34 ms·

Intel financialized and lost leadership in semiconductor fabrication (2021)

262 points by kloch 5y ago

deleted 5y ago
[deleted]
bin_bash 5y ago
It seems both Intel and Boeing had similar paths. They were engineering-first companies that were transformed into profit seeking and while they made a lot of money initially, eventually it failed for both of them. My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money.
- api 5y ago
  Financialization has done this to the entire country to varying degrees.
- whatshisface 5y ago
  Boeing won't have failed until someone starts a competing company that stands a chance of replacing it. (Airbus is the same thing, very corporate, very closely tied to governments, but in Europe).
  - imglorp 5y ago
    There's a raft of product failures across the board. Not making saleable product is kind of a problem. Boeing's been working on Starliner since 2010 and it has yet to carry anyone to the ISS. Then there's MAX. And the SLS (which hasn't failed yet but /will/ be a 4 billion disposable program, at best.) Maybe true, it's business profitable, successfully extracting money from airlines and government contracts.
  - mywittyname 5y ago
    In the past 15 years, it's been demonstrated that startups can successfully build cars at scale and commercial rocket ships. No company is safe. Boeing is exactly the type of company that won't know they're dying until they are dead.
    - echelon 5y ago
      > No company is safe. Boeing is exactly the type of company that won't know they're dying until they are dead. Yes, but they're in a sufficiently protected region of state space guarded by landscape difficulty, moats, massive contracts and cash flows, the government, you name it. You can't just build a better plane from zero and immediately start taking orders. You have to start with something small, tangential, and then grow into that market. That's still very hard to do in aerospace because the requirement is "don't kill people" yet the problem involves putting people in mortal danger. I don't doubt that it could happen, but I think it's a very tall order.
      - Melatonic 5y ago
        A certain car and spaceship building entrepreneur I could see taking a pretty big chunk of Boeings pie if they wanted to expand or split off in that direction
  - miketery 5y ago
    Bombardier had a superior product and had a massive sale to Delta lined up. Boeing came in with the government and added 300% tariff. Talk about "free market."
    - speed_spread 5y ago
      Yeah, fuck the new Boeing. Now everytime I'm forced to sit in a 737 I try to fart as much as possible.
      - jonnycoder 5y ago
        thanks
  - speed_spread 5y ago
    Because of regulatory capture, any competitor will have to be even _more_ subsidized than Boeing is. A few years ago, Bombardier introduced a new plane, the C-Series. Even though it did not immediately compete with Boeing's own offering, Boeing successfully lobbied for an extravagant 300% import tariffs to be be applied which killed the primary market (US) for it. Canadian government folded and essentially gave the otherwise technically successful project to Airbus in the hope of salvaging any industrial returns on eventual mass production. The airplane is now known as the A220. Any would-be competitor will not only be fighting Boeing, but the whole US government.
    - acchow 5y ago
      > Boeing successfully lobbied for an extravagant 300% import tariffs to be be applied Doesn't this violate NAFTA?
      - speed_spread 5y ago
        Not just NAFTA. From Wikipedia: > On 10 January 2018, the Canadian government filed a complaint at the World Trade Organization against the US. > On 26 January 2018, the four USITC commissioners unanimously determined that US industry is not threatened and no duty orders will be issued, overturning the imposed duties. The Commission public report was made available by February 2018. On March 22, Boeing declined to appeal the ruling. While the USITC had determined there was no threat, the ruling came too late for Bombardier, as the dumping petition by Boeing had already paved the way for Bombardier to relinquish a controlling interest in the CSeries to Airbus in October 2017. This is just a repeat of the Avro Arrow story. US demanding free trade from everyone and then just bullying its weight around when someone comes along with a better deal than what they can manage.
        doctor_eval 5y ago
        Free trade, free speech, free markets… but we’re free to change the rules when it suits us, too.
- p1necone 5y ago
  Part of the cause is that the people doing this still benefited - if you can cut a bunch of costs and bump profits for the next few years it doesn't matter to you as an executive whether those changes ultimately lead to significantly worse outcomes for the company in the longer term. Brand loyalty takes a while to fade, there seems to be a cycle with a large number of successful companies that goes work honestly to build a good product -> generate brand loyalty -> people with integrity get replaced by people who would have had no chance of building that successful product/company in the first place -> cut as many corners as possible while riding the brand loyalty to more short term profits -> eventually, on the scale of decades sometimes (because people take a /long/ time to realize that 'well known brand' !== quality), get out-competed by a small company building the same thing as you with integrity -> return to step one with new company.
  - Pxtl 5y ago
    How many folks out there got burned by HP products when they were hip-deep in that step 3 step 4 zone of "strip-mine your own brand reputation selling cheap crap"?
    - civilized 5y ago
      Maybe I'm revealing my youth here, but... when was HP good?
      - tigershark 5y ago
        Do you have any non HP printer from 20 years ago still working as expected?
        roland35 5y ago
        Not 20, but my 10 year old HP color laser is working as well as new!
        buescher 5y ago
        I have an opening price point Brother laser printer from about 2002 whose drum is on its last toner cartridge worth of wear. I’ve only used it lightly since I stopped contracting about fifteen years ago though.
- sidewndr46 5y ago
  My understanding is that both Boeing and Intel have received significant subsidies and bailouts from the federal government when it became apparent the companies had issues. So I'd argue that this an indication of a management success, not a failure. They've been able to externalize some of their costs to the federal government, thus increasing their profits.
  - mrtesthah 5y ago
    It just demonstrates why nationalization should have been done instead. It was the right solution in 2008, too.
    - ZoomerCretin 5y ago
      Exactly. Governments shouldn't bail out any corporation without a hefty share of ownership in exchange. We did it for Sallie Mae, and we can do it for Intel, Boeing, and the airlines.
      - clairity 5y ago
        no, we the people via our governmental apparatus should essentially force bankruptcy early enough (like the FDIC does for failing banks) and sell the assets in a widely-held auction (for fair price discovery), so that a competitor can keep customers from facing undue externalized risk, and creditors and employees can be made whole, while owners take a bath on their equity. the fundamental downside of taking risk has to exist for economies to keep moving towards efficiency (which our economy is frustratingly not because of said financializations and the like).
        sidewndr46 5y ago
        The thing is the downside of risk taking still exists. It just shifts from an individual risk(the corporation) to an existential risk(a big chunk of the economy). The only way to prohibit this would be to cap the maximum size of a corporation. My guess is lawyers would just come up with some legal novelty to work around this in no time at all.
- RC_ITR 5y ago
  That ignores the fact that older businesses tend to financialize to drive growth in equity value once revenue has stopped growing and older companies tend to be the most prone to disruption/failure. Intel’s downfall can be tied back to an org structure that made up for bad gate-level architecture choices with proprietary fabrication techniques. All that customization crushed intel’s ability to compete with TSMC in foundry and the lack of architectural discipline prevented them from even coming close to fast-following QCOM SoCs or NVDA GPUs. Keep in mind, for all the talk of Intel’s bad management and over-financialization, BK was a foundry engineer and he oversaw the worst period of decline.
  - sokoloff 5y ago
    Older companies are more likely to be disrupted, but younger companies are more prone to failure (per unit time). https://en.wikipedia.org/wiki/Lindy_effect https://en.wikipedia.org/wiki/Lindy_effect
- bsder 5y ago
  > My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. Except that it isn't. "Manufacturing" has known limits. You need this many people to make this many things and your things sell for this much. There is growth, but the values are limited. And, if the company is dying, it is a very slow process and can still generate a remarkable amount of cash while doing so. "Financialization" has no such limits. The sky is the limit and can do so really quickly. So, it looks great. Your gains can be close to infinite. Unfortunately, quick and infinite can also describe your losses from "financialization". This killed Westinghouse. It also crippled GE quite heavily. There are many other examples.
  - danuker 5y ago
    > You need this many people to make this many things and your things sell for this much. Speaking with no manufacturing experience, but having read some books (Diamandis' Abundance). You can reduce long-term costs by automating. If each week you buy a robot replacing a human, your operational costs go down permanently. That is because robots are fundamentally cheaper than human time. Of course, you have to foresee the demand that would make it possible to recoup the costs.
    - deleted 5y ago
      [deleted]
  - doctor_eval 5y ago
    I’m not sure I follow your argument because you appear to disagree, but then support, the premise :) So I’m probably misreading. But ISTM that the thing with constrained environments like manufacturing is that the constraints are physical, so everyone is constrained, which means that in a highly competitive environment, all viable players should be optimising and striving to work on the edge of what’s possible, in order to maximise competitiveness and profitability. So in such an environment, it’s absolutely necessary to “work hard to build quality products”, just to remain in the game. If you instead direct your resources to something else (like financialisation) at the expense of building great products then you will fall behind the leading edge and become uncompetitive or, perhaps worse, a commodity player. This certainly seems to be what happened at Intel, and also Boeing, both of whom appear to have fallen well back from the edge of what’s possible. I think the main reason financialisation is easier to do than engineering, is because money is a universal language, and Verilog is most certainly not. Shareholders seem to invest in order to make money from transactions, rather than dividends, and this seems to be a structural flaw in the financial system.
- amelius 5y ago
  > My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. For big companies. For individuals it might not be the case. Hence why we see this happening.
- ww520 5y ago
  GE is another example.
- marcodiego 5y ago
  Money is not a good motivator: https://www.youtube.com/watch?v=u6XAPnuFjJc https://www.youtube.com/watch?v=u6XAPnuFjJc
- ska 5y ago
  > working hard to build quality products is more likely to be profitable than working hard to make money. This seems like a short-term vs long-term thing. You are often going make more money in the short term by chasing the money (e.g. financialization); but if you aren't careful you will undermine the core value of your company. It's pretty clear that people have made many companies more profitable by this sort of approach, at least for a while.
  - Melatonic 5y ago
    Especially when your core business is making airplanes!
- teej 5y ago
  Seems like we haven't learned from the downfall of General Electric.
- threatripper 5y ago
  Investors can take Intel dividends now and invest them in AMD stocks for future profit and be better off in the end. The only people losing are those who expect a secure job until retirement at Intel.
- Melatonic 5y ago
  I see you also watched a certain Netflix documentary recently :-D
  - bckr 5y ago
    Which documentary talks about this?
- wpietri 5y ago
  > My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. In the long term. But in the short term, you can make more money by not caring about the long term. And given the way US CEO tenure has declined over the years, for a lot of execs the long term is somebody else's problem.
- MangoCoffee 5y ago
  in Intel case, working hard to improve yield is more profitable. Intel didn't make a profitable yield in 10nm process thus endless cycle of cpu release in 14nm.
- PKop 5y ago
  It's a microcosm of the deindustrialization of the US as a whole. A manufacturing and export powerhouse, which financialized by outsourcing production to save on labor & currency arbitrage, accruing profits to multi-national corporations and wall street while the productive capacity within the nation was hollowed out, and labor wages stagnated. Over time lack of domestic supply chain becomes and security and economic stability problem, and domestic inflation rises after trade deficits grow too large, and various supply shocks occur etc.
- emmelaich 5y ago
  And Sun Microsystems. Great engineering but then they wanted to nickel and dime everything and wanted to be the mainframe for Unix, when all the action was happening at the lower end.
  - dboreham 5y ago
    It's unlikely Sun could have made any money selling lower priced systems based on commodity CPUs. In fact they tried this several times without much success.
- matheusmoreira 5y ago
  Is there a cure for such pathological capitalism? It's so pointlessly destructive it's demoralizing. Why even bother creating anything if it's just gonna be exploited for maximum personal gain to the point of self-destruction later? It makes me feel like a sucker. Why am I even trying to create something when these literal sociopaths are making more money than me destroying years worth of other people's work? Maybe I should be like them instead. Why create when destruction is easier and more profitable?
- ksec 5y ago
  >My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. "Manage the top line; your strategy, your people, and your products, and the bottom line will follow.” -Steve Jobs.
- meepmorp 5y ago
  IMO, Boeing's problems started when they "merged" with McDonnell Douglas and the latter company's management took over. They ran MD into the ground in the 80's and 90s, and then people decided they should have a go at Boeing.
  - bin_bash 5y ago
    I’m not sure if you’re agreeing with me or not but that acquisition is precisely what I was referring to
    - meepmorp 5y ago
      I’m sorry, it was early and I wasn’t comprehending shit.
rr808 5y ago
Intel is doing badly recently, but it still generates a lot of cash and lives in a world with chip shortages everywhere. It says its going to invest in new fabs, surely it can catch up with TSM and SEC if it tried. It seems like an industry with so much potential, how can it fail?
- bin_bash 5y ago
  My understanding as an outsider to chipmaking is that Intel's model involved repurposing old fabs so they could make new ones out of the old. TSMC's model is to keep using the same fab for years and years. Because the chip shortage is largely for older, cheaper silicon, Intel's model doesn't allow for building the chips that are actually needed right now.
  - Melatonic 5y ago
    I think the other elephant in the room that not many are talking about is that we have reached a point where most people do not need the latest and great CPU anymore - many can still get by with something 5 years+ old. In the old days stagnation like this could have been a death sentence for Intel but modern times are much more forgiving if they can still play catchup eventually.
    - michaelt 5y ago
      Isn't that just a sign that Intel hasn't managed to make any compelling products?
      - throwaway821909 5y ago
        Back when Intel were really resting on their laurels it was hard to tell. Now we have M1/Ryzen you can reach some sort of conclusion depending on your view of those: - doesn't unlock some major new application for computers, 99% just want Office 365, which ran just as well on Sandy Bridge -> whole industry stagnated, being a couple of years behind is fine - (M1 especially) battery life/perf is improved in a way that will matter to many -> Intel specifically risk being left behind in sector that still has the potential for big changes
kurthr 5y ago
It's a good point, but a little old in the tooth and not really fair apples-apples comparison Foundry to IDM. Intel's transistor density at "10nm" is closer to industry "7nm". Really, I think it was the desire to continue multi-patterning rather than go with ASML's expensive EUV equipment for a last generation. Bad bet!
throwaway81523 5y ago
July 2021
morganslaw 5y ago
I think financialization is something you do in the later stages of a company's lifecycle. It is how you extract the most value out of the company as money, rather than potential. I think companies have pretty clear life cycles. First they start, they grow, then the plateau, and then fall. Sometimes you may get a few bumps in the road, but generally this is the long-term cycle. Financialization makes the most sense to engage when when you are plateaued and possibly falling. You can still extract value. I think that the fall of Sears was a great example of the financialization and extraction of value of a dying company. Financialization is trading off future potential growth or even long-term staying power for $$$.
- narush 5y ago
  Doesn't this feel like a self-fulfilling prophecy? It's like saying "if things are going bad, then just try and extract value." But if extracting value makes things go bad, then it pretty much leads to a death spiral. I feel like a more helpful framework is: if you're giving up on competing, then financialize, while recognizing that a) it's probably gonna kill your company, and b) value extraction from users [especially those who have little choice in using your products!] is no fun for anyone!
  - mywittyname 5y ago
    Sometimes there's not much you can do. It can be the case that, you know business as you know it will end and that no level of investment into a replacement will yield a competitive product (i.e., tube tvs to LED/Plasma, movie rental places, etc). Even innovation powerhouses can eventually fall. Those that stick around often shed the business units that made them successful initially (GE). One good way to extend the life of a company is to acquire your eventual replacements before they get a shot at you. Business is hard, and most profitable businesses have a shelf life.
  - jart 5y ago
    Death spiral? Their stock looks OK. My Core i9 still goes so fast. But for the past few years, if you only read Internet comments, you'd think Intel is about to go belly up tomorrow. This same thing happened twenty years ago. For example: > NYTimes - Nov 29, 2004 — The Disco Ball of Failed Hopes - Intel, giant computer chip maker, seems to have lost its way lately; has publicly ... including the 25 percent decline in Intel's stock price this year As far as I can tell, things are pretty good for the Intel/AMD duopoly. AMD's stock is up 1000% in the last five years. Right now AMD is on top. Just like how AMD was on top around 2004. Then after a few years of AMD winning, Intel turned it around and became on top again. It's like democrats and republicans.
nimish 5y ago
You could see this happen in real-time as Intel sold essentially the same processor between 2015 and 2020 stuck on 14nm while increasing prices and lowering quality -- replacing solder with thermal paste, sticking with 4 cores as long as possible to maximize $. You can see the rather large change under Gelsinger: https://ycharts.com/companies/INTC/stock_buyback https://ycharts.com/companies/INTC/stock_buyback
- Melatonic 5y ago
  Those 2015 processors were some damn good processors though - at that point they were quite far ahead. I haven't counted Intel out of the game just yet like many here seem to - they have definitely hit a stumble though for sure.
  - carlmr 5y ago
    Big companies have to stumble to see actual change. I also think they're going to recover from this. But it's going to take some time.
    - chii 5y ago
      It's a risky bet to say intel is going to recover imho. A lot of good engineering talents have left intel. I dunno if they are capable of rehiring back those people. I suppose the new CEO is going to help. Not many companies recover like this. Microsoft is one notable exception - and they recovered because they have a huge cash cow, and that gives them a tonne of runway.
      - idonotknowwhy 5y ago
        AMD recovered well. As long as they don't do a Nokia / Elop they have a shot imo
        hnaccount_rng 5y ago
        AMD also recovered because they couldn't be killed, as Intel was never going to be allowed becoming a single source for x86. I.e. the US military said: We need more than one company doing the processors we need. Not sure if the same is true for Intel today. There are multiple providers for sufficiently powerful processors and from an enduser perspective the actual architecture doesn't matter much. I.e. it's far simpler to repurpose any other source today than it was 20 years ago.
Afforess 5y ago
Fun fact, Stock buybacks were largely illegal until 1982: https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-buybacks-mitigating-common-pitfalls/#:~:text=Buybacks%20were%20largely%20illegal%20until,over%20the%20next%2020%20years https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-bu....
- ls612 5y ago
  Stock buybacks are economically equivalent to dividends, with the one exception that they don't trigger a taxable event.
  - bin_bash 5y ago
    ...isn't that the reason they were illegal? It seems you're implying not triggering a taxable event isn't important.
    - sokoloff 5y ago
      They don't trigger a taxable event for shareholders who continue to hold the shares. They (obviously) trigger a taxable event (and a more concentrated one) for the sellers of the shares which were bought back.
      - bin_bash 5y ago
        Yes, I realize that but it’s still a major problem. The ultra wealthy never sell their shares for this reason. Instead they opt for taking out endless loans so they don’t pay taxes on their capital gains.
    - mortehu 5y ago
      They also offset shares created for stock based compensation. It's common for the number of outstanding shares to increase even in quarters companies do buybacks, because stock based compensation is bigger than the buybacks. Since newly issued shares are not tax deductible for the owners, you'd basically be paying tax even if net zero capital is returned.
gok 5y ago
- doctor_eval 5y ago
  I take it to mean that financial gain is priority one. All other considerations secondary. Crew expendable.
- xadhominemx 5y ago
  Exactly. Ctrl-F “EUV” in the article and notice nothing comes up. Intel made a couple very bad engineering decisions and fell behind on process technology. That’s it. Share repurchases have nothing to do with it.
  - elihu 5y ago
    You don't think that Intel spending substantially more on stock buybacks and dividends than TSMC and Samsung over the last twenty years had any notable impact on their competitiveness? To me, the article seems spot-on.
    - onepointsixC 5y ago
      Then why is Apple doing so well with its M1 chips with more than 10X the buy backs of Intel?
      - elihu 5y ago
        It's a different kind of business. Apple doesn't fab the chips, that's done by TSMC.
    - xadhominemx 5y ago
      No, not really. Intel’s R&D spending dwarfed TSMC’s. Their execution was poor.
  - lwkl 5y ago
    A good point the article made is that Intel now wants subsidies to finance their R&D. Which is basically the government subsidizing the stock buybacks. I think in a situation like that the subsidies should come in form of the government buying bonds from the company or Intel offering a stake in the company so the government can profit from their investment in the future. Otherwise it's just redistributing money to capital owners, which is stupid and gives an incentive to make bad business decisions.
adfgadfgaery 5y ago
I have always been confused by these issues of corporate governance. All these things seem like they should be owned by real human beings, but it is impossible for me to understand who actually owns and controls these companies. They are simultaneously treated as their own entities that make their own decisions while also being completely controlled by a few big shareholders. And often these shareholders are themselves companies, perhaps owned by other companies. And then you get weird stuff like Porsche's attempt to purchase VW, which wound up with VW purchasing its own largest shareholder. It's all incomprehensibly far removed from what the goods and services that are the real purpose of our economy. Also, the CPU in the picture is upside down. Maybe this is a shallow criticism (especially since the picture was probably chosen by an editor), but I am reluctant to listen to people who would make such a basic mistake.
- stingraycharles 5y ago
  > And then you get weird stuff like Porsche's attempt to purchase VW, which wound up with VW purchasing its own largest shareholder. You have a source for this? It sounds fascinating.
  - lotsofpulp 5y ago
    https://www.nytimes.com/2008/10/31/business/worldbusiness/31norris.html https://www.nytimes.com/2008/10/31/business/worldbusiness/31... https://www.telegraph.co.uk/finance/globalbusiness/3362913/Porsche-crashes-into-controversy-in-the-ultimate-short-squeeze.html https://www.telegraph.co.uk/finance/globalbusiness/3362913/P...
- oblio 5y ago
  It's just a stock photo that was added by someone else, not the writers...
  - adfgadfgaery 5y ago
    I am well aware of that, but it's so ludicrous that it reflects badly on the publication. The presence of that picture shows that no one knowledgeable looked over the article before it was published. What else could have slipped by the editors?
klelatti 5y ago
Whilst having a degree of sympathy with the point being made here I think that the underlying issue is mainly with Intel’s failure to establish attractive propositions in mobile and GPUs whilst they had process leadership - and these failures aren’t really as a result of low spend on R&D or Capex.
randomsilence 5y ago
This reads as if innovation can simply be bought. Why should Intel be able to buy back leadership when China is trying the same without much success?
- joebob42 5y ago
  I think it's hard to buy it, but it's easy to "sell" it / lose it over financializing.
- smoldesu 5y ago
  Because people are unwilling to sell talent to China?
gleenn 5y ago
And this is why AMD and Apple are eating their lunch now. I'm super happy Intel is going to build a next gen fab though, mostly because I'm concerned about the imminent threat of China taking over Taiwan and TSMC with it.
- KSS42 5y ago
  AMD announced $8B buy back recently ... <sigh>
  - drexlspivey 5y ago
    There has been too much dilution with the Xilinx acquisition which was an all-stock deal (they didn’t pay anything)
  - ip26 5y ago
    Its stock is also down >30% relative to a few months back. Maybe it was just a chance to whittle down dilution at a discount.
- smoldesu 5y ago
  Frankly, I don't think it's as close as people make it out to be. AMD has done some incredible stuff (particularly with their mobile APUs), but Intel is on track to have them beaten to the punch at every point on their roadmap. We're still half a decade off from BIG.little Ryzen CPUs, which really scares me considering how much mileage Apple and Intel has gotten out of it already. Apple, on the other hand, has put up a bit of a fight. They bought out the entire 5nm node from under the rest of the industry, for better and worse, and then they changed the game again by putting the ball in their court (mobile chipsets). At this point it's hard to even say they're competing against AMD and Intel; the two are chasing entirely different markets at this point. When they do butt heads though, watching the sparks fly has been spectacular. Despite being on decidedly worse silicon and a veritably slower ISA, Intel has managed to refute every one of Apple's offerings with a decidedly cheaper processor. I really do look forward to their response to the M1 Ultra, because I feel like the chip wars have only just begun. With Pat Gelsinger at the helm, Intel has set a warpath through the industry, and their recent performance metrics seem to cement their intent on being the best in the biz again. Godspeed to all you chip manufacturers out there.
morelish 5y ago
This is interesting to wonder why Intel stumbled so much and has lost so much ground. I suspect the basic premise of this article - that C-level were focused on share price rather than innovation - probably explains it as well as any one thing can.
chmod600 5y ago
Give profits to investors, or reinvest? That seems like the main issue, more so than "manipulation". Of course if you give profits to investors, that allows room for others to out-invest you. But the assumption throughout the article is that, if Intel had reinvested, it would have been a good investment. That's far from clear, given that we know how wasteful organizations can get when they are top dog and flush with cash.
avidphantasm 5y ago
Everyone has to eat, and that takes money. But you can only eat so much, and at some point hoarding money is nihilistic and boring. Do innovative things, otherwise, what’s it all for? The “make money number go higher” mentality ruins everything.
- deleted 5y ago
  [deleted]
- octoberfranklin 5y ago
  It's worse than that. Well-adjusted people get to the point where they have enough money and they switch to doing something other than money-chasing. So in any cohort of people who got rich, the only ones who stay in the chasing-money game past that point are the sociopaths -- the chasing-money game actually selects for these people. Then they end up in charge of the vast majority of the population who do not (yet) have fuck-you money and who play the chasing-money game because they need to eat. I don't know how to fix this. There are a lot of knee-jerk proposals but none of them will work.
gotaquestion 5y ago
“maximizing shareholder value” is a virus? I think that is a gross mis-characterization. It is absolutely self-afflicted, more like a drug addiction. I'm not sure I've fallen for an internet myth or not, but I thought publicly listed corporations were required by law to act in the interest of their investors returns, 'by law' meaning they can be sued by shareholders. Or is that misinformation?
- someguydave 5y ago
  the author is obviously on the far left
- enragedcacti 5y ago
  It exists but is generally overstated: > The Business Judgment Rule asserts that as long as the Board of Directors conducts a reasonable effort to make informed decisions about what is best for a company in the long-run, a court will not question said decisions. [1] My layman's understanding is it's fairly narrowly interpreted and really isn't as ever present in the backs of the minds of board members as the internet would suggest. you have to demonstrate some pretty awful judgement or get caught admitting your reasoning for a decision was opposition to shareholder interests. The simpler explanation is that board members and executives have perverse incentives to act in short term interest so they do. As long as they avoid doing it negligently then they won't face any consequences even if most shareholders want a long term approach. [1] https://www.thesustainableinvestor.net/blog/2016/02/23/fact-v-fallacy-the-legal-duty-of-public-corporations https://www.thesustainableinvestor.net/blog/2016/02/23/fact-...
- enragedcacti 5y ago
  I think virus is actually pretty apt. The host (the company) is infected by the virus (predatory executives, short term investors) that feeds in order to multiply and get fat to the detriment of the host.
- cryptonector 5y ago
  It... depends. The problem is that "maximizing shareholder value" is what corporations should do, but it's also ill-defined. You see this all the time in debates about whether a company should re-invest earnings or pay dividends. The reality is that "maximizing shareholder value" is just rather vague, therefore meaningless. You need much more guidance than that. If "maximizing shareholder value" is often misconstrued in some particular way leading to accidental value destruction, then I would say that misunderstanding is akin to a virus, yes.
not2b 5y ago
The otherwise quite good article repeats the common mistake of not understanding that what Intel calls the feature size (e.g. 10nm) is not equivalent to what TSMC calls it, giving the incorrect impression that Intel is further behind than they are. Intel 10nm is the same density as TSMC 7nm. But I suppose you could argue that this is Intel's own fault for not doing much about that misunderstanding.
funstuff007 5y ago
I guess to certain extent one can blame ZIRP and the perverse incentives that it created. That being said, great companies can be run by sales or engineering, but not by spreadsheet jockeys.
lumost 5y ago
I think there is an inherent temptation for any high CapEx business to financialize. Inherently, a company like Boeing or Intel needs to manage 10s to hundreds of billions in assets. This will inherently require a high skill finance department who will then look at the company from a spreadsheet perspective. This has been the trajectory of GE, Boeing, Intel, and I'm sure others.
BXLE_1-1-BitIs1 5y ago
Boeing, GE, IBM, Xerox... come very much to mind.
pabs3 5y ago
There is an article and talk about this general process of losing technical leadership here: https://berthub.eu/articles/posts/how-tech-loses-out/ https://berthub.eu/articles/posts/how-tech-loses-out/ https://www.youtube.com/watch?v=PQccNdwm8Tw https://www.youtube.com/watch?v=PQccNdwm8Tw and here is one about the EU & 5G outsourcing: https://berthub.eu/articles/posts/5g-elephant-in-the-room/ https://berthub.eu/articles/posts/5g-elephant-in-the-room/
fl8190a 5y ago
I was there when it hummed, and I was there when it failed. This is a gross mischaracterization (of an extremely complex failure) that owes its appeal to a simple and familiar explanation: greed / optimizing for shareholder returns. I'd love to dish, but there is no simple and salacious story to tell, and it's too soon to talk about it anyway as far as I am concerned (and I imagine their lawyers agree). I do think the emergence of high-margin software companies as providers of mostly high-pay, low-stress jobs (and thus magnets for sharp and motivated engineers or aspiring engineers) was one of many contributing factors. I'd tell you how process engineers in the most critical areas used to work, but you'd never believe me.
- logicchains 5y ago
  > I do think the emergence of high-margin software companies as providers of mostly high-pay, low-stress jobs (and thus magnets for sharp and motivated engineers or aspiring engineers) was one of many contributing factors Are you implying Intel's margins weren't high enough for it to compensate its engineers well or provide better working conditions?
  - rocqua 5y ago
    Perhaps he means that some intel jobs are inherently high stress? I could imagine this being the case in a fab.
  - fl8190a 5y ago
    I didn't mean to imply that exactly (since the margins were still pretty high and comp was still incredible by conventional standards), but I'm implying that high-margin software companies could easily offer previously unthinkable comp so they could recruit the best talent possible. I think most HW companies were slow to adjust across-the-board comp to compete. It's not like there was a mass exodus to these SW companies, but I think it was a small factor in this story (and was for nearly every tech company that wasn't operating at absurd $/employee margins).
  - n7pdx 5y ago
    Even if you ignore the software world which has been easily outpacing hardware compensation for the last decade, if you only look at hardware companies, Intel has been either at or very close to the bottom of the pay scale until very recently. In the industry it became a bit of a joke where ex-Intel employees would joke by comparing their pay raises upon resigning. Intel was very clear that it was not willing to pay top dollar not because they didn’t have the money, but because top technical talent tended to resist or reject Intel culture. This meant the big bucks always went to management and other enforcers of said culture. In 2021 Pat Gelsinger told HR to increase pay to match market in an attempt to stanch the attrition. The problem with this is that Intel management didn’t try to fix the broken culture, and instead propped it up by handing the new cash over to the “critical talent” that again, were the cultural enforcers. Pat G genuinely believes Intel is the greatest company on the planet, so he won’t see this as a problem. There are some things that money can’t fix.
scardycat 5y ago
I was there when this happened. So many short term decisions to boost stock price, company objectives focussed on market cap than innovation etc. It was very painful to see in from the inside, first hand.
known 5y ago
rob74 5y ago
Nice quote comparing "Maximizing Shareholder Value" (MSV) to a virus. Another US company infected with this virus is Boeing - the whole tragic 737 MAX debacle was ultimately caused by MSV, and Boeing got the virus when it acquired McDonnell Douglas in 1997...

262 points by kloch 5y ago

deleted 5y ago

[deleted]

It seems both Intel and Boeing had similar paths. They were engineering-first companies that were transformed into profit seeking and while they made a lot of money initially, eventually it failed for both of them. My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money.

api 5y ago
Financialization has done this to the entire country to varying degrees.
whatshisface 5y ago
Boeing won't have failed until someone starts a competing company that stands a chance of replacing it. (Airbus is the same thing, very corporate, very closely tied to governments, but in Europe).
- imglorp 5y ago
  There's a raft of product failures across the board. Not making saleable product is kind of a problem. Boeing's been working on Starliner since 2010 and it has yet to carry anyone to the ISS. Then there's MAX. And the SLS (which hasn't failed yet but /will/ be a 4 billion disposable program, at best.) Maybe true, it's business profitable, successfully extracting money from airlines and government contracts.
- mywittyname 5y ago
  In the past 15 years, it's been demonstrated that startups can successfully build cars at scale and commercial rocket ships. No company is safe. Boeing is exactly the type of company that won't know they're dying until they are dead.
  - echelon 5y ago
    > No company is safe. Boeing is exactly the type of company that won't know they're dying until they are dead. Yes, but they're in a sufficiently protected region of state space guarded by landscape difficulty, moats, massive contracts and cash flows, the government, you name it. You can't just build a better plane from zero and immediately start taking orders. You have to start with something small, tangential, and then grow into that market. That's still very hard to do in aerospace because the requirement is "don't kill people" yet the problem involves putting people in mortal danger. I don't doubt that it could happen, but I think it's a very tall order.
    - Melatonic 5y ago
      A certain car and spaceship building entrepreneur I could see taking a pretty big chunk of Boeings pie if they wanted to expand or split off in that direction
- miketery 5y ago
  Bombardier had a superior product and had a massive sale to Delta lined up. Boeing came in with the government and added 300% tariff. Talk about "free market."
  - speed_spread 5y ago
    Yeah, fuck the new Boeing. Now everytime I'm forced to sit in a 737 I try to fart as much as possible.
    - jonnycoder 5y ago
      thanks
- speed_spread 5y ago
  Because of regulatory capture, any competitor will have to be even _more_ subsidized than Boeing is. A few years ago, Bombardier introduced a new plane, the C-Series. Even though it did not immediately compete with Boeing's own offering, Boeing successfully lobbied for an extravagant 300% import tariffs to be be applied which killed the primary market (US) for it. Canadian government folded and essentially gave the otherwise technically successful project to Airbus in the hope of salvaging any industrial returns on eventual mass production. The airplane is now known as the A220. Any would-be competitor will not only be fighting Boeing, but the whole US government.
  - acchow 5y ago
    > Boeing successfully lobbied for an extravagant 300% import tariffs to be be applied Doesn't this violate NAFTA?
    - speed_spread 5y ago
      Not just NAFTA. From Wikipedia: > On 10 January 2018, the Canadian government filed a complaint at the World Trade Organization against the US. > On 26 January 2018, the four USITC commissioners unanimously determined that US industry is not threatened and no duty orders will be issued, overturning the imposed duties. The Commission public report was made available by February 2018. On March 22, Boeing declined to appeal the ruling. While the USITC had determined there was no threat, the ruling came too late for Bombardier, as the dumping petition by Boeing had already paved the way for Bombardier to relinquish a controlling interest in the CSeries to Airbus in October 2017. This is just a repeat of the Avro Arrow story. US demanding free trade from everyone and then just bullying its weight around when someone comes along with a better deal than what they can manage.
      - doctor_eval 5y ago
        Free trade, free speech, free markets… but we’re free to change the rules when it suits us, too.
p1necone 5y ago
Part of the cause is that the people doing this still benefited - if you can cut a bunch of costs and bump profits for the next few years it doesn't matter to you as an executive whether those changes ultimately lead to significantly worse outcomes for the company in the longer term. Brand loyalty takes a while to fade, there seems to be a cycle with a large number of successful companies that goes work honestly to build a good product -> generate brand loyalty -> people with integrity get replaced by people who would have had no chance of building that successful product/company in the first place -> cut as many corners as possible while riding the brand loyalty to more short term profits -> eventually, on the scale of decades sometimes (because people take a /long/ time to realize that 'well known brand' !== quality), get out-competed by a small company building the same thing as you with integrity -> return to step one with new company.
- Pxtl 5y ago
  How many folks out there got burned by HP products when they were hip-deep in that step 3 step 4 zone of "strip-mine your own brand reputation selling cheap crap"?
  - civilized 5y ago
    Maybe I'm revealing my youth here, but... when was HP good?
    - tigershark 5y ago
      Do you have any non HP printer from 20 years ago still working as expected?
      - roland35 5y ago
        Not 20, but my 10 year old HP color laser is working as well as new!
      - buescher 5y ago
        I have an opening price point Brother laser printer from about 2002 whose drum is on its last toner cartridge worth of wear. I’ve only used it lightly since I stopped contracting about fifteen years ago though.
sidewndr46 5y ago
My understanding is that both Boeing and Intel have received significant subsidies and bailouts from the federal government when it became apparent the companies had issues. So I'd argue that this an indication of a management success, not a failure. They've been able to externalize some of their costs to the federal government, thus increasing their profits.
- mrtesthah 5y ago
  It just demonstrates why nationalization should have been done instead. It was the right solution in 2008, too.
  - ZoomerCretin 5y ago
    Exactly. Governments shouldn't bail out any corporation without a hefty share of ownership in exchange. We did it for Sallie Mae, and we can do it for Intel, Boeing, and the airlines.
    - clairity 5y ago
      no, we the people via our governmental apparatus should essentially force bankruptcy early enough (like the FDIC does for failing banks) and sell the assets in a widely-held auction (for fair price discovery), so that a competitor can keep customers from facing undue externalized risk, and creditors and employees can be made whole, while owners take a bath on their equity. the fundamental downside of taking risk has to exist for economies to keep moving towards efficiency (which our economy is frustratingly not because of said financializations and the like).
      - sidewndr46 5y ago
        The thing is the downside of risk taking still exists. It just shifts from an individual risk(the corporation) to an existential risk(a big chunk of the economy). The only way to prohibit this would be to cap the maximum size of a corporation. My guess is lawyers would just come up with some legal novelty to work around this in no time at all.
RC_ITR 5y ago
That ignores the fact that older businesses tend to financialize to drive growth in equity value once revenue has stopped growing and older companies tend to be the most prone to disruption/failure. Intel’s downfall can be tied back to an org structure that made up for bad gate-level architecture choices with proprietary fabrication techniques. All that customization crushed intel’s ability to compete with TSMC in foundry and the lack of architectural discipline prevented them from even coming close to fast-following QCOM SoCs or NVDA GPUs. Keep in mind, for all the talk of Intel’s bad management and over-financialization, BK was a foundry engineer and he oversaw the worst period of decline.
- sokoloff 5y ago
  Older companies are more likely to be disrupted, but younger companies are more prone to failure (per unit time). https://en.wikipedia.org/wiki/Lindy_effect https://en.wikipedia.org/wiki/Lindy_effect
bsder 5y ago
> My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. Except that it isn't. "Manufacturing" has known limits. You need this many people to make this many things and your things sell for this much. There is growth, but the values are limited. And, if the company is dying, it is a very slow process and can still generate a remarkable amount of cash while doing so. "Financialization" has no such limits. The sky is the limit and can do so really quickly. So, it looks great. Your gains can be close to infinite. Unfortunately, quick and infinite can also describe your losses from "financialization". This killed Westinghouse. It also crippled GE quite heavily. There are many other examples.
- danuker 5y ago
  > You need this many people to make this many things and your things sell for this much. Speaking with no manufacturing experience, but having read some books (Diamandis' Abundance). You can reduce long-term costs by automating. If each week you buy a robot replacing a human, your operational costs go down permanently. That is because robots are fundamentally cheaper than human time. Of course, you have to foresee the demand that would make it possible to recoup the costs.
  - deleted 5y ago
    [deleted]
- doctor_eval 5y ago
  I’m not sure I follow your argument because you appear to disagree, but then support, the premise :) So I’m probably misreading. But ISTM that the thing with constrained environments like manufacturing is that the constraints are physical, so everyone is constrained, which means that in a highly competitive environment, all viable players should be optimising and striving to work on the edge of what’s possible, in order to maximise competitiveness and profitability. So in such an environment, it’s absolutely necessary to “work hard to build quality products”, just to remain in the game. If you instead direct your resources to something else (like financialisation) at the expense of building great products then you will fall behind the leading edge and become uncompetitive or, perhaps worse, a commodity player. This certainly seems to be what happened at Intel, and also Boeing, both of whom appear to have fallen well back from the edge of what’s possible. I think the main reason financialisation is easier to do than engineering, is because money is a universal language, and Verilog is most certainly not. Shareholders seem to invest in order to make money from transactions, rather than dividends, and this seems to be a structural flaw in the financial system.
amelius 5y ago
> My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. For big companies. For individuals it might not be the case. Hence why we see this happening.
ww520 5y ago
GE is another example.
marcodiego 5y ago
Money is not a good motivator: https://www.youtube.com/watch?v=u6XAPnuFjJc https://www.youtube.com/watch?v=u6XAPnuFjJc
ska 5y ago
> working hard to build quality products is more likely to be profitable than working hard to make money. This seems like a short-term vs long-term thing. You are often going make more money in the short term by chasing the money (e.g. financialization); but if you aren't careful you will undermine the core value of your company. It's pretty clear that people have made many companies more profitable by this sort of approach, at least for a while.
- Melatonic 5y ago
  Especially when your core business is making airplanes!
teej 5y ago
Seems like we haven't learned from the downfall of General Electric.
threatripper 5y ago
Investors can take Intel dividends now and invest them in AMD stocks for future profit and be better off in the end. The only people losing are those who expect a secure job until retirement at Intel.
Melatonic 5y ago
I see you also watched a certain Netflix documentary recently :-D
- bckr 5y ago
  Which documentary talks about this?
wpietri 5y ago
> My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. In the long term. But in the short term, you can make more money by not caring about the long term. And given the way US CEO tenure has declined over the years, for a lot of execs the long term is somebody else's problem.
MangoCoffee 5y ago
in Intel case, working hard to improve yield is more profitable. Intel didn't make a profitable yield in 10nm process thus endless cycle of cpu release in 14nm.
PKop 5y ago
It's a microcosm of the deindustrialization of the US as a whole. A manufacturing and export powerhouse, which financialized by outsourcing production to save on labor & currency arbitrage, accruing profits to multi-national corporations and wall street while the productive capacity within the nation was hollowed out, and labor wages stagnated. Over time lack of domestic supply chain becomes and security and economic stability problem, and domestic inflation rises after trade deficits grow too large, and various supply shocks occur etc.
emmelaich 5y ago
And Sun Microsystems. Great engineering but then they wanted to nickel and dime everything and wanted to be the mainframe for Unix, when all the action was happening at the lower end.
- dboreham 5y ago
  It's unlikely Sun could have made any money selling lower priced systems based on commodity CPUs. In fact they tried this several times without much success.
matheusmoreira 5y ago
Is there a cure for such pathological capitalism? It's so pointlessly destructive it's demoralizing. Why even bother creating anything if it's just gonna be exploited for maximum personal gain to the point of self-destruction later? It makes me feel like a sucker. Why am I even trying to create something when these literal sociopaths are making more money than me destroying years worth of other people's work? Maybe I should be like them instead. Why create when destruction is easier and more profitable?
ksec 5y ago
>My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. "Manage the top line; your strategy, your people, and your products, and the bottom line will follow.” -Steve Jobs.
meepmorp 5y ago
IMO, Boeing's problems started when they "merged" with McDonnell Douglas and the latter company's management took over. They ran MD into the ground in the 80's and 90s, and then people decided they should have a go at Boeing.
- bin_bash 5y ago
  I’m not sure if you’re agreeing with me or not but that acquisition is precisely what I was referring to
  - meepmorp 5y ago
    I’m sorry, it was early and I wasn’t comprehending shit.

rr808 5y ago

Intel is doing badly recently, but it still generates a lot of cash and lives in a world with chip shortages everywhere. It says its going to invest in new fabs, surely it can catch up with TSM and SEC if it tried. It seems like an industry with so much potential, how can it fail?

bin_bash 5y ago
My understanding as an outsider to chipmaking is that Intel's model involved repurposing old fabs so they could make new ones out of the old. TSMC's model is to keep using the same fab for years and years. Because the chip shortage is largely for older, cheaper silicon, Intel's model doesn't allow for building the chips that are actually needed right now.
- Melatonic 5y ago
  I think the other elephant in the room that not many are talking about is that we have reached a point where most people do not need the latest and great CPU anymore - many can still get by with something 5 years+ old. In the old days stagnation like this could have been a death sentence for Intel but modern times are much more forgiving if they can still play catchup eventually.
  - michaelt 5y ago
    Isn't that just a sign that Intel hasn't managed to make any compelling products?
    - throwaway821909 5y ago
      Back when Intel were really resting on their laurels it was hard to tell. Now we have M1/Ryzen you can reach some sort of conclusion depending on your view of those: - doesn't unlock some major new application for computers, 99% just want Office 365, which ran just as well on Sandy Bridge -> whole industry stagnated, being a couple of years behind is fine - (M1 especially) battery life/perf is improved in a way that will matter to many -> Intel specifically risk being left behind in sector that still has the potential for big changes

kurthr 5y ago

It's a good point, but a little old in the tooth and not really fair apples-apples comparison Foundry to IDM. Intel's transistor density at "10nm" is closer to industry "7nm". Really, I think it was the desire to continue multi-patterning rather than go with ASML's expensive EUV equipment for a last generation. Bad bet!

throwaway81523 5y ago

July 2021

morganslaw 5y ago

I think financialization is something you do in the later stages of a company's lifecycle. It is how you extract the most value out of the company as money, rather than potential. I think companies have pretty clear life cycles. First they start, they grow, then the plateau, and then fall. Sometimes you may get a few bumps in the road, but generally this is the long-term cycle. Financialization makes the most sense to engage when when you are plateaued and possibly falling. You can still extract value. I think that the fall of Sears was a great example of the financialization and extraction of value of a dying company. Financialization is trading off future potential growth or even long-term staying power for $$$.

narush 5y ago
Doesn't this feel like a self-fulfilling prophecy? It's like saying "if things are going bad, then just try and extract value." But if extracting value makes things go bad, then it pretty much leads to a death spiral. I feel like a more helpful framework is: if you're giving up on competing, then financialize, while recognizing that a) it's probably gonna kill your company, and b) value extraction from users [especially those who have little choice in using your products!] is no fun for anyone!
- mywittyname 5y ago
  Sometimes there's not much you can do. It can be the case that, you know business as you know it will end and that no level of investment into a replacement will yield a competitive product (i.e., tube tvs to LED/Plasma, movie rental places, etc). Even innovation powerhouses can eventually fall. Those that stick around often shed the business units that made them successful initially (GE). One good way to extend the life of a company is to acquire your eventual replacements before they get a shot at you. Business is hard, and most profitable businesses have a shelf life.
- jart 5y ago
  Death spiral? Their stock looks OK. My Core i9 still goes so fast. But for the past few years, if you only read Internet comments, you'd think Intel is about to go belly up tomorrow. This same thing happened twenty years ago. For example: > NYTimes - Nov 29, 2004 — The Disco Ball of Failed Hopes - Intel, giant computer chip maker, seems to have lost its way lately; has publicly ... including the 25 percent decline in Intel's stock price this year As far as I can tell, things are pretty good for the Intel/AMD duopoly. AMD's stock is up 1000% in the last five years. Right now AMD is on top. Just like how AMD was on top around 2004. Then after a few years of AMD winning, Intel turned it around and became on top again. It's like democrats and republicans.

nimish 5y ago

You could see this happen in real-time as Intel sold essentially the same processor between 2015 and 2020 stuck on 14nm while increasing prices and lowering quality -- replacing solder with thermal paste, sticking with 4 cores as long as possible to maximize $. You can see the rather large change under Gelsinger: https://ycharts.com/companies/INTC/stock_buyback https://ycharts.com/companies/INTC/stock_buyback

Melatonic 5y ago
Those 2015 processors were some damn good processors though - at that point they were quite far ahead. I haven't counted Intel out of the game just yet like many here seem to - they have definitely hit a stumble though for sure.
- carlmr 5y ago
  Big companies have to stumble to see actual change. I also think they're going to recover from this. But it's going to take some time.
  - chii 5y ago
    It's a risky bet to say intel is going to recover imho. A lot of good engineering talents have left intel. I dunno if they are capable of rehiring back those people. I suppose the new CEO is going to help. Not many companies recover like this. Microsoft is one notable exception - and they recovered because they have a huge cash cow, and that gives them a tonne of runway.
    - idonotknowwhy 5y ago
      AMD recovered well. As long as they don't do a Nokia / Elop they have a shot imo
      - hnaccount_rng 5y ago
        AMD also recovered because they couldn't be killed, as Intel was never going to be allowed becoming a single source for x86. I.e. the US military said: We need more than one company doing the processors we need. Not sure if the same is true for Intel today. There are multiple providers for sufficiently powerful processors and from an enduser perspective the actual architecture doesn't matter much. I.e. it's far simpler to repurpose any other source today than it was 20 years ago.

Afforess 5y ago

Fun fact, Stock buybacks were largely illegal until 1982: https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-buybacks-mitigating-common-pitfalls/#:~:text=Buybacks%20were%20largely%20illegal%20until,over%20the%20next%2020%20years https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-bu....

ls612 5y ago
Stock buybacks are economically equivalent to dividends, with the one exception that they don't trigger a taxable event.
- bin_bash 5y ago
  ...isn't that the reason they were illegal? It seems you're implying not triggering a taxable event isn't important.
  - sokoloff 5y ago
    They don't trigger a taxable event for shareholders who continue to hold the shares. They (obviously) trigger a taxable event (and a more concentrated one) for the sellers of the shares which were bought back.
    - bin_bash 5y ago
      Yes, I realize that but it’s still a major problem. The ultra wealthy never sell their shares for this reason. Instead they opt for taking out endless loans so they don’t pay taxes on their capital gains.
  - mortehu 5y ago
    They also offset shares created for stock based compensation. It's common for the number of outstanding shares to increase even in quarters companies do buybacks, because stock based compensation is bigger than the buybacks. Since newly issued shares are not tax deductible for the owners, you'd basically be paying tax even if net zero capital is returned.

gok 5y ago

doctor_eval 5y ago
I take it to mean that financial gain is priority one. All other considerations secondary. Crew expendable.
xadhominemx 5y ago
Exactly. Ctrl-F “EUV” in the article and notice nothing comes up. Intel made a couple very bad engineering decisions and fell behind on process technology. That’s it. Share repurchases have nothing to do with it.
- elihu 5y ago
  You don't think that Intel spending substantially more on stock buybacks and dividends than TSMC and Samsung over the last twenty years had any notable impact on their competitiveness? To me, the article seems spot-on.
  - onepointsixC 5y ago
    Then why is Apple doing so well with its M1 chips with more than 10X the buy backs of Intel?
    - elihu 5y ago
      It's a different kind of business. Apple doesn't fab the chips, that's done by TSMC.
  - xadhominemx 5y ago
    No, not really. Intel’s R&D spending dwarfed TSMC’s. Their execution was poor.
- lwkl 5y ago
  A good point the article made is that Intel now wants subsidies to finance their R&D. Which is basically the government subsidizing the stock buybacks. I think in a situation like that the subsidies should come in form of the government buying bonds from the company or Intel offering a stake in the company so the government can profit from their investment in the future. Otherwise it's just redistributing money to capital owners, which is stupid and gives an incentive to make bad business decisions.

adfgadfgaery 5y ago

I have always been confused by these issues of corporate governance. All these things seem like they should be owned by real human beings, but it is impossible for me to understand who actually owns and controls these companies. They are simultaneously treated as their own entities that make their own decisions while also being completely controlled by a few big shareholders. And often these shareholders are themselves companies, perhaps owned by other companies. And then you get weird stuff like Porsche's attempt to purchase VW, which wound up with VW purchasing its own largest shareholder. It's all incomprehensibly far removed from what the goods and services that are the real purpose of our economy. Also, the CPU in the picture is upside down. Maybe this is a shallow criticism (especially since the picture was probably chosen by an editor), but I am reluctant to listen to people who would make such a basic mistake.

stingraycharles 5y ago
> And then you get weird stuff like Porsche's attempt to purchase VW, which wound up with VW purchasing its own largest shareholder. You have a source for this? It sounds fascinating.
- lotsofpulp 5y ago
  https://www.nytimes.com/2008/10/31/business/worldbusiness/31norris.html https://www.nytimes.com/2008/10/31/business/worldbusiness/31... https://www.telegraph.co.uk/finance/globalbusiness/3362913/Porsche-crashes-into-controversy-in-the-ultimate-short-squeeze.html https://www.telegraph.co.uk/finance/globalbusiness/3362913/P...
oblio 5y ago
It's just a stock photo that was added by someone else, not the writers...
- adfgadfgaery 5y ago
  I am well aware of that, but it's so ludicrous that it reflects badly on the publication. The presence of that picture shows that no one knowledgeable looked over the article before it was published. What else could have slipped by the editors?

klelatti 5y ago

Whilst having a degree of sympathy with the point being made here I think that the underlying issue is mainly with Intel’s failure to establish attractive propositions in mobile and GPUs whilst they had process leadership - and these failures aren’t really as a result of low spend on R&D or Capex.

randomsilence 5y ago

This reads as if innovation can simply be bought. Why should Intel be able to buy back leadership when China is trying the same without much success?

joebob42 5y ago
I think it's hard to buy it, but it's easy to "sell" it / lose it over financializing.
smoldesu 5y ago
Because people are unwilling to sell talent to China?

gleenn 5y ago

And this is why AMD and Apple are eating their lunch now. I'm super happy Intel is going to build a next gen fab though, mostly because I'm concerned about the imminent threat of China taking over Taiwan and TSMC with it.

KSS42 5y ago
AMD announced $8B buy back recently ... <sigh>
- drexlspivey 5y ago
  There has been too much dilution with the Xilinx acquisition which was an all-stock deal (they didn’t pay anything)
- ip26 5y ago
  Its stock is also down >30% relative to a few months back. Maybe it was just a chance to whittle down dilution at a discount.
smoldesu 5y ago
Frankly, I don't think it's as close as people make it out to be. AMD has done some incredible stuff (particularly with their mobile APUs), but Intel is on track to have them beaten to the punch at every point on their roadmap. We're still half a decade off from BIG.little Ryzen CPUs, which really scares me considering how much mileage Apple and Intel has gotten out of it already. Apple, on the other hand, has put up a bit of a fight. They bought out the entire 5nm node from under the rest of the industry, for better and worse, and then they changed the game again by putting the ball in their court (mobile chipsets). At this point it's hard to even say they're competing against AMD and Intel; the two are chasing entirely different markets at this point. When they do butt heads though, watching the sparks fly has been spectacular. Despite being on decidedly worse silicon and a veritably slower ISA, Intel has managed to refute every one of Apple's offerings with a decidedly cheaper processor. I really do look forward to their response to the M1 Ultra, because I feel like the chip wars have only just begun. With Pat Gelsinger at the helm, Intel has set a warpath through the industry, and their recent performance metrics seem to cement their intent on being the best in the biz again. Godspeed to all you chip manufacturers out there.

morelish 5y ago

This is interesting to wonder why Intel stumbled so much and has lost so much ground. I suspect the basic premise of this article - that C-level were focused on share price rather than innovation - probably explains it as well as any one thing can.

chmod600 5y ago

Give profits to investors, or reinvest? That seems like the main issue, more so than "manipulation". Of course if you give profits to investors, that allows room for others to out-invest you. But the assumption throughout the article is that, if Intel had reinvested, it would have been a good investment. That's far from clear, given that we know how wasteful organizations can get when they are top dog and flush with cash.

avidphantasm 5y ago

Everyone has to eat, and that takes money. But you can only eat so much, and at some point hoarding money is nihilistic and boring. Do innovative things, otherwise, what’s it all for? The “make money number go higher” mentality ruins everything.

deleted 5y ago
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octoberfranklin 5y ago
It's worse than that. Well-adjusted people get to the point where they have enough money and they switch to doing something other than money-chasing. So in any cohort of people who got rich, the only ones who stay in the chasing-money game past that point are the sociopaths -- the chasing-money game actually selects for these people. Then they end up in charge of the vast majority of the population who do not (yet) have fuck-you money and who play the chasing-money game because they need to eat. I don't know how to fix this. There are a lot of knee-jerk proposals but none of them will work.

gotaquestion 5y ago

“maximizing shareholder value” is a virus? I think that is a gross mis-characterization. It is absolutely self-afflicted, more like a drug addiction. I'm not sure I've fallen for an internet myth or not, but I thought publicly listed corporations were required by law to act in the interest of their investors returns, 'by law' meaning they can be sued by shareholders. Or is that misinformation?

someguydave 5y ago
the author is obviously on the far left
enragedcacti 5y ago
It exists but is generally overstated: > The Business Judgment Rule asserts that as long as the Board of Directors conducts a reasonable effort to make informed decisions about what is best for a company in the long-run, a court will not question said decisions. [1] My layman's understanding is it's fairly narrowly interpreted and really isn't as ever present in the backs of the minds of board members as the internet would suggest. you have to demonstrate some pretty awful judgement or get caught admitting your reasoning for a decision was opposition to shareholder interests. The simpler explanation is that board members and executives have perverse incentives to act in short term interest so they do. As long as they avoid doing it negligently then they won't face any consequences even if most shareholders want a long term approach. [1] https://www.thesustainableinvestor.net/blog/2016/02/23/fact-v-fallacy-the-legal-duty-of-public-corporations https://www.thesustainableinvestor.net/blog/2016/02/23/fact-...
enragedcacti 5y ago
I think virus is actually pretty apt. The host (the company) is infected by the virus (predatory executives, short term investors) that feeds in order to multiply and get fat to the detriment of the host.
cryptonector 5y ago
It... depends. The problem is that "maximizing shareholder value" is what corporations should do, but it's also ill-defined. You see this all the time in debates about whether a company should re-invest earnings or pay dividends. The reality is that "maximizing shareholder value" is just rather vague, therefore meaningless. You need much more guidance than that. If "maximizing shareholder value" is often misconstrued in some particular way leading to accidental value destruction, then I would say that misunderstanding is akin to a virus, yes.

not2b 5y ago

The otherwise quite good article repeats the common mistake of not understanding that what Intel calls the feature size (e.g. 10nm) is not equivalent to what TSMC calls it, giving the incorrect impression that Intel is further behind than they are. Intel 10nm is the same density as TSMC 7nm. But I suppose you could argue that this is Intel's own fault for not doing much about that misunderstanding.

funstuff007 5y ago

I guess to certain extent one can blame ZIRP and the perverse incentives that it created. That being said, great companies can be run by sales or engineering, but not by spreadsheet jockeys.

lumost 5y ago

I think there is an inherent temptation for any high CapEx business to financialize. Inherently, a company like Boeing or Intel needs to manage 10s to hundreds of billions in assets. This will inherently require a high skill finance department who will then look at the company from a spreadsheet perspective. This has been the trajectory of GE, Boeing, Intel, and I'm sure others.

BXLE_1-1-BitIs1 5y ago

Boeing, GE, IBM, Xerox... come very much to mind.

pabs3 5y ago

There is an article and talk about this general process of losing technical leadership here: https://berthub.eu/articles/posts/how-tech-loses-out/ https://berthub.eu/articles/posts/how-tech-loses-out/ https://www.youtube.com/watch?v=PQccNdwm8Tw https://www.youtube.com/watch?v=PQccNdwm8Tw and here is one about the EU & 5G outsourcing: https://berthub.eu/articles/posts/5g-elephant-in-the-room/ https://berthub.eu/articles/posts/5g-elephant-in-the-room/

fl8190a 5y ago

I was there when it hummed, and I was there when it failed. This is a gross mischaracterization (of an extremely complex failure) that owes its appeal to a simple and familiar explanation: greed / optimizing for shareholder returns. I'd love to dish, but there is no simple and salacious story to tell, and it's too soon to talk about it anyway as far as I am concerned (and I imagine their lawyers agree). I do think the emergence of high-margin software companies as providers of mostly high-pay, low-stress jobs (and thus magnets for sharp and motivated engineers or aspiring engineers) was one of many contributing factors. I'd tell you how process engineers in the most critical areas used to work, but you'd never believe me.

logicchains 5y ago
> I do think the emergence of high-margin software companies as providers of mostly high-pay, low-stress jobs (and thus magnets for sharp and motivated engineers or aspiring engineers) was one of many contributing factors Are you implying Intel's margins weren't high enough for it to compensate its engineers well or provide better working conditions?
- rocqua 5y ago
  Perhaps he means that some intel jobs are inherently high stress? I could imagine this being the case in a fab.
- fl8190a 5y ago
  I didn't mean to imply that exactly (since the margins were still pretty high and comp was still incredible by conventional standards), but I'm implying that high-margin software companies could easily offer previously unthinkable comp so they could recruit the best talent possible. I think most HW companies were slow to adjust across-the-board comp to compete. It's not like there was a mass exodus to these SW companies, but I think it was a small factor in this story (and was for nearly every tech company that wasn't operating at absurd $/employee margins).
- n7pdx 5y ago
  Even if you ignore the software world which has been easily outpacing hardware compensation for the last decade, if you only look at hardware companies, Intel has been either at or very close to the bottom of the pay scale until very recently. In the industry it became a bit of a joke where ex-Intel employees would joke by comparing their pay raises upon resigning. Intel was very clear that it was not willing to pay top dollar not because they didn’t have the money, but because top technical talent tended to resist or reject Intel culture. This meant the big bucks always went to management and other enforcers of said culture. In 2021 Pat Gelsinger told HR to increase pay to match market in an attempt to stanch the attrition. The problem with this is that Intel management didn’t try to fix the broken culture, and instead propped it up by handing the new cash over to the “critical talent” that again, were the cultural enforcers. Pat G genuinely believes Intel is the greatest company on the planet, so he won’t see this as a problem. There are some things that money can’t fix.

scardycat 5y ago

I was there when this happened. So many short term decisions to boost stock price, company objectives focussed on market cap than innovation etc. It was very painful to see in from the inside, first hand.

known 5y ago

rob74 5y ago

Nice quote comparing "Maximizing Shareholder Value" (MSV) to a virus. Another US company infected with this virus is Boeing - the whole tragic 737 MAX debacle was ultimately caused by MSV, and Boeing got the virus when it acquired McDonnell Douglas in 1997...