Why Mr. Market Got Everything Wrong During Intel’s ECC Last Night

Summary

• This will become a rather short article, but sometimes the essence of a situation can be described in a few words only.
• Instead of buying, most market participants sold Intel stock last night.
• Demonstrating how fickle and dumb Mr. Market behaves sometimes.
• Good for long-term investors atheart, as compared to mere speculators.

It seems Mr. Market exhibited a peculiar form of deafness last night during Intel’s Earnings Call Conference. Not only did the company deliver its best financial results ever, Bob Swan also announced another instance of Intel learning from its shortcomings of the past.

Their agnostic attitude has now extended from merely embracing ARM solutions also, in parallel with X86. But since last night we know that Intel has been designing their most modern products to be manufacturable in wafer fabs of TSM, in parallel with their own fabs.

If that is not learning from one’s own shortcomings, I don’t know what is. Seems to me a step comparable to what Andy Grove described in his book about the tough competitive landscape in the SC industry (“Only the Paranoid Survive”).

Just as much as Intel as a company had realized by the mid-1980s that competing with heavily subsidized Japanese firms in the DRAM business, no longer made any sense, it now makes little sense to ignore the many benefits a foundry company like TSM possesses, over Intel’s struggles to remain a viable manufacturer of leading-edge silicon.

That was different all throughout the 20^th century, and well into this one. But at one point or other, there comes the time for TSM’s quantitative metrics to win over Intel’s metrics. And Bob Swan demonstrated to the world last night that Intel has learned this lesson as well.

Now were Mr. Market not the fickle creature that Ben Graham described him as, but instead a truly forward-looking intelligent human being, Intel’s stock price last night should have shot up. Because sooner or later Intel will benefit from TSM’s capabilities, just like their competitor do now.

But the market is so damned stupid as only a stock market can be. First unable to recognize the longer-term economic upheavals initiated by the Corona virus, and now unable to recognize the enormous benefits Intel will reap from TSM’s leadership in SC process technology. After all, trade war mimics will disappear next January, hopefully, and TSM’s foundries are open to anybody who pays the price they charge.

Morris Chang was cleverer than any of his former colleagues, when he still worked at Texas Instruments, where he set out to establish a semiconductor foundry in Taiwan. I had just started working at TXN then, and I – like many others – did not see what was evident to Morris then, as plain as daylight.

Funny that I keep picking organizations to work for, which go under as a function of time. I am talking about TI’s memory operations now, but even my first company went under eventually, Digital Equipment, which I had joined in the early 1960s. Of course one saving grace is: none of “my” companies went under, as long as I still worked there.

Anyway, when practically everybody and his brother outsources the manufacture of integrated circuits, it becomes high time for Intel to contemplate doing this as well.

Not that Intel has to give up most of their advantages of being an IDM, an integrated device manufacturer. I am sure they will keep manufacturing their integrated IP, except not ín volume. And when it comes to interconnect technology, like EMIB for instance, where the music will be playing in the future, as wafer fabs become ever more expensive, Intel can well keep playing a leading role.

Or another leading role they’ll play for sure, is in applying the benefits of high levels of integration to promising new technological disruptions like Advanced Driving Assistance Systems, ADAS. That is why they supposedly “overpaid” for MobilEye and MooveIt.

But such thoughts are alien to market pundits, who know everything better, as a matter of course. How much the acquisition of Altera was worth, for instance, or of their recently acquired Israeli IP generators. Fortunately such “better-knowers” provide long-term investors like me wonderful opportunities for getting in more at more reasonable prices.

Benjamin Graham was dead-on right, when he got all excited about the presence of Mr. Market, not understanding one damned iota about long-term prospects of most companies