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Chip shortage is ‘halfway through,’ Intel CEO says

In this article:
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Intel CEO Pat Gelsinger joins Yahoo Finance Live to discuss the ongoing chip shortage, the state of the economy, and the outlook for the labor market.

Video Transcript

[MUSIC PLAYING]

JULIE HYMAN: Hit by a global chip shortage and major tech stock sell-off, semiconductor stocks have been struggling to find solid ground in the current market. Then there are-- of course, there's also the push to bring more of that manufacturing to the United States. Joining us from Davos, our own Brian Sozzi.

Brian Sozzi, it's great to see you. You've got a special guest with you who can talk a lot about what's going on in semiconductors.

BRIAN SOZZI: Hey, Julie. Thanks so much. Good to-- good to hear you, I should say. And I'm joined by Pat Gelsinger--

PAT GELSINGER: Hey.

BRIAN SOZZI: Intel-- good to see you. I thought you just existed on Twitter.

PAT GELSINGER: There we go. There is a human behind the Twitter feed.

BRIAN SOZZI: Indeed there is. So I really liked your latest LinkedIn post. You know, I follow a lot of your stuff. And you say that the world is at a strategic inflection point. Talk to us about that.

PAT GELSINGER: Well, you know, Andy Grove had talked about the idea of an inflection point. You get to this moment where, boy, a certain set of small things can cause you to decline or a certain set of small things can cause you to rise in a sustained way. And it's that moment in time to detect, OK, we're at something really important. And we gotta just make real decisions that influence us to be on that arc upward.

And we think that the industry, the world is at this digital Renaissance point where we get to decide what and how the role of digital plays. But importantly, how semiconductors fit underneath that. Because what portion of your life, you know, Sozzi, isn't going more digital? Well, everything is.

BRIAN SOZZI: Every second of my life is more digital.

PAT GELSINGER: And everything digital runs on semiconductors. It is that important to the future of everything.

BRIAN SOZZI: We were-- I saw you, and also on that LinkedIn post, wearing a shirt that said "Torrid." That seems to be the new rallying cry inside of Intel.

PAT GELSINGER: Well, everybody is running around with their--

BRIAN SOZZI: Oh, you have it on your phone too. There we go.

PAT GELSINGER: --Torrid stickers and, you know, Torrid shirts. And, of course, if you're really cool, you describe how your Torrid squared--

BRIAN SOZZI: OK.

PAT GELSINGER: --as well. But, you know, everybody is sort of saying, hey, we've got to move fast. We've got to be decisive. You know, we have to, you know, set a pace, not just for the company, but for the industry if we're going to capitalize on this inflection point.

BRIAN SOZZI: We were joking off camera. I can't keep up with how many things you are working on. You are a true Energizer Bunny up at 4:00 AM. Let's start on the foundry business.

PAT GELSINGER: Yeah.

BRIAN SOZZI: How much business have you generated from that? Day one, you put that stake in the ground--

PAT GELSINGER: Yeah.

BRIAN SOZZI: --and said, hey, we need to do this. We need to be making chips for other people.

PAT GELSINGER: Yeah, and our foundry business is a small business today. You know, and the idea behind foundry is, you know, customers come on, they start using the technology, they start designs. Those designs come out, then they go into manufacturing. It's a two to three year cycle before you see real business coming out of those foundry decisions.

But we're seeing a great pipeline. And as we said on the last earnings call, you know, we have these whales, you know, we have a number of customers that are now doing test chips. You know, we're seeing really good characteristics of people coming on to the foundry in a big way. And we expect that, you know, as US companies, as Western companies, they want a Western supply chain.

And we're seeing, like, you know, response from the defense community in US and Europe as well, in addition to great commercial offerings, you know, that they say, boy, I need more resilient global supply chains.

BRIAN SOZZI: How many new factories will you build over the next five years?

PAT GELSINGER: Well, you know, we've created capacity, you know, that allows us to, you know, have in the order of 10 new factories over the next five years. But setting up that we can do even more as we go into the second half of the decade as well. And the Ohio and Magdeburg, Germany sites, you know, hey, you know, those are big sites that we can be 8 or 10 fabs on those locations.

And, you know, part of the announcement as we brought those forward is a big property that we can just, you know, it's, like, just like cookie cutter, bang, bang, bang, bang, bang, bang. Because if some of these big foundry opportunities start to emerge, the market emerges like we expect, I'm going to be positioned that hey, we're ready to just build more capacity to satisfy a world that needs more semiconductors, and more importantly, needs more advanced semiconductor.

BRIAN SOZZI: Chip shortage, what inning are we in?

PAT GELSINGER: You know, we're about halfway through. And my expectation now is that it persists through 2024. And the big issue that we've additionally faced over the last six to nine months is equipment that goes into the fabs. You know? So now we and others are building the fabs, but we need the equipment to come into the fab to turn them into manufacturing output. And those equipment lead times have pushed out pretty substantially over the last six months.

BRIAN SOZZI: Does President Biden-- he talked about removing tariffs on China this morning. It seems to be a far away from that happening. But how would that impact your business?

PAT GELSINGER: You know, generally, we think it's a reasonable positive. We think it's been a bit punitive. Hasn't necessarily helped our business at this point. So we think it's an incremental positive, but not a huge difference one way or the other.

BRIAN SOZZI: Inflation, how big of a concern is it for your business?

PAT GELSINGER: Well, you know, inflation, you know, overall, we see a little bit of a stepping back. And as we indicate in our last earnings call, a bit of softening on the consumer side, but the business and the commercial side, very strong, very robust. And to some ways, you know, maybe a little bit of a lemon-lemonade kind of perspective. You know, a little bit of softening in demand actually gives us a bit of time to catch up and supply demand as well, which we know how hard that has been for the world to deal with the overall supply chain challenges.

BRIAN SOZZI: I can't-- and I've talked to a lot of executives so far at the event and no one's saying recession. And I get it. No one wants to hop on camera and talk about recession. I get it.

But there does appear to be a slowing. So you maybe are in that camp.

PAT GELSINGER: Yeah, I think there's a slowing. You know, I think there's going to be a period-- you know, people are fighting inflation so there's going to be a tightening of monetary policy as well. I think these are all natural.

You know, and clearly we have, you know, Shanghai port shutdowns and, you know, how China is managing through some of those implications. You know, Europe is figuring out, you know, what it looks like with the Ukraine situation. So, you know, I think there's a general softening and a general tightening of policy. You know, and we think that's probably a couple of quarters in front of us.

BRIAN SOZZI: You've spent most of your career in the tech space. Can you explain what has happened from a stock perspective? To the average person out there, as someone in the tech industry, what is going on?

PAT GELSINGER: Well, you know, I think there was this euphoria on the tech stock growth. And the multiples were just unsustainable. You know, and so there's been a major correction that's occurred.

Now obviously, as you went into COVID, everything's going more digital so the tech stocks exploded inside of it. And to a great degree, they exploded too much, right? But we've seen that before, you know, multiples of certain segments just get ahead of themselves.

So in that sense, I think the correction overall in the tech industry isn't bad. You know, and ultimately, it is still a great industry with great growth potential. And you know, for us, hey, we're, you know, at a much lower multiple so we've been impacted less. But obviously, as I have described, that we're out to create a double-double.

I'm going to double the earnings of the company and we're going to double the multiple of the company. This is a great opportunity to be part of the greatest tech turnaround story in history.

BRIAN SOZZI: You've been very consistent in that since day one. We talked-- now, my morning started with an alert from another company that you ran. You are the former CEO of VMware. News this morning that Broadcom might make a play for them. Would a deal like that makes sense?

PAT GELSINGER: Well, you know, I think, you know, as you look at that, you know, I mean, I have a lot of soul in VMware.

BRIAN SOZZI: I remember you tattooed VMware on your arm, right?

PAT GELSINGER: Yeah, one of those nice--

BRIAN SOZZI: Yeah.

PAT GELSINGER: --month-long tattoos.

BRIAN SOZZI: Yeah.

PAT GELSINGER: My wife hated it. She said, get rid of it before we're on vacation. But, you know, I have a lot of soul in that company. And any change in structure, acquisition-- you know, what I would be motivated to see is the innovation spirit of VMware alive and well.

You know, this is a large software asset, innovating out of an important set of hybrid Cloud and fundamental platform technologies. And if it doesn't help that innovation cycle, it's probably not good. If it does, then is probably good.

BRIAN SOZZI: Last one. I know you're very passionate about creating the next generation of leaders inside of Intel. How are you doing on the recruiting front?

PAT GELSINGER: You know, recruiting is going well. And, you know, we've pretty well finished the leadership team. The people that report directly will soon be announcing a new general counsel. And then all of my chairs are full at my level.

But it's the next level and the next level that we've gotten great talent coming back into the company. And, you know, there's always a war for talent. You're never done in recruiting the best people.

But I think we've made a lot of progress in a little bit over a year. And really excited about the leadership team that I have around me now. And when we had them in front of the investor community, our analyst day, everybody sort of looked at them all and said, wow, that's a pretty impressive team.

BRIAN SOZZI: Yeah.

PAT GELSINGER: And that's what I think too. It's a pretty impressive team.

BRIAN SOZZI: Well, good luck in the continued evolution of Intel. Good to see you. Pat Gelsinger, enjoy the rest of the event. Julie, I'll just say this real quickly too.

Before we started this event, Pat and I, we banged out about 20 push-ups. Actually, I did five, he did 25. It's his thing now. This guy's in shape and he's turning around the company. I'll talk to you guys soon.

JULIE HYMAN: Insta or it didn't happen. OK, thanks so much, Soz. Appreciate it.

BRIAN SOZZI: Oh, it's coming.

JULIE HYMAN: And thanks to Pat as well.