Major hedge fund advises Intel to outsource CPU manufacturing

[Blade of Grass]

On 1/2/2021 at 9:47 AM, Kisai said:

That is how bad businesses work. Good businesses do not take on venture capital, because they do not need it. Bad businesses that just want to sell themselves take on venture capital to cash out, and hope they aren't the ones holding the bag when the business goes under.

I think this is a bit beside the point of this thread, but your understanding of venture capitalism seems quite... incorrect. 
 

Venture Capitalists generally fund high risk companies—generally startups during seed/series stages, pre-IPO.
 

I’m not sure where your idea that only “bad business” take VC money, basically every Silicon Valley startup that has ever been successful has likely had a funding round with money from VCs. Lots of companies need initial funding, and it has to come from somewhere, so before you’re cash flow positive you’re going to need investment (unless your founder is rich).
 

Traditional investment companies traditionally would never make an investment in a startup, so VCs and Angel investors were basically the only way to secure initial funding as a startup. Nowadays, it’s changed a bit, and traditional investors have started looking into the VC space more, as have traditional lenders. VC money still rules for seed/series funding though. 

On 1/2/2021 at 9:47 AM, Kisai said:

That is why the pejorative term "vulture capitalist" is used, because that is what happens every time venture capital is involved with start-ups and with companies that have sinking stocks. Some terrible investment people come in, carve up the company, take on more debt, and leave the carcass to rot.

Definitely not what happens every time venture capital is involved with startups, the internet as we know it would not exist without VC money. Don’t believe me? Go look at Sequoia or a16z’s portfolio.

On 1/2/2021 at 9:47 AM, Kisai said:

There other kinds of investors (eg Berkshire Hathaway) which buy companies and then just run them without trying to turn them into something they aren't. Contrast that with companies run by clowns like Inspire brands (Arbys, Dunkin', Baskin Robbins,) Wendys (which was part of Arbys for 3 years),  Yum Brands (KFC/Taco Bell/Pizza Hut) and Resturant Brands International (Burger King and Tim Hortons) which keep shuffling their brands around in a brainless game of musical chairs of who's restaurants gets closed.

 

I keep seeing these companies get traded around like horses, and the end result for the consumer is higher prices and less restaurant choices as these Hedge funds run them into the ground.

None of these companies are hedge funds, they’re PE firms.

[Kisai]

14 hours ago, porina said:

 

 

Intel management probably wishes they could reload a save point and try a different story branch, but real life doesn't work that way. They just have to make the best of what they have now, and try to correct the course for the future, which they would have started years ago but it wont be entirely visible outside the company until it is the right time to announce.

And Intel will certainly survive if they ignore the activists shareholder who wants to carve up the company to make a short term profit. Show them the door.

 

There's not very many companies I will go "ignore the investor crybabies" about, because in most cases, with companies like Intel, AMD, Apple, Microsoft, and IBM, nobody else is really doing what they are doing, and when they start divesting themselves of things, the divested company immediately fails. The companies are literately "too big to fail," if they stay together, but any spinoffs will not lead to more competition, only the termination of jobs.

 

On the flip side of that argument, it's usually easy to replace a service provider, as long there is a third option. This is why the US cell phone carriers should never have become so large and had their fingers in so many different pies (eg none of them should have been involved in content creation while also being the provider of the service that the content runs on.) Netflix and Apple can in theory run their cloud infrastructure on top of Amazon, Google or Microsoft, but they only reason they're doing this and not building their own server farms is that it's not cost effective -yet- until the performance gaps close again. Like I don't see Apple ending their Intel support as long as they run stuff on Intel powered servers. Microsoft isn't going to build a cloud data center running on M1's.

 

[Kisai]

8 hours ago, Blade of Grass said:

I think this is a bit beside the point of this thread, but your understanding of venture capitalism seems quite... incorrect. 
 

Venture Capitalists generally fund high risk companies—generally startups during seed/series stages, pre-IPO.

I'm fully aware of what VC companies do, however I have plenty of connections that tell me that nobody wants to take VC money because the VC companies always destroy businesses by focusing on short term profits. Fund, Pump, and then Dump. If a VC company is interested in your business, then you don't need the VC, they will go find someone stupid enough to copy your business idea instead.

[ryzenbob]

On 12/31/2020 at 11:36 AM, DuckDodgers said:

A major investor group is suggesting Intel should ditch it's own manufacturing capacity and outsource it to reduce loses.

 

 

This is the second time this year Intel is pushed to reconsider its IC manufacturing capacity, but this one calls for a much more affirmative action, almost going fab-less.

 

Sources

 https://arstechnica.com/gadgets/2020/12/activist-hedge-fund-advises-intel-to-outsource-cpu-manufacturing/

Or they could switch to chiplets like AMD thus improving yields and therefore profit.

[ezsteev]

On 1/2/2021 at 6:47 AM, Kisai said:

That is how bad businesses work. Good businesses do not take on venture capital, because they do not need it. Bad businesses that just want to sell themselves take on venture capital to cash out, and hope they aren't the ones holding the bag when the business goes under.

 

That is why the pejorative term "vulture capitalist" is used, because that is what happens every time venture capital is involved with start-ups and with companies that have sinking stocks. Some terrible investment people come in, carve up the company, take on more debt, and leave the carcass to rot.

 

There other kinds of investors (eg Berkshire Hathaway) which buy companies and then just run them without trying to turn them into something they aren't. Contrast that with companies run by clowns like Inspire brands (Arbys, Dunkin', Baskin Robbins,) Wendys (which was part of Arbys for 3 years),  Yum Brands (KFC/Taco Bell/Pizza Hut) and Resturant Brands International (Burger King and Tim Hortons) which keep shuffling their brands around in a brainless game of musical chairs of who's restaurants gets closed.

 

I keep seeing these companies get traded around like horses, and the end result for the consumer is higher prices and less restaurant choices as these Hedge funds run them into the ground.

 

 

Businesses exist to make people rich. Businesses are teams of people who come together for a purpose. The legal entity has no feelings. It exists for the sole purpose of serving the interest of the team. There is no carcass. It is legalized fiction.

 

And if a business goes bankrupt, better owners have the opportunity to buy the assets and make better businesses.

 

You clearly don't work in high finance. If you don't believe what i wrote, just look at a chart of NVIDIA, Intel, HP, or any stock. Put in markers on the chart for every acquisition. Re-read what i wrote. Now you know business.

 

What Dan Loeb is textbook. Different business units have different costs of capital. The parent business entity's effective borrowing rate is the weighted-average cost-of-capital (WACC). If you divest a business unit that has a higher cost of capital, the remaining business will achieve a lower borrowing rate and can lever up, increase return-on-equity, and be leaner.

 

Nothing is destroyed. Better owners now own the fab, and they can manufacture for Intel's competitors without a conflict-of-interest, achieving higher economies of scale.

 

[CarlBar]

5 hours ago, ezsteev said:

Businesses exist to make people rich. Businesses are teams of people who come together for a purpose. The legal entity has no feelings. It exists for the sole purpose of serving the interest of the team. There is no carcass. It is legalized fiction.

 

And if a business goes bankrupt, better owners have the opportunity to buy the assets and make better businesses.

 

You clearly don't work in high finance. If you don't believe what i wrote, just look at a chart of NVIDIA, Intel, HP, or any stock. Put in markers on the chart for every acquisition. Re-read what i wrote. Now you know business.

 

What Dan Loeb is textbook. Different business units have different costs of capital. The parent business entity's effective borrowing rate is the weighted-average cost-of-capital (WACC). If you divest a business unit that has a higher cost of capital, the remaining business will achieve a lower borrowing rate and can lever up, increase return-on-equity, and be leaner.

 

Nothing is destroyed. Better owners now own the fab, and they can manufacture for Intel's competitors without a conflict-of-interest, achieving higher economies of scale.

 

 

Sounds great in theory until you factor in the point that Intel owns the bulk of the high performance node production capacity ATM. Right now those fabs give Intel a short to medium term guaranteed income. Thats money no one can take away from them because no one else can physically manufacture anything to take over those sales, the manufacturing capacity doesn't exist. For all intents and purposes Intel has a captive market.

 

Sell off those fabs and once those fabs get their process node issues under control Intel's guaranteed income goes poof as anyone can use them to meet global demand and if intel has a bad architecture they'd be in as much danger of ceasing to exist as AMD was during the bulldozer years.

 

Sure if this process node issue goes on long enough TSMC etal might be able to build enough capacity to make those fabs irrelevant, but thats going to take  really long time and be super risky because the instant Intel gets a good generation again all those new shiny fabs will be sat idle.

 

I don't agree with the characterisation of venture capital firms, but your really not doing them any favours here, the argument your proposing is a perfect example of short term benefit at the cost of a long term disadvantage which is what venture capital is being accused of.

[Kisai]

6 hours ago, ezsteev said:

 

 

And if a business goes bankrupt, better owners have the opportunity to buy the assets and make better businesses.

That isn't what happens. The people who were holding the debt take a loss, be it financially or in time. Nobody wants to buy a business that has negative book value.

 

Quote

You clearly don't work in high finance. If you don't believe what i wrote, just look at a chart of NVIDIA, Intel, HP, or any stock. Put in markers on the chart for every acquisition. Re-read what i wrote. Now you know business.

 

 

Of course I don't work in finance, I work with marketing and art and engineering clients, and the repeated theme is "VC is bad, the minute you touch that poison, your business is dead."

 

[SansVarnic]

-= Topic Cleaned =-

 

There is no need in derailing topics with injecting discussion not related to the OP.