16 Reasons Why Intel Should Have a Higher P/E Than ARM
P/E ratios are all about the future and future earnings. And future earnings are to a very large extent all about fabrication. Intel's fabrication has reliable economics, is based on FinFET and the roadmap extends all the way down to 5nm.
ARMs future on the other hand is substantially unknown because its fabrication roapmap essentially ends at 20nm. ARM doesn't have FinFET and not even 20nm production yet. In fact, 28nm still isn't close to being fully ramped and everyone believes ARM will be at 28nm for a substantial part of its production for years and years. ARM is attempting to implement a half-step to 14nm FinFET because it is clearly losing the fabrication race and also because its 20nm planar only offers limited performance improvements at a significantly increased cost. No one knows if it will be successful or when.
The bottom line is that Intel will have volume production on 14nm for at least two years while the bulk of ARM is still at 28nm. This represents a two process node lead that will have huge implications in the marketplace. It means that Intel has a bright fabrication, financial and economic future while ARM fades to black.
Here are 16 solid, factual, confirmable reasons why Intel's bright fabrication future should result in the company having a higher P/E ratio than ARM:
1.) Fewer ARM fabless start-ups, Even fewer rising stars, Large fabs acquiring small ones, Dropping number of foundries, deals and investments.
2.) The number of designs that the ARM foundries can support at each node is dropping. At 65nm it was 65 to 80, at 40nm, it was 40 to 50, at 28nm, it was 20 to 30, at 20nm, it will be 12-16 and at 14nm it will be 5 to 8.
3.) The time to ramp on each new ARM node is getting longer.
4.) The complexity of each node is increasing dramatically.
5.) The costs of each new node are getting higher while the benefits are getting smaller.
6.) Foundries are forced into a bad economics move to 20nm planar which is costly at minimal benefit.
7.) Foundries are forced into attempting a half-step to 14/16nm even though they haven't yet successfully assimilated 20nm upon which the move is based.
8.) Because of extremely high cost in process technology and SoC development, the relationship between fabless companies and foundries has become sensitive.
9.) Foundries will select their customers very carefully, and the criteria for acceptance will involve financial returns as well as technical capabilities. So, the rich will get foundry services and the rest of the ARM shops will be left hanging. So much for the ARM hoardes helping to compete with Intel.
10.) There is also the complementary factor that, with the increasing cost of implementing SoC designs at most advanced technology node, only a small number of fabless companies can participate.
11.) Whenever the partnership between a fabless company and foundry established, it would not be easy to change, as the change means high cost that should be paid by both parties. In other words, when an ARM shop makes a deal with one of the few remaining ARM foundries, then they are STUCK, and can only get unstuck by the application of large sums of money. And then who will they go to? One of their other one or two choices, if they even have that many?
12.) At 20nm and 14nm, the foundry business model will probably be slightly changed. An IDM-like collaboration between fabless companies and foundries will be expected. So the ARM foundries are going to have to become virtual IDMs (like Intel) in order to compete as these levels. Expect higher costs and lots of problems on implementation.
13.) Fabless companies have to accept a slow ramp-up of wafer volumes because of the IP qualification and parametric yield challenges.
14.) ARM Design teams will need to be manufacturing-aware and have in depth understanding of the process variables that have to be included as part of design disciplines. There will be the need for collaboration between fabless company and foundry on understanding the process variations.
15.) Fabless companies cannot assume that their designs will give high yields based on their legacy interfaces that are in place with foundries. There is the need to anticipate potential yield problems and address them at the design implementation phase, and DFM factors have to be carefully analyzed.
16.) Fabless companies will need to build stronger process and product engineering and DFM expertise. It means a extra cost of 50-100M USD per year.