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Is this an accounting trick to look profitable or is it normal and reasonable? > Effective January 2023, Intel increased the estimated useful life of certain p

Is this an accounting trick to look profitable or is it normal and reasonable? > Effective January 2023, Intel increased the estimated useful life of certain production machinery and equipment from five years to eight years. When compared to the estimated useful life in place as of the end of 2022, Intel expects total depreciation expense in 2023 to be reduced by $4.2 billion. Intel expects this change will result in an approximately $2.5 billion increase to gross margin, a $400 million decrease in R&D expenses and a $1.3 billion decrease in ending inventory values.

qwerty3344 3y ago
fwiw Google did the same trick with their servers
- metaphor 3y ago
  Likewise Nvidia...buried in supplemental CFO commentary[1] circa FY23 Q4: > Starting in fiscal 2024, we are extending the useful lives of a majority of our servers, storage, and network equipment from three years to a range of four to five years, and assembly and test equipment from five to seven years. As a result, we expect favorable impact to operating income of approximately $26 million in the first quarter and $133 million in fiscal 2024 from a reduction in depreciation expense based on equipment balances as of January 29, 2023. The favorable impact will be primarily in operating expense, and to a lesser extent in cost of goods sold. [1] https://www.sec.gov/Archives/edgar/data/1045810/000104581023000014/q4fy23cfocommentary.htm https://www.sec.gov/Archives/edgar/data/1045810/000104581023...
tw04 3y ago
>Is this an accounting trick to look profitable or is it normal and reasonable? It seems normal and reasonable to me with their change in direction to making chips for others. Previously Intel (for the most part) needed to rapidly depreciate hardware and move to the next process node to stay competitive. Now they can continue running a process node far beyond what they would have historically to create a cheaper chip-line for third parties.
- greenknight 3y ago
  They have been talking about being a foundary for external use for a while, years... yet i have not heard of a single customer yet, just an announcement today that intel and ericsson have a partnership. It feels like yes they want to become a external foundary, but they just havent fully committed to that task yet.
  - tw04 3y ago
    >They have been talking about being a foundary for external use for a while, years Correct, Gelsinger announced roughly a month after returning to Intel their new strategy (~2 years ago). Believe it or not, pulling apart the financials of a company the size of Intel can't be done overnight - and I would guess legally they needed some customer contracts built on the old process technology before they could depreciate assets. >yet i have not heard of a single customer yet, just an announcement today that intel and ericsson have a partnership. Did you spend any time looking? 30 seconds on google shows Mediatek signed up last year: https://www.forbes.com/sites/patrickmoorhead/2022/08/10/intel-foundry-services-announces-mediatek-as-first-wafer-customer/?sh=76775e8a464a https://www.forbes.com/sites/patrickmoorhead/2022/08/10/inte...
    - greenknight 3y ago
      Yep, i feel like i am just a bit skeptical. I would have just liked to see multiple chips out in the wild (from different companies outside of intel) using the intel fabs.
      - AtlasBarfed 3y ago
        This smells of mark to market accounting aka Enron book cooking
  - protastus 3y ago
    The CEO allegedly wants them to be an external foundry. His direct reports may not be as enthusiastic.
  - 3y ago
marricks 3y ago
Could be a benefit from being stuck on the same node for longer
stefan_ 3y ago
Interesting that this is allowed under GAAP.
- thehappypm 3y ago
  If they’re lying about the life of these machines, that will come back to bite them later on when their forecasted expenses don’t match the reality.
kccqzy 3y ago
It is both normal and reasonable and an accounting trick. The entire concept of depreciation is an accounting trick. Albeit a useful trick if you ask me. Look at cash flows if you don't like accounting tricks.
- RicoElectrico 3y ago
  I came to a conclusion that most accounting trickery is just for tax purposes.
irrational 3y ago
How much of this is due to salary cuts, benefits/bonus cuts, and layoffs? I live in an area with a lot of Intel campuses and I know a ton of people that were laid off, had their salary cut, no bonuses, etc.
- oumua_don17 3y ago
  David Zinsner, Intel CFO, said, “Strong execution, including progress towards our $3 billion in cost savings in 2023, contributed to the upside in the quarter. We remain focused on operational efficiencies and our Smart Capital strategy to support sustainable growth and financial discipline as we improve our margins and cash generation and drive shareholder value.” From: https://www.intc.com/news-events/press-releases/detail/1637/intel-reports-second-quarter-2023-financial-results https://www.intc.com/news-events/press-releases/detail/1637/...
drumhead 3y ago
To make profits look better. It's why analysts tend to build Thier own p&l from the accounts and focus on the free cash flow instead.

qwerty3344 3y ago

fwiw Google did the same trick with their servers

metaphor 3y ago
Likewise Nvidia...buried in supplemental CFO commentary[1] circa FY23 Q4: > Starting in fiscal 2024, we are extending the useful lives of a majority of our servers, storage, and network equipment from three years to a range of four to five years, and assembly and test equipment from five to seven years. As a result, we expect favorable impact to operating income of approximately $26 million in the first quarter and $133 million in fiscal 2024 from a reduction in depreciation expense based on equipment balances as of January 29, 2023. The favorable impact will be primarily in operating expense, and to a lesser extent in cost of goods sold. [1] https://www.sec.gov/Archives/edgar/data/1045810/000104581023000014/q4fy23cfocommentary.htm https://www.sec.gov/Archives/edgar/data/1045810/000104581023...

tw04 3y ago

>Is this an accounting trick to look profitable or is it normal and reasonable? It seems normal and reasonable to me with their change in direction to making chips for others. Previously Intel (for the most part) needed to rapidly depreciate hardware and move to the next process node to stay competitive. Now they can continue running a process node far beyond what they would have historically to create a cheaper chip-line for third parties.

greenknight 3y ago
They have been talking about being a foundary for external use for a while, years... yet i have not heard of a single customer yet, just an announcement today that intel and ericsson have a partnership. It feels like yes they want to become a external foundary, but they just havent fully committed to that task yet.
- tw04 3y ago
  >They have been talking about being a foundary for external use for a while, years Correct, Gelsinger announced roughly a month after returning to Intel their new strategy (~2 years ago). Believe it or not, pulling apart the financials of a company the size of Intel can't be done overnight - and I would guess legally they needed some customer contracts built on the old process technology before they could depreciate assets. >yet i have not heard of a single customer yet, just an announcement today that intel and ericsson have a partnership. Did you spend any time looking? 30 seconds on google shows Mediatek signed up last year: https://www.forbes.com/sites/patrickmoorhead/2022/08/10/intel-foundry-services-announces-mediatek-as-first-wafer-customer/?sh=76775e8a464a https://www.forbes.com/sites/patrickmoorhead/2022/08/10/inte...
  - greenknight 3y ago
    Yep, i feel like i am just a bit skeptical. I would have just liked to see multiple chips out in the wild (from different companies outside of intel) using the intel fabs.
    - AtlasBarfed 3y ago
      This smells of mark to market accounting aka Enron book cooking
- protastus 3y ago
  The CEO allegedly wants them to be an external foundry. His direct reports may not be as enthusiastic.
- 3y ago

marricks 3y ago

Could be a benefit from being stuck on the same node for longer

stefan_ 3y ago

Interesting that this is allowed under GAAP.

thehappypm 3y ago
If they’re lying about the life of these machines, that will come back to bite them later on when their forecasted expenses don’t match the reality.

kccqzy 3y ago

It is both normal and reasonable and an accounting trick. The entire concept of depreciation is an accounting trick. Albeit a useful trick if you ask me. Look at cash flows if you don't like accounting tricks.

RicoElectrico 3y ago
I came to a conclusion that most accounting trickery is just for tax purposes.

irrational 3y ago

How much of this is due to salary cuts, benefits/bonus cuts, and layoffs? I live in an area with a lot of Intel campuses and I know a ton of people that were laid off, had their salary cut, no bonuses, etc.

oumua_don17 3y ago
David Zinsner, Intel CFO, said, “Strong execution, including progress towards our $3 billion in cost savings in 2023, contributed to the upside in the quarter. We remain focused on operational efficiencies and our Smart Capital strategy to support sustainable growth and financial discipline as we improve our margins and cash generation and drive shareholder value.” From: https://www.intc.com/news-events/press-releases/detail/1637/intel-reports-second-quarter-2023-financial-results https://www.intc.com/news-events/press-releases/detail/1637/...

drumhead 3y ago

To make profits look better. It's why analysts tend to build Thier own p&l from the accounts and focus on the free cash flow instead.