Saturday, April 27, 2024

Update on Intel External Foundry Revenue from Q1 2024

 







In December, I published my forecast for Intel External Foundry Revenue. These are sales of Wafers to other companies. Intel has shown "foundry" numbers of $200M-400M per quarter using the previous reporting structure.

I frequently pointed out that MOST of the revenue was from Mask operations and some of it was from packaging. So actual wafer sales of products was less that 50% of those numbers. Making Intel ~ the 20th largest wafer foundry in the world.

With the new foundry finances report out, Intel counts sales (at market price) to Internal groups as "revenue". This allows the product groups to have a P&L reflective of what it would be if they purchased from TSMC or another factory. Intel foundry takes the billions in losses from the fact that Intel costs are higher than TSMC prices. 

My worry was that NOW we wont ever be able to check external foundry wafer sales and it would all be hidden. But we are Blessed to have a 10Q from Intel


Intel Foundry Revenue in Q1: 

4.4B for total "sales" including external and Internal.

$27M in sales to external companies. This includes Assembly, Test, and Wafer Sales. $27M

In Q1 2023, the sales to external companies was $118M. 4 times the sales shown here

From the Intel 10Q

"Intel Foundry also includes certain third party foundry and assembly and test revenues from external customers that were $27 million in first three months of 2024 and $118 million in the first three months of 2023"

We can discuss what these numbers mean and what this changes in our model Contact us for more Info. 


Mark Webb

www.mkwventures.com




Tuesday, April 23, 2024

FIVE fun facts on HBM memory

 









                 As with all hot topics, there are facts and myths. Five HBM Facts:

  •       HBM volume is increasing. It was 2% of bits and 11% of revenue. This will grow to approximately 10% of bits over the next 4 years based on current models. The supply growth has to be relatively steady (capacity/designs are HBM specific), but the demand growth will be wildly variable. There are impacts from this supply and demand disconnect.
  •           HBM cost is ~3x DDR5 Cost (our model is 3.5x but who is counting?). HBM price is ~6x DDR5 Price. Gross margin per wafer, margin per COS, margin per revenue is higher. Due to overhead of HBM specific designs, testing, and manufacturing, Operating margin can be challenging and needs to be managed.
  •       HBM is stacked, packaged, and tested as a unit before going to customer or their contractor for assembly in CoWoS/Foveros type assembly. The packaging of HBM is typically done by the memory company or their contractor. Some recent “cartoons” seem to show memory chip stacking as part of CoWoS process. It is not.
  •       In Advanced Datacenter AI systems, Most of the memory bits are still DDR and most of the cost is now processor/HBM module (SemiAnalysis did a very nice presentation on all the details).
  •       I think everyone would agree that HBM is THE competitive focus of all memory companies. Current APPROXIMATE models show Hynix with 55% share, Samsung with 35% share and Micron with less than 10% share. The battle to change these numbers is on with Micron looking to double its share and Samsung looking to take its historical position at #1. These battles will cause wild fluctuation in market share and pricing and revenue. You have been warned
 

We have all the numbers on price, cost, revenue and bit volumes. Contact us to discuss more

 

Mark Webb

www.mkwventures.com




Tuesday, April 2, 2024

Intel Foundry Margins Reported Today

 


Intel released its new reporting structure today. Intel Manufacturing and Intel Product Groups are broken out. The breakout assume that Business units pay market price (TSMC price) rather than Intel cost. 




There are tons of details and specifics in the report out that reflect on the issues. High level takeaways:


1) Intel Manufacturing Costs are much higher than TSMC Price. Intel Costs are 2x the costs of TSMC. There is a reason why everyone uses TSMC and why everyone struggles to compete with leading edge foundries. 

2) Intel Product group has reasonable margins. The pull down in margins was due to using Intel manufacturing. Intel Manufacturing loses 5-7B per year

3) Intel HAD to break out the groups. Otherwise no business unit would ever buy from Intel manufacturing since the costs are so much higher. Reminder: Intel BUs were told they could choose Internal or external for Fabs instead of being forced to use Intel. 

4) The numbers are pretty large. Intel Manufacturing loses 5-7B per year. That is the difference between Intel Cost and TSMC PRICE.  Manufacturing Gross Margins are negative (TSMC Gross margins are 50%+)

5) Intel is starting to clarify that the "turn-around" is not really a 2024, 2025 or even 2026 solution. Pat stated that 18A ramps in 2026 (As we documented). 14A is a 2028 solution. Foundry sales ramp in 2027+. Foundry plans to be profitable by 2030. We can discuss this more with specific numbers


We gave the possible scenarios in a blog post last month (see link). These are still valid and perhaps more optimistic than we thought last month. Some specifics on what can be done:


1) Intel is not an efficient manufacturing company. Fabs are too small, they run too complex processes, they spend too much on engineering samples. This can be helped by doubling the volume with sales to external companies and bringing TSMC wafers home. This is why Intel is doing foundry. Need 2x the volume ASAP.

2) Intel will have leading edge processes again. Its one thing to be inefficient operationally with a leading tech (like in the 2000-2012 time). Being inefficient with n-2 technology is a death sentence.

3) Intel has now clarified the problem for all the public to see. Intel Manufacturing is too expensive. Old technologies have negative margins, New technologies have negative margins. This will eliminate the "business units are too demanding" excuse. Note: I am very well aware of the problems between Intel Fabs and Intel BUs. I also understand why BUs like TSMC. We can discuss this in detail and how Intel can fix this.

4) More volume, more efficient fabs, clear acceptance of the problem. The road is still extremely difficult but this is a start. Intel presented this as an opportunity "we can earn billions more per year if we just match other foundries" 

5) How this impacts the foundry business development will be interesting. 

Future blogs have the numbers and quantitative impact of the improvements the CFO mentioned. by group and by technology impacts. We also have breakout of Fab capacity. 


Call for more information


Links: 

Intel breakout: https://www.intc.com/filings-reports/all-sec-filings/content/0000050863-24-000068/0000050863-24-000068.pdf


Our website foundry Scenarios: www.mkwventures.com


Mark Webb

www.mkwventures.com




Wednesday, February 21, 2024

Intel Foundry Strategy and Future Scenarios Feb 2024

 






In December 2023, we published the Intel Revenue forecast for external wafer sales, gave a breakdown on how customers plan to ramp the foundry. The forecast is still valid (it assumes Intel executes perfectly on all plans) but since then we have a better understanding of Intel's strategy and scenarios that could unfold. The scenarios are based on Intel's strengths and weaknesses which are quite different than TSMC and quite different than what we expected 2-3 years ago.

Background:

In 2019-2021, it became clear that Intel was a distant follower to TSMC in technology and that they needed to catch up or just outsource everything to TSMC/Samsung/others. Intel BUs complained about technology delay and cost and wanted to work with TSMC.

  • It seemed like Intel would move to outsource, but Pat changed the plans based on discussions in 2021. Intel would allow BUs to choose Internal or TSMC. They would (and still do) come up with dual sourcing options  until final decision later in the product development lifecycle
  • Intel cannot lead in tech with the small scale of current Intel  (Times change, Intel is the third priority for equipment companies). Equipment vendors do much of the process and all of the tool development. You need scale to get their support. So Intel needs to offer foundry services to roughly double the scale of Intel wafer output. Intel needed to go “all in” on being a leading foundry.
  • Pat [hypothetically] said:  …Business units say manufacturing is the problem. Manufacturing say BU is the problem. Fine …. Each of you can do what you want…. BUT we will make major decisions based on your execution.

Hence, where we are today: Intel is ramping TSMC on chips for processors of all types. Some leading products are 100% TSMC. And Intel is promoting foundry for others at the same time. 5 nodes in 4 years (not really, but that is a different report).

The BUs are extremely happy with this. So far multiple products have been moved to TSMC and the flexibility in using N5,N3,N2 is something they love. TSMC price is about the same as Intel's cost, so BU margins will increase.

** But how does Intel compete cost effectively with TSMC and ramp foundry and pay for all these fabs? **

We overlooked a some things until our IEDM discussions with various people in December 2023.

  • Intel still wants to win and be better than TSMC. It seems unlikely… but it might not matter.

  • The US government buys chips for internal products and DoD items. No strategic DoD product has TSMC parts in it. TSMC does not meet the criteria. As a result, those products have technologies that are not close to leading edge. IBM (past), GF and other defense approved companies make chips for those products but they are nowhere near leading edge. They would love to use leading edge but they need a DoD approved US company. While DoD parts are relatively low volume, the government could expand this to any Government supply chain (they track detailed supply chain and factories for all parts). IRS, Social Security, etc. TSMC cannot fill this today and it would require massive regulation to even have Samsung US or TSMC US support it. Trust me, I have done the audits with government products before, it can be extremely painful.

 Also, While Intel is not set up from a scale or from a cultural perspective to be a leader in cost,  US Government pays cost plus and incredibly high prices for products. Intel could have half filled fabs and still have great margins. You can see this at some government suppliers today

  • One more thing could have been predicted but was missed. Leading edge is too expensive and complex. So many foundries…. GF, UMC, SMIC, Grace, Tower have no ability to provide leading edge or even 2 generations behind technology. Intel can partner with them, provide “more modern” technologies, provide scale etc. All companies not named TSMC or Samsung could GREATLY benefit from partnering with Intel and this allows them to compete with Samsung and TSMC.


Based on the above strategies. Intel could outsource most of its silicon to TSMC to keep the BUs happy and STILL be a leader in foundry just based on being the “US Fab company” and “advanced fabs to other foundries”. These customers are much more compatible with Intel than selling to Apple, AMD, Nvidia, Broadcom.

This is a different foundry model but one where Intel has a strength and can potentially dominate. This all may or may not work. We have quantitative milestones you can track to see if Intel is successful. 

The Three Potential Foundry Scenarios are:

  • *Intel Foundry Success*: Intel has competitive processes at competitive prices and ramps up to be another dominant leading edge foundry. Intel is leader and Intel BUs use Intel processes. Revenue and profits grow dramatically
  • *Intel fills TSMC gaps*: Intel supplies all other foundries, Intel supplies government. Both have few other options so they pay the price needed. Intel is 2nd source to TSMC. Revenue grows steadily over then next 10-15 years.
  • *Intel is IDM2.0  …. IBM2.0*: Intel struggles to ramp government work and factories. Intel’s foundry partners decide it’s not worth it to work with them and the processes are unsuccessful. The fabs are given away, or cancelled, or underloaded. Eventually Intel foundry is absorbed.


We have more details on each and in the next few years, the probability of each scenario will change. We have updates on the probability and what tactics, models, and strategies Intel is using. More importantly we provide milestones so others can track progress.... and we track the impact to P&L and Capex

Foundry Day Update (BREAKING NEWS):  All of the presentations and commitments support the background we show, the strategies, and the scenarios. 


Mark Webb

www.mkwventures.com




Thursday, February 15, 2024

Chips Act 18 Months Later: The Bad, The Good... maybe Ugly

 


 


I have advocated for a Chips act like program for 20 years. The reasons are simple:










1)  Fabs require tons of capital, Only the massive companies can afford it. help needed

2)   Fabs are an amazingly positive addition to any community or country. High paying jobs, tons of ecosystem and construction jobs. If I started a city from scratch, I would start with a Fab and we would be wildly successful city in 10 years.

       3)      Other countries subsidize large fabs for this reason. Nearly all Asia countries have great incentives. The US is behind on this as a nation. Some States (like New York) subsidize.

       4)   Fabs do not use up all the water, do not cause massive pollution, and they can recruit employees from all over the world. This downsides are not as real as feared (we can discuss)

        5)     Oh ya, The world needs chips!

When the Chips Act passed, I was instantly disappointed. Tons of money and yet no one was sure who would get the money, when, and why. All the discussion was on “requirements from those receiving money and government oversight”

18 months later:

1)     The Bad: Minimal grant money has been awarded. Politicians and semi companies make speeches about plans for a program and committees forming and new sites announced. There may or may not be limitations on the companies that can receive funds. Should TSMC get more money than Intel? Should Skywater get more than Samsung? Do they have daycare and pay prevailing wage? Should we promote growth in that state or this state. Recent announcement of R&D programs and training programs (Programs, not factories or products). I don’t expect much out of the Grants activity other than for university and start up companies and consortiums (none of these will make leading edge chips in large fabs). I hope I am wrong.

 

2)     The Good: Years ago, I was asked what makes people locate fabs in other countries. My answer was government support, subsidies, simple clear requirements. Cheap labor is minor compared to subsidies.  An oversimplified contract from other countries states:

a.      We will reimburse 25-30% of all spending on the fab. Show us receipts, we send you  check for 30%.

b.      Hire at least 2000 people, 1400 have to be local citizens. Pay a fine of 500M per year if you do not do this.

 

This is perfect, simple and companies jump at this. After looking at the “Bad Items” listed above, I wanted to say the Chips act is useless for getting fabs into the US. I was wrong. When I told a leader at a major company of my disappointment in the Chips act awards, he said “We don’t care about those awards, and we will STILL see billions in subsidies on our projects”.

Turns out, the investment tax credit is everything I dreamed of in a subsidy. You buy qualifying equipment, you get a check from the government for ~25%.... And what companies are doing today is spending on qualified equipment. No approval from the “house oversight committee for blah blah blah”. No “let us see your programs” needed. No debates on whether Intel should get a subsidy when they make tons of money. No debates on whether building in New York is better than building in Arizona. Buy equipment? get a check. Thank you !

I assume the Ugly will come when congress tries to update the act to achieve new goals and requirements based on inputs from both sides of the political aisle. And we will probably end up with too many fabs in the world at some point. But for right now, the ITC of the Chips act is making a difference in bringing fabs back to the US.

We can discuss more on how this is working and how companies are timing their new fabs based on their strategy and some numbers we can expect to see. Contact us

 

Mark Webb

www.mkwventures.com






Thursday, December 7, 2023

Intel Foundry External Wafer Sales Forecast

 

Intel Foundry Forecast Dec 2023 (Mark Webb, MKW Ventures Consulting, www.mkwventures.com)

We have looked at Intel Plans, Customer reactions, and competitor reactions to develop a forecast for Intel Foundry

Today, Intel IFS  includes sales of mask making products and services in its foundry revenue. It appears this is actually the largest revenue segment in IFS per Intel 10Q reports. Intel also includes packaging and assembly services for external companies.

Intel actual wafer sales to other companies (wafer foundry) is quite small today. We estimate $100-200M per quarter. This would put them as the 15-20th largest wafer sales foundry in the world.

 

In the future, Intel has plans for technologies and is sampling with many companies. If they execute, they will have leading edge technologies and capacity to ramp them.

We expect all major customers to move slowly with small portion of foundry allocation to Intel until 2027 timeframe. Many are planning to use Intel as a backup or to provide price negotiation pressure. TSMC is a dominant force in foundry and this is not changing. TSMC considers Intel a large customer and not a threat in foundry.  They may or may not be correct.

In our model, Intel always spends 2x the dollars outsourcing to TSMC as they receive in wafer foundry revenue from others.

The reported accounting will all change next year. Intel will try to report fab business as independent business selling to Intel BUs. They will quickly become a top 3 foundry. They will adjust the allocated cost to achieve the goals they want (ie: Allocate low cost to BUs to compare for TSMC foundry work.

The forecast for Intel External wafer sales is below: Note that this is based on Intel plans. If they do not execute or gain share, then they will go to the “Plan B” (Call us for what Plan B is)



We are at IEDM 2023 Dec 10-13 to discuss how we update this model each month. Call or text to set up meeting.

Mark Webb





Wednesday, December 6, 2023

Memory Market Update Dec 2023 Edition

 As we predicted in Feb, March, May, August and October, the memory market is recovering in Q4 2023. 

Reminder, we predicted this before it even bottomed and we are using the same cycle graph. 

The reason is that the market always behaves in cycles and the only real movement is inventory and price... you can see all the details on our website and 2023 FMS presentation which quantifies causes and effects. www.mkwventures.com

Summary of downturn: the Total bits sold in 2020-23 is Exactly what we expected in 2019... there was no drop. Customers just bought them all in 2020-early 2022. For some reason, no one noticed inventory build at customers that was clear (See earnings report transcripts for Q2 2022).

So where are we now?:

  • Memory prices are recovering
  • Since they are recovering, people are incentivized to buy and build inventory now.
  • the recovery will get sharp until we reach profitability
  • It is not clear how profitable we will get. That depends on inventory shortages in 2024/5 which we track.
  • If we fall into the trap that [enter hype technology or geopolitical event] is changing long term demand, the 2026 crash will be bad as well. 
  • DRAM bits will grow 15-18%. NAND Bits will grow 20-25% long term. Beware when people say "DRAM bits grew 15% in Q4 2024, We don't see any evidence of double ordering" 
  • Obviously there will be a downturn in 2026. We help you predict whether it will be Minor (20% revenue drop) or Major (50% revenue drop)
  • We can advise memory companies on how to meet demand without getting played by the customers and causing oversupply
  • Call or text us to discuss more and learn how you can d




Mark Webb