SoftBank Invests in Intel as US Government Eyes 10% Stake

24:45So SB 53 is basically Senator Wiener's kind of second attempt after his 1047 got vetoed. it's definitely a lot less I'd say restrictive than 1047 it focuses mostly on disclosing safety and security protocols for AI developers there's whistleblower protections there's third party audits you have to report a safety instance to the state AG it's definitely not as intrusive as last year 1047 and it's trying to pick up on some of the recommendations from this working group formed by this group of experts that the governor formed after his veto last year. And very briefly, worker rights against automated tools.

25:28That seems to be contentious. Yes, definitely. You know, labor forces in California, the really powerful political force, this year they're getting more in the weeds into trying to put in comprehensive rules around AI in the workplace. SB7, it's a very intense bill where labor and tech are fighting with each other and capital over it. Basically that bill would give workers rights to opt out potentially refuse decisions by employers when they use AI for instance to make termination decisions, disciplinary decisions and it had big consequences for employers across California. Titus Wu, California correspondent for Bloomberg Industry Group Great to get your insights.

26:15Thank you.

26:21Welcome back to Bloomberg Tech. We're all thinking about what the US government means for Intel ownership, how much they confirm that they are indeed looking at taking a stake, what size of stake is still under question, how we see a change of grants, money lent in the Chips Act into equity, and what SoftBank's now getting in on the game for. We're up 7.5%. Let's get over to London where Peter Elstrom is with us, Executive editor who used to oversee, of course, you're looking at the technology news for us more broadly, a big expertise in Asia. So I go to Asia first. I ask you why SoftBank is taking that$2 billion stake.

26:54Why are they getting Intel to sell more equity to them? Yeah, there's a lot going on here with Intel. But on the SoftBank front in particular, the founder, Masayoshi Son, has had ambitions in the chip area for a long time. He bought Arm Holdings, of course, the chip designer that's commonplace in all sorts of smartphones. And he has ambitions to be able to compete in AI chips against NVIDIA in particular. They think that they can use some of those designs from Arm to make a much more efficient, energy efficient chip that could compete with NVIDIA's chips, particularly for running some of these AI services like ChatGPT in particular.

27:33So the idea that SoftBank would put$2 billion into Intel gives them a stake in the company that could be important perhaps as an investment. But also if Intel is able to develop its foundry business that is making custom chips for other kinds of companies, you can imagine a day when Intel makes AI chips for SoftBank and is able to sell those. And both companies would be able to benefit from taking some of that demand away from NVIDIA as this AI boom really explodes. And when we think about the foundry business, when we think about manufacturing, that's where the U.S. government wants to lean in.

28:06They want domestically made manufactured chips that ultimately gives them control of the supply chain. But we're hearing from Howard Lutnick that he doesn't want control over Intel in any way. They don't want a governance role here. Right, right. Yeah, you make a good point. The U.S. government has wanted to rebuild the domestic semiconductor industry for a number of different reasons, partly because it's a growth business. this, it could mean some jobs and some profits for them. But also, they don't want to have the strategic risk of having all the advanced semiconductor manufacturing in the world, in East Asia, in Taiwan and South Korea in particular.

28:41They want to be able to bring that into the United States. And Howard Lutnick alluded this today when he confirmed the nice scoop that we had yesterday about how the U.S. government is looking at taking this 10 % stake in Intel. Intel, of course, is really the last major U.S. chipmaker standing that has a shot at being able to make those most advanced chips to be able to compete with the likes of TSMC and Samsung in particular. So Lutnick is saying, hey, we may use this Chipsack money to convert into equity and then take this 10 % stake within Intel. And he's also suggesting that they may do that with some of the other companies that are supposed to be recipients of the Chipsack money.

29:18One of them being Micron, for example. You wonder how on earth that would sink in with a TSMC and Samsung, they've also taken chips act money, Peter. But what's really interesting is whether this gets you the end demand. The reason Lip Boutin pulled back from 14A in many ways was because he was like, I don't want to be that person who just builds it in hopes that they come. Yeah, this isn't free money, to be clear. Under the Biden administration, they allocated these chips act awards. Those were supposed to be grants. This was supposed to be money that was coming in anyway. There was no talk about these companies giving up equity to to be able to get those billions of dollars.

29:53So the Trump administration's trying to change the calculus here where they still will give you the amount of money that you were supposed to get from the CHIPS Act, but in place, you're gonna have to give them some equity in the company. So it's not free money. It may be a little bit accelerated from what the original vision was for the CHIPS Act. Intel, for example, may be able to get that$10.9 billion that they were supposed to get a bit sooner, but still, it's not free money. They still have to go out there, They have to prove that they can succeed in the foundry business. And to your point, then they need to go out and get customers.

30:25The U.S. government can do a lot, but it can't get Intel customers for that foundry business. Peter Elstrom, always so articulate, unlike me just then. We thank you. Let's bring in Swissco senior analyst Ipek Oskar-Deshka for more, who I ask you whether this changing up of the calculus is actually what global investors want to see. How difficult is it to calculate what the U.S. government is going to do next? Well, it's very difficult indeed because the speed at which things are coming, some news are usual, some news are unusual. So the speed at which things are coming to investors' attention is just went out of control.

31:02And some of the news do have positive implications for companies, but there is still the risk that the U.S. government's goals are not going to be always aligned with business objectives. objectives and the company's primary goal of maximizing investor value. So the risks are building. Risks are building. Does it put you off the generative AI tailwinds more broadly though that we've seen? Let's go back to previous weeks with NVIDIA and AMD becoming in the eye of the political storm and having to pay 15 % if they're going to sell into China, for example. So that's very interesting because if you look at AMD and NVIDIA, today they are in a better place than they were a month or two months ago where they weren't able to sell their chips to China.

31:49Today, all of a sudden, they can if they pay 15 % cut off their Chinese sales. So this looks like it is good news. But in the short run, it's going to give these companies more revenue. But in the long run, in the medium to long run, we don't know how the news and the US government interference is going to change, whether the changes are going to be positive or negative. So that means that the volatility is higher and the risks are building up. It doesn't mean that the companies will not benefit from the US government's support, but it means that the US government will not pursue the same goals that they do all the time.

32:22So that, I think, is a risk. And that is something that we become quite cautious. Even though over the last year, let's call it two years, basically seven names have made up nearly all of the equity benchmark's gains. So how does an investor basically hedge against that volatility? Do they stay exposed but start diversifying, you pack? Well, diversification is one of the rules that we're just recommending, obviously, because diversifying away from the U.S. equities that have quite high valuations right now towards sectors that do have opportunity to follow up is interesting. Then other clients are looking to buy put options, for example, that are interesting in case there is a sell off in the market and we start seeing the valuations come down.

33:10And there are many things to do. But at the end of the day, what we see is that AI is growing. It is not the AI cake that's going to be smaller, but it is how the AI cake is going to be pieced together. That's going to be important. And we think that international companies are also going for a piece of a piece for themselves. and that is actually giving way to opportunities in the international markets now that the US technology companies are valued to perfection. It's interesting, you just mentioned how perhaps you use options to be able to, well, hedge oneself. What many would say is what occurred with Intel is many were using it as a hedge, betting against it to be able to protect the upside that they've been getting from NVIDIA and other areas of the chips market.

33:52Was that something you saw at play? And where else had basically investors looked to bet against to protect other winnings that they'd seen in the sector? Well, you don't really want to go against NVIDIA and AMD. You cannot really go against this machine. The only thing that you are willing to do is to protect any potential sell-off or any potential drop-down. So in this sense, we think that it is always very important to stay long. And just diversification of the portfolios looks like the way to go for us. We do not really expect to see a sector meltdown or a very, very big change in the dominant position of the US.

34:30What we are trying to do is just to diversify a little bit in order to tame the downside risk for investors who are looking to have some international exposure to grow their AI play. And is that in Europe? I mean, I think of ASML, SAP, but not many other AI names leap to the forefront when it comes to publicly traded equities. Is it more of an Asia game as well? Is it thinking elsewhere in the asset pool, not just equity, but maybe debt? No, you're right. I mean, for Europe, we are specifically looking into defense-related technology plays, and we think that the defense spending is somehow going to boost the technology spending in Europe as well.

35:06So we are mostly looking into military and defense technologies within the European context. For China, we are looking at the AI plays. We are looking at the fundaries and the chip makers like SMIC, for example. same thing for South Korea we are watching very closely Samsung but especially SK Hynix so there are some champions around the world that are willing to take a piece of that cake and that are looking interesting and that have not seen enough exposure so far because they have remained mostly under the cloud of the US big technology giants and we think that there's still opportunity there and there's still reason to think about diversifying there we thank you so much for SwissQuote This is the Bloomberg Tech Minute brought to you by ChatGPT.

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38:10OpenAI, well, it's launching a new subscription tier exclusively in India called ChatGPT Go, and the plan will use its latest GPT-5 model at just$5 a month. Now, the plan would allow users to generate more images and interact with the chatbot more frequently compared to the free version. The latest tier will be in addition to its other paid plan offerings, including ChatGPT Plus, which of course costs$20 a month. Now, sticking with India, Apple is expanding iPhone production at five factories in the country. Look, it's a move aimed at lessening the company's reliance on China for US-bound models.

38:44Let's bring in Maribel Lopez, founder and principal analyst at Lopez Research. And Maribel, what was so interesting is this brought the ire of President Trump, who was frustrated that Apple was doing more of its manufacturing in India, shifting from China. He wanted it in the US. But has Tim Cook done enough, therefore, in the United States to offset this? I think Tim Cook eventually will do enough in the United States to offset it. But today, the answer to that is new. And it's unexpected that they move this to India. They've been working with India since roughly 2017. So it takes a long time to build manufacturing.

39:20So you just don't go in, no matter who you are, president or not, and say, you're going to build tomorrow. It takes time to build factories. It takes time. So how much do you think ultimately will be sourced from India into the United States? Is it only going to be iPhones and other accessories? Well, I think we're starting to see other plants come online in the U.S. For example, in Houston, when we look at what they want to do with Apple intelligence and servers for that, they are building that and that's coming online in 2026. So that's an example of some of the products that will be built here.

39:53But the iPhone manufacturing, I expect that it will take several years to get up and running. any major significant U.S. presence. And this is part of the reason why there's roughly 600 billion earmarked towards creating manufacturing in the U.S. And that comes in many different forms. Part of that will be for servers, but you have to envision that part of that will also be for iPhones. Let's talk about what's happening here in the United States, because today we understand that Apple is unfolding its academy. This is all about training here in the United States. Who exactly is it for and what production could that ultimately lead to here?

40:32So one of the things that we have happening right now is AI is very complicated and businesses actually don't know where to get started. So the concept behind the Apple Academy is for small, medium businesses to understand effectively what they need to know to build next generation manufacturing, which would be highly AI driven. So that is going to be a multi-day program that small and medium businesses sign up for. They currently have a wait list at this point for the next wave of that. They will be running those courses throughout the year. And then once you've gone through the course, there's an opportunity to discuss more detailed discussions about what kind of products and services you need.

41:10And with Apple engineers, it can help you do something that's more specific to your organization. This is to fill a skills gap. You know, we have plenty of education programs in high school and above to try to bring in new employees. But if you're actually a business running today, especially a small, medium business, there's very few options for you. So this is both an opportunity to educate these small businesses, but then also put them in the pipeline to buy Apple products and services moving forward. Really interesting that you talk about this as a skills gap. Prior to this, of course, President Trump has talked a lot about the production gap and where he wants to see that rectified.

41:44Just take a listen to what he said in August the 6th. We're doing these things now in the United States instead of other countries. faraway countries. This is a significant step toward the ultimate goal of ensuring that iPhones sold in the United States of America also are made in America with the mass infusion of capitalists announcing today Apple will also build a 250 ,000 square foot server manufacturing facility in Houston and invest billions of dollars to construct data centers across the country from North Carolina to Iowa to Oregon. Maribel, you so thoughtfully put us right on the medium-sized businesses that really have nowhere to go when it comes to upskilling and being able to facilitate production.

42:31What is it that Apple brings by training? Because really the anxiety for Tim Cook has been they haven't got the tooling engineers in the United States that they have in China, that they have in India. Is that what he's going after longer term? I think yes is the short answer, but it's actually a very broad field. When you think about what we're moving into moving forward, there's been a lot of discussion of physical AI and robotics. And a lot of that will be in manufacturing. It could be for iPhones. It could be for automotive. The reason that they picked Detroit is not lost. It's a manufacturing culture.

43:04There are companies there, but we are running into this gap where these organizations don't have data scientists. They don't understand machine learning as an example. So we're starting with things that is, you know, on the AI side, machine learning, which is a basic way to start and then moving that forward. So these are short courses. The Apple engineers that are there are actually basically doing rotations to spend some time helping the small, medium businesses, but they're also still doing their day job. So there wasn't a net new investment in terms of employees, but there is a net new investment in terms of getting organizations to understand what is required for them to participate in the next generation economy.

43:47That's stage one. Well, alongside that stage is what companies are listening to in terms of what's needed in terms of manufacturing here in the U.S. on the most sophisticated chips. I turn our attention to what's happening with Intel at the moment. I mean, we just heard from President Trump on August 6th what he wants of Apple. How do you make of the stake that they might take in Intel? I think we really were in this situation where the concept of a U.S. chip manufacturer was almost going to go away. There was just so many discussions about what would happen in Intel. And I think the U.S. government saying we're going to step in, we're going to take an equity stake.

44:24Some of that Chips Act money that we had talked about in the Biden administration, that was actually going to go away. It's actually now coming back. and the context of how that comes back, if you look at it as an investment, an equity stake, it is really to try to create confidence in Intel as a longstanding player to take away that risk. Buyers do not want to invest in a chip company where they think there could be risk. These are multi-year deals that we're talking about, plans that I talked to you today about something I want to have come online in three years. If I don't think you're going to be there in three years, I'm not calling you.

45:00And so part of this strategy is to take away some of that risk, to give Intel a foundation where they think they can execute on the strategy that they need to execute on without it all being at the whim of how does the market feel about you. Maribel Lopez, founder and principal analyst of Lopez Research. Fascinating to catch up with you.

45:23Let's get back to Intel. Well, the government confirming that it is in talks with the company to acquire a stake in the chipmaker. That's, of course, after SoftBank makes a$2 billion investment. Bloomberg Intelligence Senior Semiconductor Analyst Kunjan Subhani joins us now. And Kunjan, you put out a react note along with colleagues really talking about how this would offer support, this potential stake. But it wouldn't close the gap with TSMC. Just talk us through your thinking. Yeah, there's like a positive of this stake. stake, one near term that it can help, but we don't think it's really positive long term for stakeholders.

45:55In terms of the near term positives, they get the 10 billion infusion. They get a signaling that the government is behind this, behind Intel, and so it might not fail as people have risks. And the third important point is we think given the looming risk of the semiconductor tariffs, up to 300 percent that's coming, the government could incentivize U.S. fabulous the semiconductors to bring business to Intel manufacturing, which could aid the company in lieu of getting exemptions for tariffs. So some positives near term, but long term, we don't think this is ideal for shareholders. First, you have the dilution.

46:29Second, most of this money would have come to Intel until last week, almost in the shape of grants, which they don't have to pay back. But now you have to give up about 10 percent stake for receiving the same money. So not great outcome for shareholders. holders. And finally, like we said, this does not aid anything or change structurally anything from Intel to catching up to TSMC. Isn't it interesting that the share price has been going up and to the right in reaction to basically money they were getting anyway, but maybe it was more of a profit share in the future. Tell us a little bit, though, about where they really need to close the gap from an innovation perspective.

47:04Is this really going to get them out there with a 14A? It does not do anything. I mean, look, 10 billion is not going to make or break them getting out in the 14A, right? So that is an execution challenge that only the company can fix. This could, depends on what the, you know, what are the strings attached to this deal. This could even slow it down because now you have government on the decision-making seat driving some kind of decisions in that direction. So this does not do anything to close that gap when it comes to leading edge. I mean, it must be said how it looked when the Commerce Secretary was saying we're not going to take a governance role here, but you can potentially, you're saying, estimate maybe there's more thoughts that the executives have to think through.

47:47More broadly in the here and now, what do you want to hear from the CEO, Lit Bhutan? What's next? Yeah, I think we want to see the same reassurance that the focus is going to be on 18A and 14A and how, like I said, the possibilities of those positives. Hopefully we hear that and that encourages investors that deal will be positive in the near term. A is getting more business from U.S. fabulous companies in order to get those exemptions from the tariffs. We still await those tariffs. Kunjan Subani at Bloomberg Intelligence, we thank you for the analysis. Meanwhile, that does it for this edition of Bloomberg Tech.

48:23Do not forget to check out our podcast. You can find it on the terminal as well as online on Apple, Spotify and iHeart. So much more intel news to digest. Currently the highest since April. This is Bloomberg Tech.

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