News Intel 1Q23 Earnings

[A///]

I did not watch before writing this but am proceeding on your post.

Anyone mentioning Geopolitics? Did they, at all acknowledge, the wider "issues" unfolding? China? Business as usual? I understand most experts are extremely narrow in focus, but wow. The world is splitting and things aren't going back to "normal".

There was a member here yrs ago, who, in exasperation, mentioned the changes coming. I got the impression that he worked in the intelligence community, so couldn't speak freely and was trying over many posts to hint. He, in some PMs, claimed that the ruling/elite class had all decided that China was the enemy and would be "challenged", and if I wanted, these commodities would outperform. This was pre-pandemic and everything has, and is happening as stated.

The good old times isn't happening, and I'm not depending on that interchange alone. This year will reveal a lot more. This is me trying to be diplomatic.

sounds like a pile of doo. china has been considered a non-ally frienemy for decades going back to before most of this board's current posters were born. even in the 80s china was considered a threat to the global economy after the japanese. Go back to the 1960s through the early 80s when many anti Japanese measures would be put in placeby the us and other countries to pacify japanese ambitions and helping domestic companies and industries. in the early 80s china's revival made them a major threat and have been since. The koreans would become a later threat with their industry leading technologies such as visual panels. I think there's one or two very niche very small form factor domestic american or canadian lcd makers now. Nowhere near the quality of other very small form factor lcds from the Koreans.

chinese industrial and corporate espionage has been going on since the mid 1980s from public reports and journalism I've read over the years. likely earlier than that.

 

[maddie]

sounds like a pile of doo. china has been considered a non-ally frienemy for decades going back to before most of this board's current posters were born. even in the 80s china was considered a threat to the global economy after the japanese. Go back to the 1960s through the early 80s when many anti Japanese measures would be put in placeby the us and other countries to pacify japanese ambitions and helping domestic companies and industries. in the early 80s china's revival made them a major threat and have been since. The koreans would become a later threat with their industry leading technologies such as visual panels. I think there's one or two very niche very small form factor domestic american or canadian lcd makers now. Nowhere near the quality of other very small form factor lcds from the Koreans.

chinese industrial and corporate espionage has been going on since the mid 1980s from public reports and journalism I've read over the years. likely earlier than that.

Opinion noted.

 

[A///]

Opinion noted.

your hearsay was also noted. You may want do some research before saying opinion.

 

[A///]

Here I will help you out being less informed by informing you of this law that was passed under Regan. You can then look up how Section 301 of the 1974 Trades Act was weaponized against Japan in the industries of lumbar, vehicles, semiconductors and telecommunications. This initially arose from the Detroit Three wanting less competition, and Japanese megacorps buying up American companies and industries. The tipping point was record companies including sports teams being sold to Japanese firms.

Omnibus Trade and Competitiveness Act - Wikipedia

en.wikipedia.org

You can google out section 301 and add Japan, Taiwan, South Korea or China and find a plethora of policies the US has enacted against these nations over time. There's been some wonderful papers written by scholars at Harvard, UNC and UM about this very issue.

 

[A///]

You can then read about the Semiconductor Accords which added to the prior mentioned actions against Japan. You can further read about Japan's Lost Decade which was initially spurred by multiple actions against Japan by the United States to protect the latter's domestic investments. Then you can read about the Plaza Accords. You can then inform yourself of the economic embargoes of China from 49 to 72 and the minor transgressions that still existed trying to stifle China's economic growth, a thawing of some relations in the mid 1980s while still keeping China on a leash and reimplementing sanctions and embargoes on certain hardware due to the fall out of the 89 protest uprising.

You can then check up on current USTR policies on Japan-US trade relations. It benefits the US much more than it does Japan.

FACT SHEET on U.S.-Japan Trade Agreement

Under President Trump’s leadership, the United States and Japan have reached agreement on early achievements from negotiations in the areas of market access for certain agriculture and industrial goods, as well as on digital trade. The United States looks forward to further negotiations with...

ustr.gov

These policies are designed to make Japanese products entering the US market to cost less than they do in the Japanese market and over provide goods from the US market to the Japanese market that Japan can't counter with cheaper prices of their own product or quantity, squeezing out competition from the made in Japan or grown in Japan products. These policies are similar with every major trade partner of the US. US policies are designed to hamstring competition from countries.

 

[A///]

Let me be clear. This has never been about China becoming powerful.This is about China competing with US interests here and abroad. Their economy. If China wants to, and they have and can, find workarounds for importing American technology. That is child's play. These actions against China have always been about economics. Making China reliant on western nations to function is the end goal, not China being self sufficient. China's adamance about copying technology and violating patents adds fuel to the fire against them.

China offering the same level of quality product for a lower price than western or Taiwanese companies is a threat to their bottom dollar. Apple found themselves in a bit of a pickle jar when they aided YMTC to recruit western engineers for their 3D NAND plans, and then out of almost thin air Apple announced they were not going to use YMTC's products and services, with the current admin blacklisting YMTC 2 months later. It has been rumored Micron was one of the companies that petitioned the US gov to blacklist YMTC and pervert their ability to get raw material supplies including chemicals needed to product their NAND. YMTC then stated the same month they would likely abandon their plans of NAND production only to state this past March they were going to try to work things out and make a comeback. I suspect Maxio will be the next target of the US gov.

It never seems to occur to anyone why SK Hynix and TSMC are building fabs in the US. They're giving the US a piece of their pie and that is enough to satisfy the government. I want to clarify here I'm not pro China or feel bad for any of these nations. This is how business works. It helps being the big kid on the playground.

 

[positivedoppler]

"This has never been about China becoming powerful"
China being powerful and growing will effect our lives here in the US. The threat with China is not merely they'll rob us economically, they are capable of killing us and inflicting heavy casualites on us and our allies. There is a very real possibility that we will be at war with China, a country capable of hitting any part of US soil. China is govern by a dictator not bound by human rights willing to sacrifice even his own people for his greater ambition. You should be very worried about China. Their millitary and technology has been advancing very rapidly while we flounder in woke social issues.

 

[AdamK47]

I thought I stumbled into P&N. Had to check thread title.

 

[esquared]

OK guys, lets keep the politics out of this part of the forum.

You want to talk about China and their effects on the global markets?
Start a thread in P&N.


esquared
Anandtech Forum Director

 

[Abwx]

You can then read about the Semiconductor Accords which added to the prior mentioned actions against Japan. You can further read about Japan's Lost Decade which was initially spurred by multiple actions against Japan by the United States to protect the latter's domestic investments. Then you can read about the Plaza Accords.

These werent accords, it was plain theft at gunpoint of japanese IPs, i know very well about theses events, currently it would be considered as totally illegal and breaching of all international agreements.

I wont abund on the matter but to summarize japanese firms were forced by the Reagan administration to give for free their industrial manufacturing secrets and IPs to US firms.

Among firms that benefited from this theft are Motorola, Intel, National Semiconductors, Texas Instruments.

FI Motorola started to manufacture high performance discrete transistors from Toshiba using the same EIAJ (Japanese equivalent of JEDEC) references (exemple is the complementary pair 2SA1302/2SC3281), while Intel benefited from processes to manufacture 1Mbit RAM chips wich the japanese where the only one to master at an industrial scale.

Edit : I didnt see the moderation warning when i posted, but as i said i wont abund on these old matters...

 

[TheELF]

https://d1io3yog0oux5.cloudfront.net/_b67ed4d8c17197972c955fd107959e3b/intel/db/887/8943/earnings_release/Q1+23_EarningsRelease+%28004%29.pdf

It's a little better than expected? Loss of 2.8 billion.

Out of which 1.6 is taxes because the gov. is backing them so hard, and 0.7 is share-based compensation.
Neither of these two have much to do with how intel is doing as a business.
It's still a bad quarter just not nearly as bad as people think it is.

 

[Hitman928]

Out of which 1.6 is taxes because the gov. is backing them so hard, and 0.7 is share-based compensation.
Neither of these two have much to do with how intel is doing as a business.
It's still a bad quarter just not nearly as bad as people think it is.

They had almost negative $9B in cash flow for the quarter. It was that bad. A huge chunk of that was building out fabs and buying tools and such but that is kind of the point. They are spending far more than they ever have while revenue is plummeting. They are basically going all in and trusting in several factors working out for them (some out of their control and some they have a bad recent history with) such that they aren't just digging their own grave.

 

[Doug S]

Out of which 1.6 is taxes because the gov. is backing them so hard, and 0.7 is share-based compensation.
Neither of these two have much to do with how intel is doing as a business.
It's still a bad quarter just not nearly as bad as people think it is.

I guess you have never owned a business, if you wave away income tax and employee compensation you've previous committed to as "having nothing to do how Intel is doing as a business"!

In your world all that matters is revenue, any costs you don't think matter are just handwaved away as unimportant right? If you have a business that is showing losses because of payroll and property taxes, you won't get very far telling your banker "but if you ignore those I'm making money so everything is fine!"

 

[mderbarimdiger]

They had almost negative $9B in cash flow for the quarter. It was that bad. A huge chunk of that was building out fabs and buying tools and such but that is kind of the point. They are spending far more than they ever have while revenue is plummeting. They are basically going all in and trusting in several factors working out for them (some out of their control and some they have a bad recent history with) such that they aren't just digging their own grave.

They're finally spending the money they should have spent years ago. Intel preferred to measure success by profit margins so they neglected critical investments in fabs and in IP, and now they're paying the price.. they were left with 2 options:

1. Spend the billions to build the fabs so they get a chance to survive.
2. Go bankrupt.

They chose to survive, at least they have a chance now.

They're still behind AMD in data center chips, so switching to TSMC nodes won't fix all of their problems. They had to restructure Intel and invest quickly whatever they missed to invest 5 years ago, and I think we'll start to see some results over the next year.

(Results = measured in technological advances in a reasonable financial sustainable fashion, so those semi design companies that are looking for multiple foundry sources should find Intel to be a decent partner in addition to TSMC.
server should also get a decent upgrade, however, i doubt that they will "beat" AMD with design innovation across the board. )

 

[Mopetar]

They had almost negative $9B in cash flow for the quarter. It was that bad. A huge chunk of that was building out fabs and buying tools and such but that is kind of the point.

Good to see them investing in their business. They could have done this years ago, but stock buybacks prop up the price better.

Unless you think this is some kind of end of days scenario, the market will eventually swing the other way. The best thing you can do when you're in a losing position is to start maneuvering yourself to be in a winning position in the future. Course correction takes time.

 

[jpiniero]

Unless you think this is some kind of end of days scenario, the market will eventually swing the other way. The best thing you can do when you're in a losing position is to start maneuvering yourself to be in a winning position in the future. Course correction takes time.

I guess the question is how much confidence you have that they can make this 'sell pre-risk production' strategy actually work.

 

[TheELF]

They had almost negative $9B in cash flow for the quarter. It was that bad. A huge chunk of that was building out fabs and buying tools and such but that is kind of the point. They are spending far more than they ever have while revenue is plummeting. They are basically going all in and trusting in several factors working out for them (some out of their control and some they have a bad recent history with) such that they aren't just digging their own grave.

They had about 70 bil retained earnings at the end of 2022, after this quarter they still have about 65 bil.
They are not going all in if they still have 65bil out of it...even if you add the long-term debt to it they are still a good way out of it.

I guess you have never owned a business, if you wave away income tax and employee compensation you've previous committed to as "having nothing to do how Intel is doing as a business"!

In your world all that matters is revenue, any costs you don't think matter are just handwaved away as unimportant right? If you have a business that is showing losses because of payroll and property taxes, you won't get very far telling your banker "but if you ignore those I'm making money so everything is fine!"

I'm just saying that the bad quarter is not all about the market being worse and the sales being lower, I'm not saying that these losses don't exist.

 

[Hitman928]

They had about 70 bil retained earnings at the end of 2022, after this quarter they still have about 65 bil.
They are not going all in if they still have 65bil out of it...even if you add the long-term debt to it they are still a good way out of it.

I'm just saying that the bad quarter is not all about the market being worse and the sales being lower, I'm not saying that these losses don't exist.

You talk about retained earnings like it’s money they have in the bank, it’s not. They have $50B in debt and only $27B in cash and cash equivalents. They are expected to go further into debt next quarter. They are also partnering to build out some of these fabs, so even when they do come online and if they have customers, they now have to share the revenue from those fabs with their partner. This doesn’t mean Intel is doomed, but they are certainly walking a tight rope without a safety net at this point.

 

[KompuKare]

I guess the question is how much confidence you have that they can make this 'sell pre-risk production' strategy actually work.

(Caveat: stock market stuff is not something I have a stake in, so don't follow it closely.)

If Intel actually started acknowledging some of their historical issue, then I would take this talk about "how bright their future will be" stuff far more seriously.

And by acknowledging I mean more than saying "the previous CEO was at fault", but more along the lines of "we bit of more than we could chew" and "we spend far too much on share buybacks rather than investing in fabs and designs, and it shows".

The latter is something they are very unlikely to do, so I take these these statements about a rosy future as more or less more "business as usual".

 

[moinmoin]

Some kind of "lessons learned" messaging would be very nice to have indeed. But maybe they really don't learn any lessons. *shrugs*

 

[gdansk]

The lessons for Intel are:

1. Never fall behind on manufacturing process
2. Use a lot of glue and let TSMC make 85% of your product
3. Never fall behind on manufacturing process

 

[KompuKare]

Well, the lesson of Intel historically were more:

1. Have a so-so CPU (x86) but win the high volume business (the IBM PC)
2. Use those high volumes and okay margins (compared to the 1980s and 1990s workstation vendors) to be able to afford the best fabs and okay designers (the 486 was their first decent design)
3. Kill off all the workstation vendors with their old fashioned low-volume, high-margins strategies.
4. Get complacent
5. Refuse the high volume, lower margin mobile stuff and let TSMC etc. thrive on that.
6. Panic (Atom contra revenue)
7. Panic (because 6. didn't work)

Intel's hybris is that they didn't know their full history. And high volume is key.

 

[A///]

AMD's report is tomorrow. if this is economy based amd will be hit as hard or worse due to them not being able to supply as much as intel. tomorrow being the 2nd also means I'll spent 2 hours at the pcp's office. joyful

 

[TheELF]

You talk about retained earnings like it’s money they have in the bank, it’s not.

Just saying "it's not" doesn't help much, at least explain what you think it means because every single source you can find on the internet will tell you that it is the money a company has left over and thusly can use on anything they need.

What are retained earnings?

Your business’s retained earnings are something that banks look at before granting a loan. Do you know how retained earnings are calculated?

www.bdc.ca

Retained earnings are the amount of profit a company has left over after paying all its direct costs, indirect costs, income taxes and its dividends to shareholders. This represents the portion of the company’s equity that can be used, for instance, to invest in new equipment, R&D, and marketing.

 

[Hitman928]

Just saying "it's not" doesn't help much, at least explain what you think it means because every single source you can find on the internet will tell you that it is the money a company has left over and thusly can use on anything they need.

What are retained earnings?

Your business’s retained earnings are something that banks look at before granting a loan. Do you know how retained earnings are calculated?

www.bdc.ca

What you are failing to understand is that reported profit and cash flow are not the same thing. What you are looking for is retained cash flow but that isn't reported for Intel that I know of. Retained earnings is basically just a tally of how well a company has done over their entire lifetime but does not really tell you how well a company is doing today that has existed for decades. Earnings reports are full of all kinds of accounting and it is very easy to report a profit (positive retained earnings) and yet actually spend far more than you brought in for the quarter (free cash flow). This website has a basic break down:

Numerous other transactions, in addition to credit sales, can increase or decrease cash while having either no effect on profits or having the opposite impact on cash and profitability. Assume a firm buys an office building for $1 million in cash. Suddenly the cash position will taken an enormous hit, a $1 million decline to be exact, yet profits will remain unchanged. Purchasing something for cash has no effect on profit, because the firm trades one form of asset for another. If later on the the company sells the building for $900,000 in cash, it will register a loss of $100,000, yet cash in the balance sheet will go up by a hefty $900,000.

A firm that doesn't have sufficient cash at hand is said to lack liquidity, which is a very dangerous predicament. No matter how many office buildings a company owns or how large its receivables are, these things cannot be used to pay the bills. In fact, profitable firms do sometimes go bankrupt because they simply cannot find the cash to honor their payment obligations on time. Profits are therefore not enough for the long-term viability of a corporation. Management must also handle the firm's cash position very carefully to avoid a liquidity crisis.

So, if you go on a spending spree on infrastructure and physical assets (like Intel), you could easily report small losses or even profits in your earnings and maintain a high retained earnings level but still go completely bankrupt in the end because you've built up a bunch of assets but have no cash to operate and the market value of those assets will be a fraction of what you spent on them. You can see this very easily from Intel's last 2 years if you actually look at their financials (all numbers are dollars):

Intel retained earnings ending:
2021 = 68.265B
2022 = 70.405B

So, in your mind, in 2022 Intel increased ~$2B in net cash. But let's look at how much cash on hand they actually have:

Intel cash on hand ending:
2021 = 29.253B
2022 = 28.338B

Their cash on hand went down by about 1B for the year. Now let's see if they added any debt:

Intel debt ending:
2021 = 33.51B
2022 = 37.684B

Yep, they added ~4B in debt for the year.

So their cash went down and debt went up despite reporting positive earnings for the year (giving them positive retained earnings). How can that be? Well, let's look at their actual reported cash flow for 2022:

Intel free cash flow ending:
2022 = -9.617B

So for 2022, they spent way more than they brought in, reduced their cash position and went further into debt. Yet, if you rely on retained earnings, you would never know this. Now look at Q123 where they had just under -9B in free cash flow and increased their debt ~33% to 50B in just the first three months of the year. Their retained earnings are gone, they've been tied up in assets that will have to actually start producing meaningful revenue sooner than later (meaning the next couple of years) or else you'll start to see that retained earnings evaporate rapidly.