come back to Moore's Law.
The graphic on the left says
that all the growth is in the new stuff.
Totally agree with that.
Huge term that Pat presented.
Now he also said
that until we exhaust the periodic table of elements,
Moore's Law is alive and well,
and Intel is the steward of Moore's Law.
Okay, that's cool.
The chart on the right shows Intel going
from 100 billion transistors today to a trillion by 2030.
Hold that thought.
So Intel is assuming that we'll keep up with Moore's Law,
meaning a doubling of transistors every let's say two years,
and I believe it.
So bring that back to Wright's Law,
in the previous chart,
it means with IDM 2.0,
Intel can get back to enjoying the benefits of Wright's Law
every two years, let's say,
versus IDM 1.0 where they were failing to keep up.
Okay, so Intel is saved, yeah?
Well, let's bring into this discussion
one of our favorite examples,
Apple's M1 ARM-based chip.
The M1 Ultra is a new architecture.
And you can see the stats here,
114 billion transistors on a five nanometer process
and all the other stats.
The M1 Ultra has two chips.
They're bonded together.
And Apple put an interposer between the two chips.
An interposer is a pathway that allows electrical signals
to pass through it onto another chip.
It's a super fast connection.
You can see 2.5 terabytes per second.
But the brilliance is the two chips act as a single chip.
So you don't have to change the software at all.
The way Intel's architecture works
is it takes two different chips on a substrate,
and then each has its own memory.
The memory is not shared.
Apple shares the memory for the CPU, the NPU, the GPU.
All of it is shared,
meaning it needs no change in software unlike Intel.
Now Intel is working on a new architecture,
but Apple and others are way ahead.
Now let's make this really straightforward.
The original Apple M1 had 16 billion transistors per chip.
And you could see in that diagram,
the recently launched M1 Ultra has $114 billion per chip.
Now if you take into account the size of the chips,
which are increasing,
and the increase in the number of transistors per chip,
that transistor density,
that's a factor of around 6x growth
in transistor density per chip in 18 months.
Remember Intel, assuming the results
in the two previous charts that we showed,
assuming they were achievable,
is running at 2x every two years,
versus 6x for the competition.
And AMD and Nvidia are close to that as well
because they can take advantage of TSM's learning curve.
So in the previous chart with Moore's Law, alive and well,
Intel gets to a trillion transistors by 2030.
The Apple ARM and Nvidia ecosystems
will arrive at that point years ahead of Intel.
That means lower costs
and significantly better competitive advantage.
Okay, so where does that leave Intel?
The story is really not resonating with investors
and hasn't for a while.
On February 18th,
the day after its investor meeting,
the stock was off.
It's rebound a little bit but investors are,
you know, they're probably prudent to wait
unless they have really a long term view.
And you can see Intel's performance
relative to some of the major competitors.
You know, Pat talked about five nodes in for years.
He made a big deal out of that,
and he shared proof points with Alder Lake and Meteor Lake
and other nodes,
but Intel just delayed granite rapids last month
that pushed it out from 2023 to 2024.
And it told investors
that we're going to have to boost spending
to turn this ship around,
which is absolutely the case.
And that delay in chips
I feel like the first disappointment won't be the last.
But as we've said many times,
it's very difficult,
actually, it's impossible
to quickly catch up in semiconductors,
and Intel will never catch up without volume.
So we'll leave you by iterating our scenario
that could save Intel,
and that's if its Foundry business
can eventually win back Apple
to supercharge its volume story.
It's going to be tough
to wrestle that business away from TSM
especially as TSM is setting up shop in Arizona,
with US manufacturing
that's going to placate The US government.
But look, maybe the government cuts a deal with Apple,
says, hey, maybe we'll back off with the DOJ and FTC
and as part of the CHIPS Act,
you'll have to throw some business at Intel.
Would that be enough
when combined with other Foundry opportunities
Intel could theoretically produce?
Maybe.
But from this vantage point,
it's very unlikely Intel will gain back
its true number one leadership position.
If it were really paranoid
back when David Floyer sounded the alarm 10 years ago,
yeah, that might have made a pretty big difference.
But honestly, the best we can hope for
is Intel's strategy and execution allows it
to get competitive volumes by the end of the decade,
and this national treasure survives
to fight for its leadership position in the 2030s.
Because it would take a miracle for that to happen
in the 2020s.
Okay, that's it for today.
Thanks to David Floyer
for his contributions to this research.
Always a pleasure working with David.
Stephanie Chan helps me do much of the background research
for "Breaking Analysis,"
and works with our CUBE editorial team.
Kristen Martin and Cheryl Knight to get the word out.
And thanks to SiliconANGLE's editor in chief Rob Hof,
who comes up with a lot of the great titles
that we have for "Breaking Analysis"
and gets the word out to the SiliconANGLE audience.
Thanks, guys.
Great teamwork.
Remember, these episodes are all available as podcast
wherever you listen.
Just search "Breaking Analysis Podcast."
You'll want to check out ETR's website @etr.ai.
We also publish a full report every week
on wikibon.com and siliconangle.com.
You could always get in touch with me on email,
david.vellante@siliconangle.com
or DM me @dvellante,
and comment on my LinkedIn posts.
This is Dave Vellante
for "theCUBE Insights, Powered by ETR."
Have a great week.
Stay safe, be well,
and we'll see you next time.
(upbeat music)