Summary
At first glance, the rise of Asia has threatened US technological hegemony. China last year has achieved 16% self-sufficiency, well below its 70% target by 2025.
Additionally, China last November imported $265.9 billion worth of semiconductors. Therefore the two factors above imply that the fears and threats of China are exaggerated.
Technically speaking, Intel’s 10nm chips align with the 7nm of its competitors with similar transistor density and production. Node names do not relate to the size of a transistor.
A few years of underinvestment and lack of technological focus and vision have led Intel to uncharted territories. Unfortunately, there is no quick fix, and ‘turnarounds’ take time. However, the Captain, Pat, is a talented and visionary CEO, but the management needs to execute flawlessly the plan to regain Intel’s power.
Intel’s $200 billion CAPEX investment over the next decade is feasible, and the restructure of the business model is essential to regain market leadership.
Riccardo Savi/Getty Images Entertainment Since my initial investment in Intel Corporation (NASDAQ: INTC ) back in August 2020, many things have changed, and it’s time to revisit my investment thesis and assess whether it still qualifies for a seat in my concentrated long-term portfolio. In the below analysis, I aim to paint the picture of the geopolitical landscape, explore some of the company’s technical developments and CAPEX plan that would finally lead me to reaffirm my buy rating for the long term. The fight for the Technological Hegemony
Traditionally, the US used to have a dominant position in semiconductors, but the rise of Asia has severely threatened America’s hegemony. Back in the 1990s US used to manufacture around 37% of total global semiconductors. Today this figure has fallen to 12% as a large part of the production shifted to Asia due to more integration and consolidation of supply chains. In addition, China has heavily invested in the semiconductor industry through massive government subsidies to achieve self-sufficiency and even superiority in chip technology.
Back in 1987, the US government formed SEMATECH with $500 million in subsidies to respond to Japan’s threats in the semiconductor industry. Fast forward to 2021, the CHIPS Act has approved for $52 billion part of the National Defense Authorization Act to respond to China’s threat. This government plan makes it the largest semiconductor act in US history for industrial policy.
Lack of government support and funding from the Clinton to Obama era in the semiconductor industry had left the US behind, growing slower than China. The US weaknesses primarily derive from the supply chain disruption and other geopolitical risks. It is evident from the charts that US firms control 33% of the global fabrication capacity, while Taiwan controls 60% of contract foundry capacity. In addition, the concentration of fab facilities in China is worrisome for the US, as it now accounts for more than double the facilities of the US. At first glance, this seems like a severe threat to US technological hegemony. However, critics should never view such numbers in isolation due to the semiconductor industry’s highly complex and tied interconnections. To that effect, China’s threat to the US is mitigated by a series of counterarguments below.
Firstly, the US has formed strategic partnerships with key global players to enhance their control over global capacity. Specifically, the US formed a strategic collaboration with the EU on semiconductor policy and strategy, as they share similar concerns for the supply chain: The U.S. and EU also share similar concerns about potential vulnerabilities and overdependence in the global semiconductor supply chain, particularly in parts of East Asia. US collaborations also extend to South Korea and Japan, with more strategic partnerships underway to protect their technologies. Deputy Secretary of Commerce Don Graves said South Korea and other U.S. allies also share a common interest of protecting their technologies and intellectual properties when dealing with other countries, such as China. Similarly, China has paid back with the same coin by strongly opposing the Nvidia-Arm (NASDAQ: NVDA ) deal, which I have analyzed in a previous article . If the deal goes through, it would give the US an unfair competitive advantage and lead it to technological hegemony. Nevertheless, the deal is unlikely to go through, considering the recent developments.
Undoubtedly, China’s economy has grown very fast, and by 2025, the country aims to achieve 70% self-sufficiency in semiconductors. But, surprisingly, looking at the relevant numbers, China still imports billions of dollars worth of semiconductors today. Last November alone, China imported $265.9 billion, which remains well above the Chinese […]
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