Odd Lots - Lots More on the Ongoing Mess That Is Intel

Episode Date: October 4, 2024

The US is in the midst of a big effort to bring more semiconductor manufacturing onshore. Intel is the biggest US semiconductor manufacturer. There's just one problem. Intel has really been struggling to get its fab operations up and running in a timely, efficient manner. So what's the problem, and can the company turn things around? On this episode of Lots More, we speak to Stacy Rasgon of Bernstein Research and Mackenzie Hawkins of Bloomberg News to discuss the current struggles and future prospects for the company.Mentioned in this episode: Intel Gets Multibillion-Dollar Apollo Offer as Qualcomm CirclesArm Is Rebuffed by Intel After Inquiring About Buying Product Unit Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Bloomberg Audio Studios. Podcasts, Radio News. I am worried about Intel. No, for real. We're recording this on October 1st, so I'm worried about some other things, but sure, sure. No, there's plenty to worry about in the world. But, like, I'm worried about Intel specifically because it's all nice to talk. about industrial policy and we're going to build these, you know, build out all these industries, etc. But here we have one of the true industrial giants, one of the flagship companies of the United States, getting a lot of support, our leading company in the field of semiconductors,

which is a major strategic priority for the U.S. And they do not seem to be doing well at all. The stock is absolutely dismal. They're cutting jobs. If this is the flagship company, like them and Boeing, gloom very large in my head about, I guess what I would say is like, I don't know if corporate rot is too strong of a word, but yeah, like corporate rot. Not to add to your anxiety, but did you also see some of the headlines coming out of North Carolina about quartz sand? Oh yeah, I don't know what that's all about. It's kind of an interesting one. So after Hurricane Helene, there's a town called Spruce Pine where apparently most of the world's supply of pure quartz sand comes from, and that could have an impact on the production of semiconductors.

So I guess we get to unveil the bullhorn for the bullwhip effect again. We're not doing this again. Apparently we are doing this again. I did a deadlift. One, two, three. Hedgemy. Okay, go. Barges.

This is an after-school special, except... I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the U.S. Where's the best squid ink pasta? These are the important questions. Is it robots taking over the world? No, I think that like in a couple of years, the AI will do a really good job of making the Odd Lots podcast.

And people will say, I don't really need to listen to Joe and Tracy anymore. We do have... Cha-ching. The perfect guest. Welcome to Lots and More where we catch up with friends about what's going on right now. Because even when Odd Lots is over, there's always lots more. And we really do have the perfect guest. Stacey, what's going wrong at Intel?

What's not going wrong at Intel right now? They're in a tough spot, right? I mean, they are embarking on a very risky and capital-intensive strategy. I say embarking, but frankly, they've been along on this strategy for quite a few years now. Yeah, because CEO, Pet Gelsinger came in in 2021. And so we're like at least three years into what is supposedly, an embarkment on a new strategy. And if I just look at the stock price, it's lower than it was in 2015. Yeah. In fact, you know, I actually looked, I launched on the stock in June of 2009. I think it was

$15 and $94. So 15 or 16 years ago, and it's not that far off of there now. It's had a bit of a bounce in the recent weeks. We can talk about why, but in general, they're in a tough spot. Yeah, I mean, the biggest issue that they're having, and we can argue is the strategy the right one or the wrong That's a discussion we can have. But it might be the biggest issue is just the core business that was supposed to support them as they rolled that strategy out is no longer really sufficient to support it anymore. But they may be too far along their path to stop, right? The whole idea was, you know, we're going to be doubling down on manufacturing.

We're going to be building lots of factories in the U.S. and everywhere else. We're going to be building up a significant third-party foundry business to make parts, not just for ourselves, but for other third-party customers as well. We're getting a lot of external funding to do this, and eventually we'll get there, and it's going to be great. But the problem is that these things are very intensive. Like they cost a lot of money, and because of the deterioration that we've seen in Intel's core business,

for a variety of reasons, the macro has not been great. They were over-earning as many were during COVID, and that bubble is popped. They're still losing share in many of their key markets. They've completely missed the AI revolution, which is one of the few areas of semiconductors today that's actually really on fire. And they effectively have nothing to show in that. And those markets are starting to eat into some of the core stuff that Intel does. That core business doesn't really support the path that they're on anymore. Even after the subsidies and frankly doing some other things that are probably not, you wouldn't want to do if you didn't have to.

They've been selling parts of some of their factories to private equity and getting cash for that. But even after all of that, you know, it's still cost. them like a bunch of money that they don't really have anymore. They put out some targets recently that sort of showed a path to, you know, a better company. But in 2030, it's 2024 right now. That's a long ways away. There's a lot of wood to chop between now and then, even if they can manage to execute on that. So they're in a tough spot.

So we are speaking with Stacey Razgen, who is, of course, the semiconductor analyst over at Bernstein. We've spoken to him before. We also have McKenzie Hawkins, who is our colleague here at Blaskin. Lundberg. Mackenzie, how existential are the next? Oh, I guess, let's see, October, November, December, next three months for Intel. This is a crucial stretch for Intel, in part because it's a crucial stretch for the Biden administration. The company is the single largest beneficiary of this massive U.S. effort to resource semiconductor manufacturing through what we call it 2022 Chips and Science Act. They're in line to receive $8.5 billion in grants for projects across four U.S. states for commercial partners.

They're also supposed to get $3 billion to make chips for the Pentagon and $11 billion in loans, not to mention 25% tax breaks on their U.S. investments. There isn't really a fear that the broader subsidy program will go away after President Biden leaves office. But Intel's been negotiating this award package with officials in the Biden administration for well over a year now. it's not yet finalized. And they really want to prove to officials that, yes, we need to sign these documents. We want to get money out the door, ideally by the end of this administration, because who really knows what will come after January? And they're all trying to do that before they've really, really proven the technology stack on which these awards are premised. Stacey, two questions. When you think of Intel, how important is the aid from the U.S. government to its future?

And when you think of the U.S. government, how important is intel to the policy objectives of the United States? They're clearly both important. The aid from the government is helping them. And by the way, I will say, I don't think they're in a critical situation from a cash standpoint right now, partially because of some of those government funds. So if you add up what they've just done, some of the restructuring that they've just announced, the CAPEX cuts, the OPEX cuts, the suspended dividend, they suspended their dividend, right? the governmental funds both from the tax credit as well as the grants as those roll in as well as some of those private equity funds. It's something like $40 billion of incremental cash that lends on the balance sheet like through the end of 2025 versus not doing anything at all. So again, I think their cash position is okay because of this stuff. I don't think they're desperate. It's partially due to those government funds.

I will say, however, to get those grants, it's not like they don't get an $8.5 billion check like they're milestone base. They have to do the projects and build them out and hit the milestones, and then that money gets apportioned, but that money is important. In terms of, like, how important is Intel for the government's efforts? I mean, it's clearly very important, although I will say, you know, if the goal is really to get a ton of leading edge manufacturing capacity built in the U.S., you could argue if the government was only goal-oriented, maybe picking Intel as their champion was not the best way to go. there are other players that you could have encouraged, who were, by the way, they're all building here, but you could have encouraged, for example, somebody like a TSM to build a lot more here than they're doing.

Now, that being said, we're not just goal already. They're like politics as a huge piece. It's not politically viable to do something like that. Intel is the only U.S.-based company that could even hope to build out a leading edge footprint. And so I understand why they've been named the national champion, but I mean, it's just given the issues that they're having. It does sort of throw the eventual success of the program

especially around the leading edge side into a little bit of a loop. We'll have to see how things go for them. And I think it's important to remember here. Intel is the largest beneficiary of the Chips Act, but definitely not the only one. You know, the U.S. is in line to give more than $6 billion to TSM, the unambiguous industry leader. There's also more than $6 billion slated for Samsung, which is building leading edge capacity in Texas. But Intel is really important, one, because the Pentagon has decided that we need an American company to make cutting-edge chips for military. intelligence purposes. They've had early conversations about buying those chips from foreign-owned

foundries that are on U.S. soil. It's crucial that we're having TSM building three fabs in Arizona, and that was a commitment that the U.S. government got from them with the carrot of these subsidies. But Intel, I mean, Gelsinger kind of hinged his entire turnaround plan on this U.S. manufacturing expansion was a major lobbyist pushing for the chips act, riding the coattails of that subsidy program. And yes, you know, this has really high political stakes for the Biden administration and for industrial policy writ large. You know, I think it's a feature, not a bug, of the program that Intel hasn't gotten any money yet. As Stacey mentioned, these are milestone-based awards. You know, companies will get a tranche of money when they have, you know, first wafers out of

their facilities, look at a trance of money when facilities are completed. But for a company that is, you know, not acutely running out of cash, but not in a great financial position like Intel, it really matters when that money actually flows. And the U.S. government is still vetting the viability of these manufacturing plans in the first place before they're willing to sign a final agreement, all they've announced is a preliminary award. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all.

Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Rafini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful. enlightening conversations about business, lifestyle, people, and culture.

On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. That on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television. Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives

like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those guys. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. Is there a viable alternative to Intel? I get the sense that maybe there isn't. I mean, there are three companies in theory that can do leading edge semiconductor manufacturing globally. It's TSM, Samsung, and Intel. And of those three, only really TSM is hitting out of the park in terms of executing to their roadmaps. Like Intel Cooley is having problems. And again, we can talk about

their roadmap and where that may be going, but they've been having issues. And Samsung as well is also having issues. Like, this stuff is not easy. Like, I always Samsung, by the way, by the way, by the way, on the day we're recording this, October 1, Bloomberg reporting some substantial layoffs. It's Samsung

and they're losing some share to competitors like SK Heinex, etc. In certain lines. So, yeah, just to talk about, it's not just Intel having this struggles. Okay, keep going. Yeah. Yeah. So it's, this stuff is hard to do again. I'm always amazed that any of it works at all. But to McKenzie's point, it's not be one of the three. I mean, the administration has said they want an American company to do this. And so I guess I'm wondering, like, are there ways that they could structure something with TSM or Samsung or does it have to be an American

company, in which case, it seems like Intel is the only option? Yeah, if you want an American company to do this stuff, they are the only option. It may be helpful to talk about. their roadmap. So Pat has talked a lot about what he calls five nodes in four years. And according to Intel, they're executing. Although if you kind of look at it, it's kind of questionable. I mean, they're delivering what they're calling seven nanometer today in volume. That's the old, what they used to call 10. They are now starting to ship Intel 4 nanometer. It's a single product that's called Meteor Lake. And in fact, it's a client PC product. It has a tiled architecture. There was one tile on there that's on Intel 4. And the other three tiles are made it actually outsourced. They're

made at TSM, and the margins of that product are not very good. And it's actually, it impacted their margins in the most recent quarter. They're getting ready now to ship another client product, which is called Lunar Lake, which actually from some of the benchworks looks like a decent product, but it's 100% outsource. There's no intel technology and process technology at all. It's all made at TSM. And they've talked about that further impacting their margins as we go into next year. The big one, and I think the one that Pat is kind of betting the company on is what's called 18A. So there were two flavors. There was a 20A process that was supposed to come out with a product called Arrowlake that they have canceled.

So one of the five nodes in four years that canceled, they're going to jump straight to 18A. Their characterization of that is that 18A is so good they don't need 20. 28A, so I guess we'll have to see. 18A in theory is when they start bringing volume back from the foundries back into their own fabs, which in theory is supposed to make their cost structure better. And if you think about the dream case that they laid out, the idea was we do this. we bring all this stuff back. It makes our margins better because the costs are better because we're now internal.

It's a better process so we can take back market share and we can charge more for our product because we can design better products. And it gives customers like lots of confidence that things are good. So they're confident to put a lot of volume with us. And we grow from there. And they talked about hitting the manufacturing business, kind of hitting break even around 2027. And then growing to like very sizable amounts by 2030. So that's the dream.

It's all riding on the success. of 18A. Many of the sort of, you know, kind of like supply chain checks and channels can pick up for 18A, right? They're kind of mixed at best, I would say. On the positive, they just announced Amazon as a customer, and I guess Amazon was willing to have their name attached to it. So I guess that's good. It doesn't look like it's a high volume part. I think it's going to take time for this to ramp. And I guess we're just waiting around and seeing, and that's probably about how long they have. You know, in theory, 18A is supposed to be here next year. They've got a low volume server part called Clearwater Forest that launches in the first half of next year.

Panther Lake, which is a higher volume client product, launches in the second half next year. My guess it'll be volume, real volume, in 2026. So you got about a year, a year and a half to see whether or not they can actually manage to make stuff in a cost-effective manner for themselves on 18A, and then we'll see if that drives volume or not. But that's about how long they have, I think, 12 months, maybe 12 to 18 months. And then we'll see if this works or not. But at this point, we don't know. And, you know, Intel's ability to to secure major customer commitments is, of course, a really key metric for U.S. government officials that are trying to evaluate the viability of, you know, should we be giving them $8.5 billion

of taxpayer money for commercial manufacturing. I mean, they already have $3 billion set aside for the Pentagon as a customer, but if you talk to anybody in the chip industry, the Defense Department is a really difficult customer. Foundries that have been in a secure Pentagon supply chain in the past have struggled to make a return on products manufactured those fabs. And Commerce Secretary Gina Raimondo, So in many ways, her legacy and her image and the kind of main purpose of her department is riding a lot of the success of this program. And therefore, in part on the success of Intel, not in the whole, she's been calling up chipmakers and saying, would you consider using Intel fabs? She asked Nvidia, she asked AMD to consider manufacturing at Intel's Ohio facilities. And, you know, Nvidia's in the earliest stages of evaluating whether that's a possibility.

AMD is happy with their current supplier, which is TSM. And so, you know, as much as the government really wants Intel to succeed, the industry wants Intel to succeed. Even TSM does. Intel's a $4 to $5 billion customer of TSMCs. The customer commitments just aren't there right now. And you can't have anything firm until you know if they can deliver. Right. So I think anyone that wants leading edge is going to evaluate them. Like, why wouldn't you? Like you want second sources. You want geographically secure supply. But I mean, if they can't deliver, they can't deliver. If they can't deliver, if they can't deliver, they can. And that's, that's what we're waiting for. Throwing whatever money you want to throw at it, it isn't going to solve that problem. This gets back to, like some of our first ever episodes that we did on semiconductors years ago,

we're just about this basic challenge that, like, it's brutal to get high yields, that there's all these processes. And if you get every process at 99.99% right, that still doesn't get you the yields that you need to get. And so there's strategies. is like, okay, you're building for this product, you're building for this end consumer, you're building, you're doing in-house. And then there's execution. And the big question mark

is just this execution question. And we just still don't know. Yeah, we don't know. This stuff, again, even under the best of circumstances, is very difficult. You know, they're going through a lot of other turmoil right now. So they're clearly in the midst of a big layoff. Yeah. They're actually canceling some of these projects. So you remember, they weren't just trying to build in the U.S. They had a big Germany project with other subsidies that they just paused. They had a packaging plant in Poland. I think they just paused. So they don't need the capacity.

They don't have the money to pay for it even with the subsidies. So there's a lot of other internal turmoil that is going on there right now while they are still trying to execute on everything else that they have to do. It doesn't make it easier. And you know, this is an intensely cyclical industry, right? And, you know, when we think about what is, you know, Intel's success or failure say about the design of U.S. industrial policy. You have to remember the chips act, Biden signed the ship sacked two years ago. That was sort of at the earliest stages of the AI boom. And there were maybe warning signs about Intel, certainly, but not kind of the flashing red light that we see now. And so government

officials not known necessarily for being super nimble are having to evaluate that in real time. You know, they made a lot of preliminary announcements earlier this year. We saw basically a multi-billion dollar announcement a week in March and April. And markets change. Company dynamics change. I think the challenge is that, you know, there's a sort of lack of understanding. I mean, even among folks who pay attention to this sometimes in Washington about whether the money has actually gone out the door, it hasn't. But the public is expecting that. Intel's expecting that. I mean, the state of Ohio is investing $2 billion in Intel's Ohio facility.

Those plans are contingent on getting money from the U.S. government, but officials also have to evaluate, you know, if a company, you know, Intel or anybody else isn't able to execute on the timeline that we set out at the scale that we set out. At what point do we start talking about other options of where to spend this money, $39 billion set aside for grants? That's a lot of taxpayer dollars. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed.

Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now. And we don't wait an hour to publish breaking news. When news breaks, we'll have an episode up in your podcast feed within minutes, so you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all

the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. I just remember the first time we ever had Stacey on was back in 2020, which is kind of a blur for me. But Stacey, you were bearish on Intel even back then.

In fact, I think like the title of the episode was something like why the U.S. is number one, like semiconductor company is doing terrible. something like that. I'm curious, in 2024, is there anything that you could possibly see that would induce you to be bullish on Intel? Like, what would they need to do to prove their business case? Yeah, I mean, look, so they gave some targets for, like I said, which were 2030. My biggest takeaway from that was from theirs president is was come back in 2030, right? Call me in 2030. But I sort of articulate some of that dream thesis earlier. But if you think about it, you know, it was like I said, they execute on the new roadmaps. They take market share. You know, they build out their foundry business.

And if you look at the targets. And again, I'm going to refrain from giving like investment conclusions on this podcast. But just factually what they presented for their 2030 model had them doing roughly $100 billion in total revenues, roughly $60 billion on their product groups. 40 billion on their foundry manufacturing side. Of that 40 billion, 25 billion was internal revenues. What they're actually doing now, by the way, is they are charging their internal groups, effectively a price to use the manufacturing.

So the internal groups have to buy the wafers from the internal manufacturing when they're using. And that revenue nets out at the end. But you had 40 billion in Foundry, 25 billion internal and 15 billion external. So it'd be, if you net out the 25 billion, it would be 75 billion in total revenues. the company's doing a little over 50 right now, maybe 50 billion.

That 15 billion in external foundry revenue would be double what Samsung does in founder revenues today. So it's pretty big. But if you start to run number and then they give some margin targets and you start to run numbers like that, it looks like it's good. Like they're generating cash. They're making profits. Right.

And that would be, you know, that would be a scenario where things could be great, right? I think on the other side of it, you know, I get a lot of calls these days on like the breakup value? Like, what would it be, what would it cost? Oh, yeah, the Qualcomm stuff, yeah. The quality, yeah, let's talk about that because that was in the news recently. There was a news flow that suggested Qualcomm may be interested in buying them. And we round the numbers on it, as I am want to do. And look, I can argue for Qualcomm potentially, you know, there's a diversification strategy. Qualcomm's revenues are, if I had the licensing and it's 80% handsets and there's a diversification story there for Qualcomm, but it is slow going. And, you know, Intel,

If I just look at the product side of it, you know, look, if you just slap them together, you'd have a company that was, I don't know, a third hand sets, a third client, maybe 15% data center. You'd have some auto in there. It would look more diverse and have more and more drivers, right? My issue is I can't make it work if the fabs go along with it. Oh. Right?

And that's the problem because it's big. If you stock for Qualcomm, it would be massively dilutive. And you start adding even a little bit of cash, the leverage gets to untenable levels. And so now to get back to the breakup thesis, this is this is my big. biggest issue with it. Intel is clearly prepping to split the company between products and manufacturing at some point. They've separated out the financials and they've even put it in an independent subsidiary. The issue is right now the foundry cannot stand on its own. If they were to divest it, it goes bankrupt immediately. It's losing $12 billion a year and it's got one customer,

right, Intel. So that's not viable until they build a third party business and that still becomes questionable. Can they build that or not? I don't think they can just sell the factory, say, to TSMC or somebody like, I don't think TSM wants to run them. Right. Again, they're losing a bunch of money, and TSM's process flow is completely different. I think hypothetically, and this gets to the regular, you can just, you scrap them, right? You sell the tools for whatever there were, but maybe that covers your restructuring and you go a whole hog to outsource. This is what AMD did, like effectively back from 2008 to like 2014. That was sort of where they ended up.

My issue with that is, at least right now, I don't think that's politically vital. Yeah. I just given all the conversations we've been having. And so that's the thing, I don't, those fabs, unless they, can build them out and actually build those businesses, they're an anchor. This is. And one could argue if you were to, but that it's, maybe this, you know, maybe there's value in a breakup.

But I think you have to destroy the company to unlock that. I don't think we're ready to do that right now. And to the point about political viability, that raises a really important question of, you know, it is the Commerce Department and Secretary Gina Raimondo's priority to get these fabs up and running in the U.S. The minute that we just start talking about in acquisition, that gets kicked over to antitrust folks. And we don't know that Lena Kahn at that FEC will have the same priorities as Gina Raimondo.

It's a really, really interesting test. And, you know, right now we've, there's obviously been a lot of news about Qualcomm. We also saw Arm make an approach for Intel's design business. And Intel said, no, but Arm wasn't even interested in the manufacturing operation. And it's hard to see, you know, anybody who's been working on the Chips Act interested in any type of acquisition that wouldn't see Intel move forward with its U.S. factories. But who wants to take on a hundred billion dollars worth of manufacturing? investments on American soil that don't seem likely to turn a profit. This is the problem.

The main thing we want in this country is not advanced chips. We want the ability for American companies to be able to produce advanced chips. And there's no way to just sort of financially engineer your way out of investments that aren't delivering on that. Like we can talk about all kinds of combinations. We can talk about all kinds of whatever. But they're right. Like this is the core thing.

A problem that money can't solve. Yeah, that's exactly right. What you would need is somebody to go in and capitalize these assets. This is kind of what AMD did back in 2008. You know, they sold their factories to the Middle East, to Abu Dhabi, to Mabobabia to Mabondola. But they were bleeding, right? This is actually what formed global founders. Global founders actually only profitable day because they gave up on the leading edge.

And AMD actually, like, ditch them and they went whole hog to TSM back in the days. But that was the path. They had like a deep-pocketed investor who apparently didn't really care about making decisions that were necessarily economically motivated. I mean, clearly, right? Now, if, like, you were to see something like with Intel, you'd need something, like, investment levels would be one or two orders of magnitude higher than what we saw back then

with AMD and their fabs, you know, 10, 15 or 20 years ago. And I don't know, like, where would that come from? Like, I've had people suggest, oh, the government could do it. But, I mean, the government's already funding them. Like, they don't have any other, like, dollars that are allocated. And I've had people suggest to me, oh, Intel's customers could do that. But if Intel's customers were interested in Sportive,

they could put Foundry volume there. They don't need to like buy out the manufacturing and support the manufacturing assets. Like I don't, this is what I meant when I talked earlier. I said, you know, the business as it stands doesn't necessarily support the path along the strategy, but they may be too late. It may be too late for them to stop what they're doing. This is kind of what I meant. So I know.

Kind of stuck. So I know we've been focused on the problems at Intel, but I joked earlier that we might have to get the bullwip bullhorn back out because of what's been happening in North Carolina. And how seriously should we take those headlines? Yeah, I mean, so for those you that don't know, spruce prine is one of the largest global sources, something called high purity quartz. High purity quartz is used to make the crucibles that hold the silicon melt that are used to make silicon waferes for semiconductor manufacturing. The way you make silicon waivers, by the way, you have a big cauldron, effectively, of melted silicon. You dope it with all with specific amounts of impurities to get the properties you want.

and then you touch a little piece of single crystal silicon to this molten silicon, and you start to pull it up, and you rotate the crucible as you're doing this, and you pull out this effectively like a big ingot, it's called a bull of silicon, and the thing can be, I don't know, 12 or 15 feet high at the end of it. That sounds so satisfying, actually. It's called the Choralsky process or the CZ process. It's really, really cool. And you can control the diameter of this bull via the pull speed and the rotational speed of this cauldron.

And then they slice this thing up and they make silicon wafers out of it. So the high purity quartz, the ultra-purity quartz from spruce pine and a few other places is used to make the quartz crucibles that holds the milk. And it is one of the largest sources. And the area just got pounded, I mean, inundated by Hurricane Helene. The method is named after Polish scientist Jan Sharolski. God, there really are a lot of steps in semiconductor manufacturing. The crucible, yeah. This is just to make the way for us.

By the process has been around for over 100 years. Wow. It's a pretty remarkable. on nothing. Anyways. McKenzie, while you're here, we're about to wrap, any questions as a journalist, anything you need to ask, Stacey? Oh, gosh. I mean, the big question is,

doesn't you know, fail? What do they have to do to not fail? And when we think about, you know, writ large, what does this policy need to look like to not just sustain Intel, but to sustain the ecosystem overall? Stacey, if you had to design a ship sack two, what would it look like? Oh, good question. Yeah, I mean, first, just on Intel, like, I'm not going to knock them. I think their biggest mistakes were not necessarily the strat.

We can argue with strategy, yes or no. But their biggest mistake, I think, was coming in. And I mean, look, when Pat got out there, he kind of sounded more like a cheerleader than the CEO. I mean, it was AMDs in our review mirror. And he had these ludicrous targets that they were hiring to. I mean, he should have come in and said, look, I'm so happy to back at Intel, but like, you're going to have to be patient.

It's going to be a slog. Wait till 2030. I have to fix. Yeah, and it was always, it took 10 years to break it. Why would it take less than 10 years to fix it? It was always going to take to 2030. Joe, I'm- I'm tempted to put this in my performance review.

Wait till 2030 and see. Come back in 2030. Pat's talked lately. He's wished that he took like harder actions on costs and everything earlier. Clearly they should have done that, right? Instead he went on a hiring spreele. You know, like headcount was up 21,000 employees in the seven quarters after he took the job. And then they had to, did they lay off?

Then they started hiring again. Now they're doing a bigger layoff. Like it's demoralizing. So those are clearly mistakes above and beyond. Again, we can talk about the strategy or not. but I certainly would have recommended they take a harder line right, right when they got there. In terms of the Chipped Act itself, I'm not going to say it's not successful. So the dollar amounts aren't actually that big, the $39 billion for manufacturing plus,

you know, the tax could have probably been as big or bigger. You know, over like five years for the whole industry is actually not that big. But it is stimulating a lot of other incremental investment. And like the majority of the actual dollars that eventually will get spent are not coming from the Chips Act. It's coming from the companies themselves. I mean, as it should. So as a mechanism to.

stimulate like domestic investment in semis, I think it is a success. Could we use more sure, although you have to even talk about it's cyclical industry. You have to think about what's the right time in place to spend these dollars. And in terms of like betting on Intel, though it was a national champion, I mean, that may or may not have been a good idea. But again, I don't know what choice they had just given the political realities of what they're doing. So again, I won't knock them. And it's a good first step. I just hope the where the political wherewithal is there to continue. Again, we've got an administration change coming up and Who the heck knows what's going to happen?

I don't know. But I hope they can continue with this. Lots more is produced by Carmen Rodriguez and Dashel Bennett with help from Moses Ondam and Kail Brooks. Our sound engineer is Blake Maples. Sage Bauman is the head of Bloomberg podcasts. Please rate, review, and subscribe to Odd Lots and Lots More on your favorite podcast platforms.

And remember that Bloomberg subscribers can listen to all our podcasts ad free by connecting through Apple Podcasts. Thanks for listening. I just realized it's Stacey, Tracy and McKenzie. Oh, yeah. You're the odd one out show. Joey. I'm Francine Lacquah, an award-winning journalist, and I've got a new podcast, leaders with Francine Laquois from Bloomberg Podcasts.

I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious who are these people as leaders. I don't think there's one right way to be a leader. Make decisions. A poor decision is always better. and no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacroix, wherever you get your podcasts.

What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts.