Intel Falls as Manufacturing Snags Bedevil Comeback

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco.

1:23This is Bloomberg Tech. Coming up, Intel plunges after the chipmaker warned it struggling with manufacturing problems. Plus, China's largest tech firms get an initial green light from Beijing to start preparing orders for Nvidia's H200 AI chips. And after years of drama, it comes to an end as TikTok and its Chinese parent ByteDance close a deal to operate in the US. Let's look right now, though, at US markets as we close up this week a volatile trading week, to say the very least, consumed by geopolitics to start. And we end with a little bit of green on our screens for the Nasdaq 100. We're up five tenths of a percent, six tenths of a percent.

2:00You can see the clawback that happened post Davos speech and post President Trump really taking his line of sight away from Greenland by force, at least. But Ed, it's all about the chip stocks today and you're digging into them. So Intel is down a lot and it's because of a sales outlook for the current period that at the midpoint was below investor expectations on track for its biggest drop since August of 2022. But remember, this was a stock that just in the few weeks we've had of 2026 was up 47 % as of yesterday's close. The problems are in supply, but specifically in execution. Let's get to Bloomberg's Chips reporter, Ian King.

2:39And Ian, you and I spoke with Intel CEO Lit Bhutan on the telephone. He was very clear that actually when they say there are supply issues, a lot of this was how Intel tried to manage it. They have yield and they have production problems. Explain that to us. Yeah, so there's a couple of things here. The first was that they basically didn't believe that the demand for some of their best products, which would be the server chips, was there. Didn't build inventory, didn't assign supply to that. So that didn't help. But then the production, which could help you out where you get more chips for a production run, what's called yield.

3:15If that had been better, they would have had more chips and been able to meet more supply. So they've really left quite a lot of orders on the table here. And obviously, that is not good. What does it say about the future of its fab business, Ian, if yield is so low? Well, I mean, I can refer you to what the analysts have said, which is, look, if you're out there looking for external customers for your factories, your factories have to be showing their best side. They have to be operating at full, you know, as best they can. They have to be working, you know, maximum efficiency. If that's not the case, then that obviously hurts your, you know, your sales pitch to outside customers.

3:58Intel, Intel, Ian, we also discussed in the context of Intel, his efforts with the coming 14A process, right? And I found Lit Boutan's candor quite interesting. We tried to push him and say, where are the customers? and his answer was until I have a volume commitment on that I'm not going to tell you anything just give us a bit more of how he tried to explain that foundry business and its progress yeah I mean this is him sticking to a line of kind of reasoning which I think resonated initially with shareholders and then caused a little bit of concern basically he's saying look this is really expensive building these factories and equipping them costs a fortune I am not going to do that until my customers say, here's an order that I can then turn into cash that pays for these factories.

4:46So that's a very logical, sort of down-to-earth, pragmatic sort of viewpoint, saying that he'll know for sure whether he's going to get concrete orders or not in the second half of this year and into the first half of next year. So from the Wall Street perspective, that's like we're still in the kind of wait-and-see period in terms of whether Intel can become this kind of foundry, this rival to TSMC. Wonder how the administration is viewing it as a key stakeholder in Intel. Ian King, great roundup. Thank you. Let's turn our attention to a Bloomberg exclusive now. Alibaba, Tencent, ByteDance. Well, they're now allowed to prepare orders for NVIDIA's H200 AI chips, suggesting that Beijing is prioritizing the needs of the major Chinese hyperscalers and getting close to formally approving imports of essential AI components.

5:35Let's get to Bloomberg Tech executive editor Peter Elstrom. It's another stepping stone that hints Beijing will let them in. Yeah, this is a very closely watched drama. Of course, NVIDIA used to sell lots of AI chips into the China market, but Washington and Beijing have been battling over exactly what kind of chips are going to be sold and what kind of volume Washington has stopped the most advanced chips from going into the market. But the Trump administration did approve these H200 chips to be sold into the market. It wasn't clear whether Beijing was going to let its tech companies buy these chips now.

6:09Now, what we're hearing from sources is that they have given the go ahead for the key companies you mentioned, Alibaba, Tencent and ByteDance, to prepare their orders to tell them how much they want to buy from NVIDIA. And then they're going to make decisions about when exactly this is going to happen. It's going to come with some caveats. They do still want to build up the domestic industry. They want these companies to also purchase from some of the domestic players, which include Huawei Technologies and CameraCon, as we've talked about in the show a few times before. But it looks like they're going to be able to go ahead with those H200s.

6:40Yeah, those caveats also include restrictions, right? On both sides of this negotiation, there is agreement that the Chinese officials that we're hearing from talking about there will not be access when it comes to sensitive industries, things like that. Just break that down, Peter. Yeah, they're concerned. They've said this before with the H20 chips and now the H200 chips. They're concerned they don't want NVIDIA's chips going into sensitive areas like the military, like state-owned enterprises or government agencies for that case. So the market's going to be narrower than what it would be otherwise.

7:15But NVIDIA, again, used to sell a lot of chips into this market. It used to be very, very important. Jensen Wong has talked about how important it is, and they know that there's demand there for these chips. So he'd like to get back in. And I think this is not the H200s are not the end of the game here. We know that some people in the Trump administration, included David Sachs, have advocated for selling even more NVIDIA chips into China. And so we think that if this is going to move ahead, it's more symbolic of what the broader potential is in China for NVIDIA if they can make this happen. Bloomberg's Peter Aylstrom.

7:48Thank you very much. Let's get more on that story. Joanne Feeney, Partner and Portfolio Manager at Advisors Capital Management, long-time coverage of the chip industry. Now on the buy side of the table, Joanne, you yourself own some NVIDIA. I feel like we've discussed different shades of this story many times over on this program with you. But at this point, at this juncture, and based on the reporting that Peter just gave us, do you start to model in some upside for NVIDIA in the China market and thus think about your positioning on that stock? Yeah, clearly it's a good sign, right? And it's been long in coming.

8:27But, you know, the size of the market opportunity is still hard to define. You know, clearly China wants to encourage its own semiconductor industry to catch up to some degree to NVIDIA. But, you know, it's a good sign. It's incrementally positive. We're not really going to model it in at this point because it's hard to know how large it could be. Nevertheless, a positive sign opening up that market and also just to, you know, continue to make sure, as Jensen Wang has put it, that AI applications are built on the U.S. technology stack primarily. And because we have the leading chips, that's appropriate.

9:04As Jensen Wang has put it, it's a$50 billion per year market opportunity if they can go back to China, which is currently a net zero assumption. That last bit you said, I really want the Joanne Feeney take on this. In the White House, the consideration was if we don't sell any technology deprecated or otherwise into China, then there will be a vacuum, which the Chinese domestic players will occupy. But there is still this national security and competition standpoint. Where do you stand on that? Yeah, I'm not a military expert, Ed, so I'm going to refrain from talking really about how this could change the military competitive situation.

9:43You know, if we don't sell these chips, if NVIDIA doesn't get to sell these chips, China will develop them. And they've worked around the, you know, less capability of their own chips by, you know, redesigning, you know, inside the racks to try to save energy, to try to boost throughput. And they'll continue to do that. And they'll do that in AI applications. They're going to do that in military applications, whether or not they can use those NVIDIA chips there. So, you know, I think that the opportunity for us to have more sort of input and potential control over the future of this AI technology is really a worthwhile goal.

10:19The administration looking at H200, the administration probably looking at the sharefall of Intel today, Joanne. Take us to your thoughts on the manufacturing, well, lackluster performance thus far from the company, it seems. Yeah, I mean, Intel, Carolina, certainly had its problems. I mean, they went down what is retrospect the wrong path in terms of the process technology. And now they've been trying to fix that since Pat Gelsinger was put in charge and now it flipped to Bhutan. And clearly we're seeing that it's more challenging than perhaps investors recognize. And I think investors really got ahead of the story.

10:54They saw the U.S. government come in and take a stake and they felt like that put a floor on the stock price to some degree. But Intel is in a situation with two things coming out on that report. One, their gross margins. They beat a little bit, but they beat it 37.9%. I mean, Intel should have gross margins above 60%, given that they're one of two suppliers in the PC business. Well, Gerard, let me just say, whether they should or not, whether they should or not, historically they had margins of 60%, just to jump in on that point. That's a very good clarification, Ed. Very good point. Should in terms of market structure.

11:33But now, you know, they're trying to play in the AI market, and they're well behind, and now NVIDIA is the leader. So, you know, look at NVIDIA's margins. Clearly ripe for competition to come in there. But, you know, with their outlook showing that they've sold out of their server CPUs, they're going to have a weak quarter this quarter. The yields are lower than they would like. And it just, you know, people look at that gross margin and they see it as a really important signal of how much progress they're making in a complex manufacturing process. And clearly they're not making as much progress as investors would like and as the company would like.

12:07And so I think it's a particularly risky bet. We have not owned Intel for clients. We think that the opportunity cost is just too high. You can own a Broadcom, which we've owned for, you know, 11 years for clients. You can own NVIDIA, which we've owned for clients since 2022. these are clearly market leaders and they've ironed out the design challenges and through their partners to like TSMC, the manufacturing challenges. And so they're delivering. And Intel faces now a chicken and egg problem on the 14A process. Go there on the foundry side, therefore, Joanne, because this signals that maybe, well, that side of the equation still needs more than just the government buying in to think that they're going to solidify any partners here in building and manufacturing for them.

12:51Yeah, Intel's tried to enter the foundry world. We've talked in the past about how challenging that is to move from producing your own chips to move to producing others. You need the design libraries and all that, but they fundamentally need the manufacturing process. And the problem that they face right now is that on the one hand, they're saying, hey, we don't want to invest the CapEx to build up this capacity until we have customers locked in. But customers aren't going to lock in unless they know they have a manufacturing process that works and that can deliver. Because, you know, you're designing a product.

13:18You're designing it years out, and you have to know the supply will be there if you commit to a certain manufacturing partner. So it's a real chicken and egg problem. They might have to bet on making it happen and being able to deliver the customers by getting that process up and running and showing that they can get yield up in volume even in advance of locking down some customers. So it's almost a bet the company kind of problem. And that's why, again, as an investor, we're not enthusiastic about Intel. The risk is simply too high. We don't find the current valuation compelling given that risk.

13:54We think there are better places to be. And so we're going to stick with where we are, for example. And AMD, by the way, that recent result pretty clearly indicated that AMD is continuing to gain share against Intel, likely both in server CPU and in PC CPU. Joanne Feeney with all the context, advisors capital management, thank you so much. Happy weekend. Now coming up, Tesla's robo-taxi gets closer to fully autonomous reality as some vehicles in Austin feature no human safety monitors in the car. More on that next is the Bloomberg Technology.

14:32I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you fascinating conversations with the people who shape markets, investing, and business. CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, everybody that affects what's going on in the market. Whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations. Sometimes it's behaviorists like Dick Thaler or Bob Schiller. Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short and Moneyball.

15:17Regardless of the conversation, these are the folks that move markets each week. That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify or wherever you get your podcasts.

15:38So Tesla has begun offering robo-taxi rides in a limited number of vehicles in Austin, with no human safety driver behind the wheel. In a post on X, CEO Elon Musk went even further suggesting that cracking real-world self-driving technology could ultimately lead to artificial general intelligence. Tell us to really unpack what this moment means for the future of autonomous technology. We're joined by Regina Klilau, Managing Director of Populous. Regina, brings more than a decade of hands-on experience in transportation and mobility. Look, you hold a PhD in transportation and energy systems from MIT.

16:08We should listen to you. Is this a big feat? This is definitely a significant development. It's another major player in the autonomous vehicle space. And it shows more confidence in the technology. But it's still pretty limited. And it's definitely an experiment. It's an experiment. Regina, I'm just going to jump in. people on the tesla side of the camp say this is a notable moment because it's a first for a vision only based platform to be on public roads not just with no one in the driver's seat but no supervising attendant in the passenger seat either people would also note that there were other restrictions on social media for example there were support vehicles from tesla it is alleged and claimed that said the vision only part the distinction that tesla system relies only on cameras, whereas Waymo has a multi-sensor suite, your interpretation of why that's significant?

17:04Well, I think there are a couple of companies, including Zoox and Tesla, that are really designing vehicles that are intended to be purpose-built for autonomous driving and for autonomous ride-hailing. So, it is a significant development. And I think at the end of the day, what's great is that there are multiple players that are entering the market, which ultimately for cities is a good thing because it makes the regulatory landscape easier for them to manage. Regulatory landscape has not held back other competitors to this point. And when you think about a few, a handful of Teslas on the road, and you compare that to a million rides that we're all having per month, already using Waymo, and they're aiming it for a million per week, how much are we able to really say that Tesla's winning here or not?

17:54I think it's still very early days, but the landscape is moving much more quickly, especially over the last three years than you see these new players entering the market with commercial ride hailing services. But I don't think that, you know, it's clear that there's any one winner at this point in time, although Waymo is significantly ahead at the moment in terms of commercial ride hailing. As you mentioned, they're estimating to reach a million rides per week by the end of the year. but it's still anyone's market to win and it's exciting to see more players enter it. Yeah, in simple terms, people define Waymo being ahead by the number of cities it's deployed in without any human supervision in the car and charging a fare to passengers.

18:37I'd love to talk about the human side of this though, right? In your research at a number of academic institutions over the years, do we have the evidence yet that the general population feels ready to jump in a robo-taxi as their sort of chosen method of transport? I think that in San Francisco, there's a lot of data to suggest that consumers do really feel comfortable utilizing Waymo and certain segments of customers preferring Waymo and even being willing to pay more for that vehicle over, let's say, an Uber or Lyft. So I think that people are becoming very comfortable very quickly with these vehicles.

19:17And we'll just continue to see that happen. Regina, what's interesting is the global context, because we saw actually shares of Uber and Lyft get hit by this announcement of Elon Musk. And in many ways, they're already out there, not only partnering in Austin with Waymo like Uber, but they're also in China. And we're seeing Beijing, people hopping in those cars pretty actively. We're also seeing in the Middle East as well with WeRide and Uber out there trying things. How are you seeing globally the readiness of the consumer? I think that a lot of the global readiness is pretty accepting. We have a lot of other countries out there that will be willing to allow more vehicles and more operators to experiment.

20:05And then putting those vehicles out there for consumers to begin adopting allows them to move forward more quickly. So I think that at a global level, we're going to continue to see an acceleration of the adoption of those vehicles. Regina Clulo of Populous, great to have you on the show. Thank you very much.

20:30okay so apple's basically flat in the session but actually it had a pretty rough start to the week and believe it or not this is a stock that's on track for its eighth straight weekly decline the worst run of weekly declines going back to may of 2022 there is a lot in the news cycle with apple and a lot of it comes from bloomberg the company's hardware chief john turnus has added one of the iPhone maker's most critical functions and prestigious responsibilities to his role, overseeing the design teams. It's a new sign that Ternus is a leading contender to take over for CEO Tim Cook one day, all according to our sources.

21:08And the guy that broke the story, Blumos Mark Gurman, is here. Introduce us to Mr. Ternus. What does your reporting tell us about his new workload and also that signal that he's climbing the ranks here? John Ternus has been Apple's senior VP of hardware engineering since 2021. That means he runs all hardware development for essentially every Apple product. He's in charge of the iPhone, in charge of the iPad, in charge of the Mac, now in charge of the Apple Watch. And he's been elevated to expand his role this year a couple times, taking, like I said, full oversight of the Apple Watch, but also taking charge of Apple's AI robotics teams.

21:45Now, very recently, Tim Cook put him in charge of overseeing Apple's design teams for both hardware and software. Now, design is the look and feel of the products, what the interface looks like, what the icons look like, how the software works. Industrial design are things like the shapes of the devices, the colors, the weight, and the feel. It goes well beyond the engineering of making everything work. And like you said, design is one of the most critical and prestigious functions at Apple. It's really only been run by the most senior executives in the company's history, people like Johnny Ive, Steve Jobs himself, Tim Cook himself, and the COO Jeff Williams, who retired a few months ago.

22:25Now John Ternus adds to that list, and it's yet another strong indicator that he's being groomed for a larger role and is at the very top of the short list of frontrunners of potential Tim Cook successors at one point when Cook ultimately does decide to retire. Mark, what's interesting is how subtly this was done. And I'm sure that's because they don't want to aggravate too much the investor base, but also those also in the running. Talk about who else we could see being lined up in some way. This is a very strange setup organizationally. The design teams are overseen by Ternus, but on paper, they report to CEO Tim Cook.

23:03Various reasons why you'd want to do that. Apple previously announced that Cook would be running the design team, so you don't want to take that away from him publicly. undermine the CEO. You don't want to get into a debate about who's better suited to run design, whether that's an engineer or an operations person like Cook. In terms of other CEO candidates, there's really only one other at this point. That's Sabi Khan, the chief operating officer. Other publications have thrown out names like Eddie Q, Greg Joswiak, Greg Federighi, Deirdre O 'Brien. Nothing I've heard points to any of them being CEO other than maybe an emergency like scenario, it's really Ternus or the new COO, Sobicon.

23:42Mark, we have 10 seconds. What's the one product that Ternus is going to be zeroed in on this year? This year, it's got to be the foldable iPhone. This is going to be a potential growth driver for company revenue. And we'll see him front and center for that in September. Bloomberg's Mark Gurman. With all the scoops, we so appreciate it.

24:05Welcome back to Bloomberg Tech. Let's check in on these markets because we end the week on a high, but it's been a turbulent four days of trading, shortened week given the holiday on Monday. We're up five tenths percent on the day on the Nasdaq 100, as you'll see. More focus maybe post Davos on the future of AI and of technology. Bitcoin is up three tenths percent, but look, it's still been hammered a little bit. We're sub$90 ,000 overall. I'm looking at some individual names and the only one really that you want to be taking real attention to in terms of points and in terms of the absolute move, it's Intel.