Intel, the United States and the Chip War - VisualPolitik EN

[Applause] [Music] economically financially and geopolitically the chip industry is one of the hottest sectors at the moment from the new 5g iphones to the 5th generation f-35 fighter jets from cars with self-driving capabilities to the large servers which house the cloud everything absolutely everything depends on the chip industry [Music] as we told you in a past video that we made in collaboration with value school which i'll link for you in the description chips semiconductors have become the neurologic axis the heart and the brain of new industrial trends this is also something we've touched on in the weekly snapshot that we send to those of you who support us on patreon by the way thank you very much the fact is we're talking about a market that continues to grow and that in 2020 achieved a turnover of just over 439 billion dollars worldwide this market is currently led by the communications sector but it will gradually change to give more and more prominence to everyday objects and products cars for example are increasingly equipped with chips and it is quite possible that we will soon be able to find chips appearing in everyday items even in our shoes or our glasses and take note because we already have them to give just three examples in smart watches in the latest headphones and even in measuring scales not to mention the dependence of other more sensitive fields on these devices such as security and defense those who have access to the most advanced technology will be the ones who gets the most modern military equipment well as we already told you in our recent video about this topic tsmc taiwan and the chip war not all semiconductor suppliers manufacture their own devices there are currently three different types of companies firstly there are those that design their chips and then completely outsourced production this is the most common type we're talking about companies like nvidia qualcomm or even apple or amazon then there is a second type of company in this case integrated that is they design and manufacture their own chips this would be the case of intel or samsung and finally there are those known as foundries these companies focus exclusively on manufacturing for example when apple designs its own chips such as the processors of the iphone or of some recent mac computers the cupertino company commissions the production of the chips to one of these foundries and this this is the activity that in recent times has been in the eye of the hurricane and has become the great bottleneck of the global technology industry these companies are working at near full capacity and the battle for the smallest and most advanced chips is almost fierce according to data from market intelligence companies trend force and report linker revenue from chip production was 70 billion dollars in 2020 and its turnover is expected to grow at a rate of approximately 10 percent per year over the next decade the charts you see on screen is the composition of the foundry market as you can see more than 77 of the market share is in taiwanese and south korean hands [Music] and remember this extremely capital intensive very costly and technologically advanced activity has become one of the main epicenters of world economic and geopolitical activity [Music] without the production of advanced chips we cannot think about things like nanotechnology robotics autonomous driving or 5g and the fact that the bulk of production is in taiwanese and south korean hands has been a huge shift that has finally set off alarm bells in the world's largest economy historically the united states has been a major producer of semiconductors for decades ships have been one of the most advanced and strategic products of the united states industry now however the situation is very different the big companies that design ships are still american yes but their production that's another matter even taking into account intel one of the great stars of the american business fabric a corporation that has been visited and praised by every single us president since bill clinton the united states has gone from having a market share of almost 40 in world chip production in 1990 to just over 10 today and no their companies are not leading the way in manufacturing technology either when giants like apple nvidia amazon google or the titans of the military industry like lockheed martin northrop grumman or general dynamics want to get their hands on the most advanced ships to equip their technological systems they all have to go looking for them thousands of miles away to strengthen america's semiconductor supply chains and keep our country at the top in chip technology leaders in washington need to fully fund the semiconductor manufacturing incentives and research investments called for in the annual defence bill john neufer president and ceo of sia the american semiconductor industry association and that is exactly what the u.s federal government and also congress is doing over the past few years this issue has received increasing intention the trump administration for example negotiated with major foundries to set up factories in the united states and blacklisted chinese technology companies such as smic or huawei denying them access to american designs and preventing foundries such as tsmc from selling their chips to them now for his part joe biden is following a similar path in february 2021 he signed an executive order to favor local production and at the time of making this video a support package for this sector is being negotiated how does a saying go same dog different collar in a way the future of the very technological military and even economic dominance of the united states and the outcome of the trade and technology war with china will depend to a large extent on which of the two players manages to control the semi-conductor industry globally and you know what right here at this point is where all eyes are on intel not only as the most advanced north american producer but also as a reflection of the problems facing the industry crisis at the heart of u.s technology along with microsoft windows operating system intel chips formed the tandem known as wintel a duo that piloted the digital world for decades however the last few years have seen many changes you see intel is apparently a company that is going from strength to strength over the last five years its revenues have grown at an annual rate of seven percent while its operating margins have remained above 30 [Music] its revenues in such booming areas as data centers continue to grow at double digit rates and both the so-called internet of things and 5g have created major growth opportunities for the company if we add to all this the fact that during the last six years this company has been able to maintain a free cash flow over sales ratio above 20 percent we could well think that things are going from strength to strength and at full steam ahead in 2020 alone this american technology giant which had a market value of about 260 billion dollars at the time of making this video obtained a free cash flow of more than 20 billion dollars it doesn't seem a bad ratio in theory does it but hold on a second because in spite of everything over the last four years things have been getting complicated to the point of causing the dismissal of two ceos and summing many doubts in the markets about the future of this company and the thing is by 2018 asian giants tsmc and samsung electronics had caught up not only did they already managed to manufacture chips as small as intel's but they were managing very ambitious deadlines for further downsizing from a large production of 10 nanometers for 2018 to 2019. they set a target of 5 nanometers in 2021 and 3 nanometers for 2023 that meant bringing forward intel's own schedule which as you can imagine suddenly put a lot of pressure on the us manufacturer and that's when the problem started to arise the real problems in early 2019 intel had to acknowledge serious problems on its production lines that would delay the mass arrival of 10 nanometer ships still the chief engineer at the time murti renducintala said publicly that intel had learned from its mistakes that 10 nanometer chips were on the way and that a new generation 7 would be ready for mass production in 2021 [Music] however the problems and delays did not go away whilst tsmc and samsung were already mass producing five nanometer chips in july 2020 the company's then ceo bob swan publicly communicated that the seven nanometer chips promised for 2021 would not arrive until at least 2023. what's more intel was considering outsourcing the production of its cutting-edge chips because its manufacturing lines simply not capable of producing them it was the public realization that something was very very wrong of course the market reaction was not long in coming intel shares punished after delay to next gen microships the financial times stock opens 17 lower on doubts over chipmaker's ability to regain manufacturing edge all this has prompted some of intel's major customers such as apple and microsoft to start designing their own ships and contracting asian foundries to produce them june 22nd 2020 apple announces transition away from intel chips financial times tim cook hails historic day as company moves to use in-house designs but why is it so important for chips to get smaller and smaller well take a look the smaller the chips the higher the performance the lower the power consumption and the more functions manufacturers can package for example tsmc's five nanometer chips allow packing together the cpu gpu and cache machine learning cores and accelerators and specialized units for audio video and photo or cryptographic security in the same size space as intel's 14 nanometer chips in other words less size equals more performance less power consumption and more possibilities [Music] well the fact is that all these developments prompted intel to replace its ceo for the second time in two years on 15th february 2021 engineer pat gelsinger took over the helm and with him came a new strategy the ultimate gamble on the 23rd of march the new ceo pat gelsinger made public his new strategy there were many rumors that intel might announce a drastic turnaround including speculation that it would stop manufacturing its own ships at least the most cutting-edge ones or even split into two different companies however all that speculation was a far cry from what was eventually put on the table intel announced the creation of a new business the intel foundry services to compete head-on with asian foundries this new units will manufacture chips designed by third-party companies such as amazon or microsoft to achieve this intel announced an investment of more than 20 billion dollars to build two new state-of-the-art factories in arizona [Applause] [Music] at the same time the new ceo also announced that intel would begin to pursue the market for less advanced chips such as those in demand by the automotive industry and that it would outsource some of its most cutting-edge production to this end the company will adopt what is known as unbundling a method that allows a single chip to be made from different manufacturing processes carried out in different places or different companies and as always this strategy has met with many supporters and many detractors on the one hand forecasts suggest that demand for chips is set to grow strongly at a time when the us government's national security concerns are increasing that advocates of this strategy point out could act as a major boost for intel in addition chip manufacturing is extremely capital intensive so for it to be profitable factories have to work at full capacity thus opening up production to manufacture chips designed by other companies will increase volume which should help intel catch up [Music] however detractors do not believe will be so straightforward they consider that intel is concentrating its forces where it has failed its factories will be making seven nanometer chips by 2023 at the earliest while tsmc for example has just announced an investment of 100 billion dollars over the next three years and will be already manufacturing much smaller chips of five and three nanometers by that time so critics argue that the big customers are unlikely to come back to intel and in the case that they do come back that will only happen if there are no further delays this time in addition many companies may be reluctant to share their designs with a rival that also manufactures for itself they also argue that another of the santa clara companies bets the market for less advanced chips is much less profitable competition is much greater and margins are generally small so even if the u.s company was successful in securing orders its margins could be substantially reduced in short these would be the main pros and cons the santa clara california-based company is confident that it can get back on track take advantage of the us government's federal boost and in any case maintain its slice of the growing pie in the semi-conductor market and that's where things stand right now because intel is still the great american bet for the manufacture of chips we know this is a concern for many of you because it is something you often ask us about with these videos our intention is to simply put on the table some of the main trends that are underway in the financial world to take a closer look at some of the companies or business models that are in the spotlight let's be clear our intention is not to say whether intel strategy will work or not or whether or not it is a good investment that is for each individual to determine but having said that the question is will intel and the us make up for lost ground who will be the big winner in the chip war what do you think of intel's new strategy leave us your answers below and you know if you found this video interesting don't forget to like it and subscribe to visualpolitik all the best see you next time you

Channel: VisualPolitik EN

Views: 255,349

Keywords: VISUALPOLITIK, ENGLISH, value investing, economics, finance, intel corporation, intel chips, cold war, apple, amazon, crisis in silicon valley, taiwan, semiconductors, tsmc, tech war, chips war, united states, war on chips, the chips war, Joe Biden chips, Chinese tech

Id: E7t0qts4L6s

Length: 13min 23sec (803 seconds)

Published: Sun May 02 2021