5 ms·

How do the economics work here? Intel's market cap is $215B.

by mungoman2 5y ago

selectodude 5y ago
The market cap of Intel is so low because their cost of growth is so expensive.
gok 5y ago
Debt
jimbob45 5y ago
Gratuitous subsidies from the US government. Also this is a great move in my eyes. Intel's HQ is on the West Coast and I imagine that they lose out on at least some portion of East Coast talent as a result. Hopefully this allows them to have the best of both worlds.
- dsr_ 5y ago
  Design work doesn't need to be done close to the fab. Intel seems to be effectively splitting into two companies -- a fab company and a design company. I don't think there are two worlds, either, unless you think that LA, SF and Seattle also constitute worlds unto themselves.
- onepointsixC 5y ago
  The US gov is seriously under investing compared to it's peers. South Korea is spending nearly 9 times more with their $450Bn pledged gov investment into Semiconductors[0] compared to America's investment of $52Bn with the CHIPS Act[1] [0]: https://asia.nikkei.com/Business/Tech/Semiconductors/South-Korea-plans-to-invest-450bn-to-become-chip-powerhouse https://asia.nikkei.com/Business/Tech/Semiconductors/South-K... [1]: https://www.dispatch.com/story/news/2022/01/14/heres-what-you-need-know-chips-act-semiconductor-global-supply-shortage-pandemic/9183398002/ https://www.dispatch.com/story/news/2022/01/14/heres-what-yo...
  - deleted 5y ago
    [deleted]
  - vgeek 5y ago
    https://www.goodreads.com/book/show/1032019.Bad_Samaritans https://www.goodreads.com/book/show/1032019.Bad_Samaritans This is a good book that goes through how economies develop and the role of State Owned/sponsored Enterprises are helpful in developing a nation's technology competencies. The author uses South Korea as a few of his examples, too.
    - onepointsixC 5y ago
      Thanks for the recommendation! You mention that it uses South Korea, does it talk about Shipbuilding? The United States used to be a global ship building giant, but after Regan unilaterally reduced subsidies, it got completely crushed by state subsidized Japanese, Korean, and now Chinese shipbuilders. It's gotten so bad that it's a real national security risk in terms of industrial capability.
      - vgeek 5y ago
        I believe it does mention Hyundai, but more about cars. It goes more in depth with aerospace, mentioning America/France and even Indonesia.
dsr_ 5y ago
If you spend $6 billion a year for 15 years, that's $90 billion which is almost the same as $100 billion. Even better is if you spend less than that but attribute other costs to it over the years, so that you get lots of tax breaks for bringing jobs to the area.
burkaman 5y ago
Well, it's a $20 billion investment that "could grow to $100 billion". And either way it's going to be spread out over several years.
asimpletune 5y ago
The initial investment is only 20B, and spending that money won't hurt their market cap because it's shifting money into new assets, which would be considered part of their valuation.
- totalZero 5y ago
  Long-term projects can hurt market cap because investors sometimes react negatively to investments that will return nothing for years and won't pay for themselves until perhaps a decade or more into the future. Many investors would rather see a $20B share buyback instead of a $20B greenfield project. All assets do not get priced at NAV by the market, even if the NAV is known. In this case, we don't know the future value of a major fab. We have no way of knowing future utilization and yield for the fab, so it'd be impossible to determine the timeframe for computing the present value of its earnings. It will be interesting to see how the market digests this news story in the coming weeks. The price of INTC could move markedly; earnings are coming up next week and there's an Investor Meeting scheduled for the middle of February.
mNovak 5y ago
Lots of long term debt, like any other capital project. The $100B number is purely speculative, if the project grows over 50 years; they can build the first functional fab for $10B.
foobiekr 5y ago
Intel is fabulously profitable and throws off $12B a year of free cash flow, most of these projects take 5-10Y. That's $60-120B investment without borrowing, which - well, capital is cheap at the moment.

How do the economics work here? Intel's market cap is $215B.

selectodude 5y ago

The market cap of Intel is so low because their cost of growth is so expensive.

gok 5y ago

Debt

jimbob45 5y ago

Gratuitous subsidies from the US government. Also this is a great move in my eyes. Intel's HQ is on the West Coast and I imagine that they lose out on at least some portion of East Coast talent as a result. Hopefully this allows them to have the best of both worlds.

dsr_ 5y ago
Design work doesn't need to be done close to the fab. Intel seems to be effectively splitting into two companies -- a fab company and a design company. I don't think there are two worlds, either, unless you think that LA, SF and Seattle also constitute worlds unto themselves.
onepointsixC 5y ago
The US gov is seriously under investing compared to it's peers. South Korea is spending nearly 9 times more with their $450Bn pledged gov investment into Semiconductors[0] compared to America's investment of $52Bn with the CHIPS Act[1] [0]: https://asia.nikkei.com/Business/Tech/Semiconductors/South-Korea-plans-to-invest-450bn-to-become-chip-powerhouse https://asia.nikkei.com/Business/Tech/Semiconductors/South-K... [1]: https://www.dispatch.com/story/news/2022/01/14/heres-what-you-need-know-chips-act-semiconductor-global-supply-shortage-pandemic/9183398002/ https://www.dispatch.com/story/news/2022/01/14/heres-what-yo...
- deleted 5y ago
  [deleted]
- vgeek 5y ago
  https://www.goodreads.com/book/show/1032019.Bad_Samaritans https://www.goodreads.com/book/show/1032019.Bad_Samaritans This is a good book that goes through how economies develop and the role of State Owned/sponsored Enterprises are helpful in developing a nation's technology competencies. The author uses South Korea as a few of his examples, too.
  - onepointsixC 5y ago
    Thanks for the recommendation! You mention that it uses South Korea, does it talk about Shipbuilding? The United States used to be a global ship building giant, but after Regan unilaterally reduced subsidies, it got completely crushed by state subsidized Japanese, Korean, and now Chinese shipbuilders. It's gotten so bad that it's a real national security risk in terms of industrial capability.
    - vgeek 5y ago
      I believe it does mention Hyundai, but more about cars. It goes more in depth with aerospace, mentioning America/France and even Indonesia.

dsr_ 5y ago

If you spend $6 billion a year for 15 years, that's $90 billion which is almost the same as $100 billion. Even better is if you spend less than that but attribute other costs to it over the years, so that you get lots of tax breaks for bringing jobs to the area.

burkaman 5y ago

Well, it's a $20 billion investment that "could grow to $100 billion". And either way it's going to be spread out over several years.

asimpletune 5y ago

The initial investment is only 20B, and spending that money won't hurt their market cap because it's shifting money into new assets, which would be considered part of their valuation.

totalZero 5y ago
Long-term projects can hurt market cap because investors sometimes react negatively to investments that will return nothing for years and won't pay for themselves until perhaps a decade or more into the future. Many investors would rather see a $20B share buyback instead of a $20B greenfield project. All assets do not get priced at NAV by the market, even if the NAV is known. In this case, we don't know the future value of a major fab. We have no way of knowing future utilization and yield for the fab, so it'd be impossible to determine the timeframe for computing the present value of its earnings. It will be interesting to see how the market digests this news story in the coming weeks. The price of INTC could move markedly; earnings are coming up next week and there's an Investor Meeting scheduled for the middle of February.

mNovak 5y ago

Lots of long term debt, like any other capital project. The $100B number is purely speculative, if the project grows over 50 years; they can build the first functional fab for $10B.

foobiekr 5y ago

Intel is fabulously profitable and throws off $12B a year of free cash flow, most of these projects take 5-10Y. That's $60-120B investment without borrowing, which - well, capital is cheap at the moment.