>> 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)