☀️☕️ Intel Downside

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📝 Focus

• Intel Downside

📊 In the Markets

• US ends streak; Americans spend; Luxury rallies, Europe surges

• Bayer Bayoneted (again)

📖 MoneyFitt Explains

• 🎓 How Fabless! Semiconductors

💸 Personal Finance Corner

• Improving Investing Psychology: 3 Steps to Overcoming Biases and Emotions

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📝 Focus

Intel Downside

In a bit of an echo of Tesla’s fall on Thursday, chipmaker🎓Intel plunged the same 12% on Friday after delivering a dismal first-quarter revenue outlook with revenues $2bn below the best guesses of Wall Street’s Finest, attributing it to competition in AI and a weak PC market. The forecast cast a bit of a pall over the sector, dragging even AI winners Nvidia and AMD down 1% and 1.7%, knocking the SOX off 2.7%, its worst day this year. 

We know about the inventory correction and sluggish end demand from industries, as seen in Texas Instruments’ almost as dismal recent report, though that was as much a function of weakness in demand for industrials and especially autos, a bright spot for the sector while consumers and PCs have been weak. The flipside, though, comes with the much brighter sector outlook of a strong cyclical recovery that shovels-in-a-goldrush companies ASML of Denmark and TSMC of Taiwan recently painted. (MFM: Making The Machines That Make Chips.)

It’s not the lack of presence in the AI space that is haunting Intel investors at the moment since a third of Intel's server CPUs are currently sold as part of AI systems used in data centres. But a single Nvidia GPU is selling for $30-40,000 while an Intel CPU is just for $3-4,000 at most (and some say $1,500)... at about the same manufacturing cost. Moreover, there are 4X as many GPU chips (made by Nvidia and AMD) than CPUs (made by Intel and AMD) in AI use. The danger for Intel is that the growth in data centres is driven by AI, and that growth is obviously focused on the increasingly powerful GPUs needed for data-greedy AI (MFM: Huang’s Law.)

..... ▷ Intel has missed the boat before. Once completely dominant in the PC industry, Intel also missed the mobile revolution led by Apple’s iPhone. 

At the time of the iPhone launch, PC CPU prices were pushing up to a price of $500 and more, driving fabulous margins for Intel and its in-house manufacturing (IDM)🎓, while mobile chips were only in the region of $10 to $50 at most.

Intel had benefited from its culture of high margins and complex chip design in the PC market, so it struggled to adapt its culture and production processes to the high-volume, low-margin dynamics of mobile chip manufacturing.

..... ▷ Intel's powerful workhorse x86 processors were designed for high-performance, high-wattage desktop and server environments and lacked the energy efficiency and cost-effectiveness crucial for smaller mobile devices with limited battery life and price sensitivity.

While Intel focused on its x86 architecture, the ARM instruction set architecture gained traction in mobile devices due to its efficient power consumption and lower licensing fees. Intel initially dismissed ARM (still a key player in AI) as a niche player, leading to a strategic blind spot.

..... ▷ Then PC processor performance (GPU-enhanced gaming aside) eventually became more powerful than most users could possibly need, and competition drove laptop prices down to under $1,000, especially for enterprise buyers.

As PC prices fell and smartphones rose, Intel's in-house manufacturing model struggled against the outsourced manufacturing model that Apple and its suppliers (including the likes of modem-king Qualcomm) followed.

Intel's Atom chips for smartphones didn't gain traction, leading to billions lost even as its CPU business faced increasingly strong competition from second-supplier AMD, which was adopting the fabless model and jettisoning its own manufacturing capacity.

CPU vs GPU - a mini-explainer

- A CPU (Central Processing Unit), the “brain” of a computer, is designed to perform many very complex general-purpose computing tasks using just a few processing cores that can handle a few threads at a time (serial processing.)

- A GPU (Graphics Processing Unit) is designed to do repetitive, parallel processing tasks incredibly quickly with thousands of smaller, more efficient processing cores, like rendering 3-D graphics and video processing (... and crypto mining.)

- GPUs are increasingly being used in IoT (Internet of Things) and AI (Artificial Intelligence). In IoT, GPUs are used for edge computing, which involves processing data locally on IoT devices such as real-time image recognition and natural language processing, and in AI, for super-fast training of deep neural networks.

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

European stocks surged to a two-year high, driven by the European Central Bank's expected decision to keep interest rates high, but in the context of easing inflationary pressures and positive price trends.

The pan-European Stoxx 600 closed 1.1% higher, led by France, with its benchmark CAC-40 up 2.3% thanks to Remy Cointreau rising 15% after reporting a smaller-than-expected third-quarter sales decline, and, especially, LVMH shooting up 13% on strong fourth-quarter sales. This drove the heavily France-weighted Stoxx Luxury 10 index up 6.6%. Is the slump over? (MFM: Luxury Slowdown.)

Over in the US, the S&P 500 ended its daily record streak as Intel's bleak revenue forecast (above) weighed on markets, even as fresh economic data showed moderating inflation, supporting the case for potential rate cuts. Despite the dip, all major indexes posted their third consecutive weekly gain. Reflecting consumer spending strength and its resilient credit policies (for now), American Express surged 7.1% after forecasting a higher-than-expected annual profit. 

The coming week will be interesting amid a flurry of key events, including earnings from Alphabet and Microsoft on Tuesday, followed by the Federal Reserve commentary on Wednesday (along with its decision on rates), Apple and Amazon results on Thursday and the nonfarm payrolls (jobs) report and Meta Platforms earnings on Friday. 

Bayer Bayoneted (again)

Beleaguered German pharma giant Bayer was ordered to pay $2.25 billion to a Pennsylvania man for cancer caused by Roundup. The jury found John McKivision's non-Hodgkin’s lymphoma resulted from years of using Roundup in his yard. 

The award includes $250 million in compensatory damages and $2 billion in punitive damages. McKivision's attorneys emphasise the need for corporate change. 

Bayer, of course, disagrees with the verdict and plans to appeal, citing all sorts of scientific evidence, as it has in past (lost) cases.

..... ▷ The verdict marks the latest setback for Bayer, which faces over 165,000 claims related to Roundup. Bayer maintains Roundup's safety despite widespread use and legal challenges despite now having settled previous claims for up to $9.6 billion.

..... ▷ Still, it faces another 50,000 pending claims. Recent losses prompted Bayer to reconsider its legal strategy, but in November, it reiterated its plan to continue battling it out in court, case by case. 

..... ▷ Long-suffering investors have, as one might imagine, raised concerns over the ongoing liabilities, leading Bayer to consider (but reject) restructuring its business to spin off its ag business, including the Monsanto business (where the glyphosate / Roundup herbicide is), which Bayer acquired in 2018 for $63.5 billion. (MFM: Baying for Bayer.)

The whole of Bayer, as of Friday, before this latest ruling in the US, is worth $35bn. (BAYRY, the US-traded ADR, only traded 1% lower on Friday. Does this imply that all negatives are priced in?)