Intel Wins Google Promise to Keep Using Xeon in Data Centers

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2:09This 3.6 % today. This is after the company said Google has committed using future generations of Xeon processors and other chips. Ian King is a Bloomberg News US semiconductor reporter. He joins us from Bloomberg San Francisco Bureau. Ian, I want to start with the Intel news. As you write in the piece, the terms of this deal are unclear. We don't know how much money exchanged hands. Still, investors like to see this. Shares of Alphabet are higher. Shares of Intel are higher. What is this a symbol of in Intel's turnaround? Yeah, I mean, Intel's had a good week, as we've seen. They're up over 20%.

2:42And this is another example of them saying, hey, remember us. We're still important. We have a role to play in this overall AI build-out. And Xeon, which was for many years the absolute cash cow for them, is going to be a part of one of its major customers' data centers going forward. So that's a nice affirmation to what extent that is, to what extent this expands or just reasserts what was already going to happen. We don't know, but it's obviously positive news that, you know, and brings Intel back into this conversation. And important, right, in terms of the turnaround and what they're trying to do in terms of the CEO.

3:23I mean, these are the things you want to be. I'm thinking about for investors. I mean, the stock has had quite a run, Ian, but this is the kind of thing you want to be hearing. Yeah, I mean, they have to be part of the AI story. They haven't been so far. And that's been obviously involved the concession of tens of billions of dollars of revenue that's gone to basically NVIDIA, gone to AMD to a lesser extent, that should have gone originally to Intel. Because remember, at one point, they had 99 % market share in data center processes. Ian, there's so much we want to get to with you. but I want to shift gears a little bit and just talk because we haven't had a chance to speak to you about the Strait of Hormuz in the context of semiconductors.

4:05And we had this conversation on our editorial call this morning about the role of helium and how that has been really talked about a lot in the context of one of the raw materials that has been stuck in this choke point as the Strait of Hormuz has been closed. Just big picture before we get to the details, the Strait of Hormuz closure, often we talk about it in the context of energy and the like, But what has been the effect on semiconductors and semiconductor firms? They need this gas. This gas is a byproduct of the manufacturing of liquid and natural gas. So because we've obviously seen facilities there shut down, and particularly in Qatar, and even if the gas was produced there, it would be more difficult to ship it out because of the closure of the straits.

4:52That's created this concern that this key part of the manufacturing of semiconductors would be in shortage, and that would result in a shortage or an increasing shortage of manufacturing capabilities. Yeah, it's just… I've had a time when manufacturing these is so easy and everybody's getting the chips that they want. Well, you know, Ian, one of the questions we've been having a lot is, you know, everybody's been talking about the duration of this war and the impact on everything in our world. And it determines the economic outlooks for the U.S. globally. But, you know, supply chains, what happens longer term.

5:26But I am also thinking about, once again, these wars, these incidents, just like the pandemic, reminds us of these global supply chains and where there are concentrations around the world. And I always think about TSMC, right, and Taiwan and just, you know, that overexposure, if you will. Are we seeing global supply chains for semiconductors being more spread out? Can they spread out even more? Well, as you know, there's been a significant attempt to relocate or to recreate the chip industry in the United States. But, you know, going back to helium, this helium that we're talking about shortages of affects TSMC, affects Taiwan and affects South Korea.

6:09And those two areas are absolute concentrations of essential chip making, whether it's memory or whether it's made toward a production of high end AI semiconductors. So this isn't good. This is a worry. But at the same time, you can't diversify completely because specialization is absolutely necessary. So there's this kind of tradeoff that's happening. And times like this, when we see disruptions that creates that sense of like, oh, are we too dependent? The chip industry would say, well, no, we're not. We're going to go where the economics make sense. We're going to go where the specialization makes sense.

6:48but if you look at it from a broader geopolitical perspective perhaps that's the case yeah look i i think we go back to this conversation that we had earlier with edward fishman who wrote the book choke points about what he sees as choke points and carol brought up semiconductors and this notion that we rely on other parts of the world for this technology has the u.s actually gotten any better ian and made any headway especially in states such as Arizona, for example, where TSMC has a facility, in actually producing this stuff without the help of other countries, just very briefly? Yeah, I mean, that is years and years away.

7:27This industry, as we've spoken about previously, is the absolute poster child for globalization, for specialization. Everything comes from somewhere else. And the U.S. has a major role in that. It's the place where chips get designed, where all of this innovation occurs. but it has been made somewhere else. There is an attempt to bring that back. If Intel can reassert itself, then obviously the picture changes because of its facilities being here. But in terms of unraveling this, in terms of siloing it again on a national or even a continental basis, you're talking absolutely, you know, perhaps decades away and multiple billions of dollars of investment that just isn't happening right now.

8:09Yeah, not an easy thing to do. Ian, thank you so much. We've missed you. Ian King, Bloomberg News, U.S. Semiconductor reporter joining us from the Bloomberg San Francisco Bureau. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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10:32With 4imprint, fast, reliable service and peace of mind are built right in. Check out their full 24-hour selection at 4imprint.com. 4imprint, for certain. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. All right, folks, so we've been trying to keep you up to date on our live blog, which is tracking the latest and greatest. I say that facetiously or obnoxiously about the U.S. war in Iran, but Israel has said it will The whole direct talks with Lebanon, the president, President Trump, said U.S.

11:13military to remain in place around Iran until the ceasefire is firm. And there are no reports of strikes on Arab Gulf nations since Wednesday. OK. So that's going on. OK. And the Strait of Hormuz remains largely closed. That's the thing. Yeah. And Iran's saying any ships need army approval. And we have talked over and over again how important the strait has been. Iran understands that. That is their leverage. I think it's fair to say it's an economic weapon that's been wielded in this war. Yep, it absolutely is. And on that, in a recent New York Times op-ed, former U.S. State Department and Pentagon official Edward Fishman argues that, quote, by closing the Strait of Hormuz for weeks, Iran has secured sanctions relief that in some respects surpasses what it achieved via the 2015 nuclear deal.

12:00And while the United States has long weaponized the financial system to advance its geopolitical aims, Iran has now learned to do the same with the world's most vital energy choke point. And it has done so by barring a playbook developed by the United States. We want to talk about this. Back with us, Edward Fishman, senior fellow and director at the Maurice R. Greenberg Center for Geoeconomics at the Council on Foreign Relations. Also the author of the New York Times bestselling book, Choke Points, American Power in the Age of Economic Warfare. You're a lot more. I'm not going to read it all because we would have no time for an interview, but it's good to have you back with us.

12:35I want you to remind everybody, because you wrote this book, Choke Points, before this latest crisis. Just remind everybody about the premise of the book and this idea of economic warfare. Yeah. So the premise of the book is that we are living in a new age of economic warfare in which these economic and geographic choke points. So an economic choke point would be the dollar, where 90 percent of all foreign exchange transactions go through the single currency, or Chinese rare earth minerals, where 90 percent of the global supply is refined by a single country, or a geographic choke point like the Strait of Hormuz, where 20 percent of global oil and gas goes through every single day before this war.

13:15those have provided countries with unprecedented ability to disrupt the global economy. We thought, I think, or most people thought, that these were weapons that only great powers could deploy, like the United States and China. What we've seen in the last month is even a smaller country, like Iran, can hold the world economy hostage by weaponizing one of these choke points. What are the impacts of something like that, that kind of switch? Yeah, I mean, the impacts are quite substantial. We used to think that in order to do hard-hitting economic warfare, you needed broad international coalitions, right?

13:48You think back to the 1990s, when you had the sanctions on Saddam Hussein's Iraq, that was the whole international community, was the UN. And that was a pretty high threshold for action, right? Because you could only, you know, do hard-hitting economic warfare if you could get everybody else to agree to it. What Iran has showed is that even a relatively small country, you know, medium-sized power like Iran, just by closing this strait can, again, hold the global economy hostage. And they're doing it relatively inexpensively, right? Just using drones that cost about$20 ,000 or$30 ,000 a pop. I just, let me just, you know, you also wrote about how the U.S., not the U.S., but Iran, you said if either side of this war has pulled off an act of jujitsu, it is Iran.

14:26For the first time since 1995, Tehran can sell oil directly to the United States and use the American financial system to collect payment. I mean, this has been a major no-no. This has been something the U.S. right has restricted. That's big. Right. Right. And I think that in some ways there's an interesting echo of the Chinese rare earth embargo last year. You think about it. China, in many ways, has won the trade war with the United States by virtue of cutting off our access to a choke point. They retaliated. They show that if you impose pain on the U.S. economy, you might get the U.S. to back down, even if they're not giving any concessions.

15:03Iran spent years negotiating over its nuclear program. They got some sanctions relief, right? In the 2015 nuclear deal, the U.S. waived secondary sanctions. So they allowed European banks, Asian banks to go back into Iran, but they didn't allow U.S. financial institutions to do so. Iran, by weaponizing the Strait of Hormuz for a few weeks, did get the U.S. to actually agree to allow them to use the financial system. So you just think about the lessons from both the Chinese embargo on rare earths and the Iranian cutoff of the Strait of Hormuz. Both showed that when you retaliate against the U.S., when you use choke points to try to hurt the U.S.

15:37economy, you actually might get more concessions than through diplomacy. The Iran and the United States have long been at odds with one another. And the president likes to talk about how, you know, he's the first president to do this in 47 years, even though others have wanted to. I want you to put your State Department and Pentagon hat back on. Do you think that the reason why other presidents have not gone after Iran the way that this president has is because they knew about the economic power that Iran could have over the Strait of Hormuz? Oh, yes. Yeah. I mean, look, what motivated Iran from being attacked in the past.

16:10Yes. I mean, what motivated me to go into government 20 years ago or whatever was trying to come up with a way to curtail Iran's nuclear program without the use of military force. That was the goal in the Bush administration. It was the goal in the Obama administration. What we did through the nuclear deal, we got a limited deal with Iran, right? It wasn't perfect, right? Iran could still support proxies. They could still have missiles. That didn't make us feel good. But we didn't fire a single shot, right? We just used economic pressure. I think the reason that neither the Bush administration nor the Obama administration wanted to start a war with Iran was because you knew that it could go very wrong, right?

16:46And they could close the Strait of Hormuz. I think the thing that is most surprising, though, is even back then, when we thought about Iran closing the strait, we thought they would do so by virtue of laying hundreds, if not thousands, of these sea mines. And when you lay mines, I mean, they don't discriminate whether you're carrying Saudi oil or Iranian oil. So it would actually shut in Iran's own oil exports. And so we had a little bit of comfort that Iran might not take that step because it would be economically suicidal. But what Iran has done and what I put forward in that New York Times essay is that just by hitting a small number of commercial vessels with these cheap drones and missiles, they changed the risk calculus of the entire global shipping industry.

17:22And so they actually asymmetrically closed the strait where no one else's oil gets through. But Iran's oil is getting through in record numbers in the last few weeks. So as a former State Department Pentagon official, was our intelligence bad? like where we're look i mean the reporting is still coming out on this and you know i'm excited to read the tell-alls whenever they are published from what we know so far it seems like the intelligence actually was pretty good that you know dan kane the chairman of the joint chiefs of staff who's a he's a clearly a professional um did put the risks on the table my assumption if i had to sort of having been in the situation room and sort of how these things play out my assumption is that Trump was a little overconfident.

18:03And by the way, you can understand it. If you think about his previous two military operations, Operation Midnight Hammer last June, where this 12-day war, no American casualties, and you take out large parts of Iran's nuclear program. And then even more miraculously, earlier this year, the operation in Caracas, where Nicolas Maduro and his wife are picked up and brought a couple miles from here in the Metropolitan Detention Center in Brooklyn. I mean, you start thinking maybe that military force is like an easy button. And so my hunch is that he did get pretty good advice from the chairman of the Joint Chiefs, Dan Cain.

18:34I worked for one of his predecessors, General Marty Dempsey, and those guys are very professional. I think Trump was a little overconfident. So given all of that and what we've seen thus far over the last five weeks, what we've seen out of Iran and the demands that Iran has versus the demands that the U.S. has, is there a chance in your view that the U.S. and Israel could exit this conflict and Iran would stop enrichment of nuclear weapons? I don't think so. I think that we're at a point right now where the choices are we either cut a deal that leaves us worse off than we were before the war started, but prevents us from potentially getting drawn into a quagmire, or we escalate militarily.

19:15I mean, just think about the math for Iran right now, right? They've established control over the Strait of Hormuz. That's something they didn't have before, right? They're now institutionalizing that, charging up to$2 million a ship. Before this war, there was about 140 ships that went through the straitiform moves every day. If you do the math, that's about$100 billion in revenue for the Iranian government. They're not going to give that up easily. And so my assessment here is that perhaps that's okay for the U.S. Maybe it's better to cut and run right now, allow Iran to make$100 billion a year by controlling the world's most important geographic choke point, because the alternative might be worse.

19:50The alternative is a ground invasion. Well, is that possibly, you know, we talk about regime changes and a new way forward for Iran within the region. Is that possibly a way for it to have a new way forward? Or is that just a way to fund its nuclear ambitions, its weaponry, and, you know, its various terrorist groups? Yeah, I do not see the new Iranian government deciding they don't want nuclear weapons. If anything, interestingly enough, it was actually Ayatollah Khomeini, the now deceased former supreme leader, who was always a little bit lukewarm on nuclear weapons. He definitely wanted to have an option to nuclearize, and that's why they had a full-scale enrichment program.

20:27So they were trying to become a threshold nuclear state. But there was never an intelligence assessment that he actually decided to build weapons, right? I mean, they've got fissile material to build 10 bombs, and they never actually built them. I mean, with the younger generation in power now, and particularly with the IRGC, clearly sort of at the driver's seat. I mean, all evidence suggests that they're the ones who put in Mojtaba Kamini, right? They're running the show. They do want nuclear weapons. And you can understand why. I mean, you look at the countries that do have nuclear weapons, like North Korea.

20:56They don't get, you know, bombed by the U.S. So they double down potentially from here. I think so. Yeah. And that's why I think that I'm not resting easy yet that this war is over, because I think that the new status quo might be so bad that it actually might incentivize more attacks from the U.S. and Israel. Well, on the reporting about what led to this and that will come out, there was that great piece in The New York Times earlier this week. And it had to do with intelligence from Israel that was presented to the president in the Situation Room. And part of that included the Iranian people rising up and potentially taking control of the government.

21:33protests in Iran. Why have they been largely silent during this war? Look, this is one of the more complicated aspects of analyzing this conflict, because I think we need to be clear. The Iranian regime is awful, right? I mean, just earlier this year, they killed at least 10 ,000 of their own people who were protesting peacefully in the streets. So we would all be better off, and Iranians probably most of all, if you could get rid of the Islamic Republic. I think the key miscalculation, though, that the Israelis and I guess in turn the U.S. made was to think that the Islamic Republic was a rather shallow state, right?

22:06That if you just took out the top level of the government, everything would collapse. I think what they showed is that it's actually quite a bit deeper than that. And so I think that right now the prospects for regime change look poor. And just to quickly answer your question about why you don't see more people on the streets, this is a common sort of thing that we see. When you're under bombardment, you have a rally around the flag. People don't want to go out of their homes. They just want to hunker down. Yeah. Real quickly, 25 seconds. Next potential big checkpoint, is it China, Taiwan, semiconductors?

22:36I think the future choke point that I'm worried about right now is actually clean energy technology. I think one of the easiest bets coming out of this war is American allies in Europe and Asia are going to double down on electric vehicles, batteries, solar panels. And guess what? You know who controls all of those choke points? China. China. Come back soon. Anytime. This was fab. Eddie Fishman, Director of the Center for GeoEconomics at the Council on Foreign Relations, the author of the book, Choke Points. Check it out. We have. That's why we have him back. Stay with us. More from Bloomberg Business Week Daily coming up after this.

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24:24Everything from custom apparel, bags, and drinkware to writing tools, trade show staples, and high-tech gear. At 4imprint, they're focused on getting the details right, printing your logo with precision, packing your order with care, and shipping it out fast. And it's backed by their 360-degree guarantee. That's 4imprint's promise your order will show up right on time, just the way you planned it. That's what it means to be 4imprint certain. So, if you're prepping for a last-minute event or jumping on a big opportunity, you don't have to settle or scramble. With 4imprint, fast, reliable service and peace of mind are built right in.