Avoid Intel Says Advisors Capital’s Feeney

Key Concepts

• Patrick (Pat) Gelsinger vs. Lipton: Contrasting leadership styles at Intel - Gelsinger's aggressive capital spending vs. Lipton's more measured approach.
• Intel's Challenges: Difficulty in designing and manufacturing chips, leading to market share loss to AMD.
• Semiconductor Subsidies: Government support for bringing chip manufacturing back to the U.S.
• China Access and Export Licenses: The importance of access to the Chinese market for semiconductor companies like AMD and NVIDIA, and the impact of export licenses.
• 15% Revenue Split (Export Tax): A new financial burden imposed by the U.S. government on semiconductor companies for exporting chips to China.
• Margins: The profitability of chip sales, and how the export tax could affect them.
• Unconstitutionality: The question of whether the export tax is legally sound.

Intel and Lip Tan's Situation

The discussion starts with the uncertainty surrounding Lip Tan's position as CEO of Intel. The primary concern is whether Lip Tan can adequately address potential conflicts of interest stemming from his previous work and investments, particularly concerning China. It's unclear whether Lip Tan needs to further distance himself from his prior affiliations.

The administration is keen on showcasing its efforts to revitalize chip manufacturing in the U.S. Any announcement of reduced or postponed investment by Intel would be detrimental to this narrative. However, Intel faces the challenge of lacking sufficient customer demand to justify extensive capital expenditure (CapEx) in the short term. The speaker suggests that Lip Tan could reassure the administration by demonstrating that Intel has potential customers lined up. The speaker notes that it is essential that Intel continues to receive subsidies but is wary of Intel needing to spend so much CapEx in the near term without customers.

One speaker raises concerns that the issues surrounding Lip Tan may not be well-founded and emphasizes that Lip Tan was appointed by the board to steer Intel in a more streamlined and efficient direction, especially given their challenges in chip design and manufacturing, which have contributed to AMD's gain in market share. The speaker notes that at this point in time, their company is avoiding investing in Intel due to the various uncertainties regarding the company's potential comeback.

AMD, NVIDIA, and China Access

The conversation pivots to AMD and NVIDIA's access to the Chinese market and the newly imposed 15% export tax on semiconductor sales to China. It is generally agreed that access to China is advantageous for these companies, even with the additional tax.

Data Points:

• Intel potentially risks $38 billion in revenue without China access.
• AMD potentially risks $6-10 billion in revenue without China access, potentially growing over time.
• Semiconductor companies typically have a 50-60% gross margin on chip sales.

The consensus is that AMD and NVIDIA will likely absorb the 15% export tax, rather than passing it on to Chinese customers. They are already charging as much as the market will allow. This tax will impact margins on a portion of their businesses. However, the market seems to view the situation positively because the export licenses have been granted, reducing uncertainty. There is a view that the export licenses indicate that shipping to China is "clearly not a national security issue."

AMD has confirmed that it has an initial export license. NVIDIA has not yet shipped any A220s to China for months but hopes to. Desk analysts are factoring in the 15% revenue hit into models.

Constitutionality and Potential Consequences

The legal basis for the 15% export tax is questioned, with it being suggested that it may be unconstitutional. However, AMD and NVIDIA are unlikely to challenge it for fear of jeopardizing their export licenses. It is suggested that perhaps one of the business associations might challenge it.

The imposition of the export tax is seen as part of a growing trend of "pay to play" arrangements by the U.S. government, which could act as a tax on businesses. This could influence future decisions regarding whether companies want to develop the next chip or medical device if they know that it could be subject to a 15% revenue tax.

Conclusion

The discussion highlights the complex interplay between geopolitical factors, government policy, and the semiconductor industry. Intel is navigating leadership challenges and a need to streamline its operations amidst government pressure to boost domestic manufacturing. AMD and NVIDIA are weighing the benefits of Chinese market access against the cost of a new export tax, the legality of which is uncertain. The imposition of such a tax might cause companies to think about the long term consequences of developing their next product.