Intel’s comeback story will start in Ohio

Intel’s $100 billion dilemma

Intel’s plans to invest up to $100 billion in a new group of chip factories outside Columbus, Ohio, will have a much greater impact on the future of its manufacturing division compared to any short-term political or supply-chain concerns it might solve.

While Intel’s fourth-quarter earnings beat expectations Wednesdayon strong demand for data-center chips, investors were disappointed by its outlook, which anticipated lower margins for the year to come. This should not have come as a surprise, both because CEO Pat Gelsinger warned investors this was coming months ago and because of where Intel finds itself at the beginning of 2022.

• The company missed out on manufacturing billions of smartphone chips over the last decade, failing to make its own processors or win manufacturing contracts from other mobile giants.
• That means Intel didn’t benefit from the technical manufacturing know-how that comes along with making chips at even higher volumes than its PC or server businesses produce.
• After a prolonged period of disarray, chip manufacturers such as TSMC and Samsung seized upon Intel’s weakness and leapfrogged ahead of the Silicon Valley giant’s one-time manufacturing leadership position.

Gelsinger has vowed to regain that former status, turning around its own products’ performance in the short run and regaining manufacturing supremacy down the road. Ohio is a significant component of that comeback plan.

• The first factory isn’t set to come online until 2025 and it will probably take $20 billion in investment to buy Intel enough capacity to start producing 40,000 wafers a month of advanced manufacturing capacity, according to estimates by Harvard Business School professor Willy Shih.
• Right now, Shih estimates Intel’s highest-volume factories are cranking out around 100,000 wafers a month.
• Intel’s bets on Ohio, Arizona and elsewhere are a huge risk for the company. But today’s massive price tag will almost certainly be dwarfed by what it will have to spend in the future to stay competitive, according to a lesser-known law articulated in 1995 by Intel co-founder Gordon Moore.
• “Capital costs are rising far faster than revenue in the industry,” Moore wrote. "We can no longer make up for the increasing cost by improving yields and equipment utilization.”

Intel has been secretive about the mix of chips it plans to fabricate at its forthcoming Ohio sites, but has said that it plans to deploy next-generation EUV tech there.

• “You thought $150 million for an [EUV] tool takes your breath away, but then you see how much Intel is paying for the high-NA [equipment] too, and it’s crazy,” Shih said. “At the [size of Intel’s Ohio fabs] they’ll have like 1,000 different tools, and they cost a couple million to tens of millions each.”
• But while those prices seem exorbitant, the real risk is that Intel might not be spending cash on manufacturing at the same rate as some of its rivals.
• TSMC already can produce many more wafers than Intel — roughly a million a month — and has promised to spend as much as $44 billion in 2022.
• Samsung, one of the other companies that uses EUV technology to make advanced chips, will spend $42 billion on capital equipment this year.

“This is a high-stakes game, and it takes a lot of money, just because the equipment is so expensive and the technology is so hard,” Shih said.

— Max A. Cherney (email | twitter)

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ServiceNow isn’t slowing down

ServiceNow released its Q4 earnings this afternoon, and the company’s rising stock price mirrors CEO Bill McDermott’s own enthusiasm about the company’s prospects. “We see growth everywhere for ServiceNow!” McDermott exclaimed during today’s earnings call.

Subscription revenues for the SaaS giant grew 30% year-over-year to $1.52 billion in the last quarter, exceeding expectations. The company is also sitting on a war chest of nearly $5 billion, which could provide flexibility for dealmaking in addition to the all-stock deals the tech industry has favored recently.

Still, the company has no plans to pursue inorganic growth as of yet. “Frankly, that's just not in the playbook right now,” McDermott said in an interview with Protocol. “We are actually excited that we don't have to do that. Because we're the only company at this level of scale in the cloud that has ever performed at this level on an organic basis. And we see no reason to believe we can’t continue to do that.”

In that vein, McDermott predicted another year of strong year-over-year growth for ServiceNow, with plans to hit $7 billion in subscription revenues in 2022, en route to its vision of becoming a $15 billion company.

— Aisha Counts (email | twitter)

Startup spotlight: Appraising disasters with AI

Using AI-based visualization apps to try on clothes may be fun, but software-makers are employing AI for more important purposes, too – like assessing property damage resulting from natural disasters.

Tractable recently launched its AI Property technology in North America. The system employs deep learning developed through visual training to gauge the amount of external damage to property brought on by extreme winds, hail and hurricanes.

Tractable wants to replace the need for humans to assess and appraise property damage, which could reduce the amount of time it takes to settle insurance claims. The company aims to do that by getting homeowners to provide photos of damaged homes with their smartphones.

But enterprise customers are taking it slowly. According to Tractable, its customer Japan-based MS&AD Insurance Group will only use the AI system for disasters affecting wide areas such as typhoons, and the company will rely on humans to verify AI-based estimate calculations.

— Kate Kaye ( email| twitter)

Around the enterprise

The White House adopted a new cybersecurity strategy that will require government agencies to implement a zero-trust architecture.

Intel won a long-running dispute over an antitrust fine originally levied by the EU in 2009, avoiding $1.2 billion in penalties for allegedly offering illegal rebates.

TD Bank Group will purchase cloud services from Databricks and Microsoft Azure to help boost its data analytics capabilities.

Snowflake and Databricks are locked in competition for next-generation data warehousing workloads, and The Information took a look at the budding rivalry.

Qualtrics beat Wall Street’s revenue expectations, crossing $1 billion in quarterly revenue for the first time, but fell short on profits.

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