Re-engineering the Semiconductor Supply Chain with Intel CEO Lip-Bu Tan

0:00Nine of the 10 companies I invest, halfway they change their business plan because market have changed. So I like to have entrepreneur a team, not just one person. I always believe in when I was at Cadence and also at Intel, is first of all you crawl and then be humble, listen to customer. And then first step for me is to strengthen my balance sheets, focus on the products, and I really simplify the product, listen to the customer, and then drive the next generation leadership products. And then right now the Argentine AI and Influence CPU become highly in demand. And so in some way I'm happy.

0:36Right now the demand is very high for my CPU. I'm very happy that Jensen Huang, my old time friend, he also put 5 billion in investing and support me. His 5 billion becomes 25 billion now. If you look at it, 10 years from now, what will be the winning company? The one that...

1:00Hi, listeners. Welcome back to No Priors. Today, Alad and I are here with Lipu Tan, the legendary investor from Walden, then CEO of Cadence, now CEO of Intel. We talk about his plan to transform Intel, having the U.S. government as a major shareholder, how to be an amazing semiconductors investor, and whether or not we can make chips in the United States. Welcome, Lipu. Lipu, it's great to see you. We'll start with the obvious question. This is a really hard job to go be CEO of this incredibly important American semis company? Why take the job at all? It's a good question. I'm 66, and people thought, well, you should retire rather than take on this hardest job in the industry.

1:41And so a couple of reasons. One is this is an iconic company, and it's so important for the semiconductor ecosystem and also so important for the United States. And so I decided, you know, to do one more after Cadence. A lot has happened in this past year. What has been the most surprising to you? Well, the most surprising that I don't learn from my previous job or even training is one day early morning, President Trump asking me to resign and conflict of interest. And there's no exceptions. And so I convinced myself, first of all, you know, I don't need this job. I do it purely to save intel.

2:23And so take that personal issue out of the way. then I figure out what can I do to be helpful to Intel. And so good news is I have a meeting, you know, Thursday morning and then Monday I have the meeting and then he listened to me. Like I have a chance to explain myself. You know, I'm born in Malaysia, grown up in Singapore, went to MIT and I live in US and never lived outside country. And so something that I share and then somehow he listened very well and then he gave me the chance. And so I'm delighted. And now you have the chance to do the work. When you said, you know, the job is to save Intel.

3:02It's a really important company. What does that look like to you? What does Intel winning or thriving look like? Yeah, I just passed 14 months. A lot of things happened in this 14 months. So a couple of things. One is to change the culture. And then clearly want to drive more accountability. And also in terms of decision making, it had to be faster. You know, I'm so used to startup culture. and you move fast in the speed of light and don't have that bureaucracy layer of layer of meeting. And so something that I changed accountability, listen to the customer and the customer delighted, you know, someone like a liberal, so humble, willing to listen and then address some of the problems that they face and then try to delight the customer.

3:46And also the other part, from day one, I decided all the engineering report to me. And being an engineer by training, I want to know what went wrong and what are the things that I need to correct, listen to the customer and delight the customer and then make sure that we have the right product, simplify our product line and really have the roadmap and the vision for the next five, 10 years. What is your vision of where Intel should be in 10 years? Yeah, I think a couple of things. One, I always believe in when I was at Cadence and also at Intel is first of all, you crawl and then be humble, listen to customer.

4:22And then secondly, you starting to walk and then finally you're starting to run in spring. So that's kind of my culture of step-by-step doing it. And then first step for me is to strengthen my balance sheets. And the balance sheets is really horrible in some way. So I'm delighted, you know, US government become a big shareholder. Just as I explained to President Trump, TSMC when they started, they have the Taiwan government as a shareholder. If you look at Japan, you look at Singapore, this is an infrastructure. U.S. government get to provide the support. Secondly, very happy that Jensen Huang, my all-time friend, he also put$5 billion in investing and support me.

5:03And I'm glad I at least do some good work. His$5 billion become$25 billion now or more. And then the other part is SoftBank Master. I used to be at SoftBank Board, and then he lent a hand to help me. So we strengthened the balance sheet and then focused on the products. and I really simplify the product, listen to the customer, and then drive the next generation leadership products. And then in some ways, very lucky. Right now, the authentic AI and inference, CPU become highly in demand. And so versus one to eight in the training CPU to GPU, now I can see one to four, maybe one to one, and I'm delighted that CPU become important.

5:49I talked to some of the AI model and the developer and they said, well, in terms of reinforced learning, in terms of the speed of orchestrating all the agents, and turn out the CPU is actually better. And so in some way, I'm happy. Right now, the demand is very high for my CPU. So I think overall, build on the product, on the data center server side. Then the other part is our foundry business. And initially, this is a capital intensive business and it's not easy. And you really need to have a couple of things. You need to have all the right IP so that you can support the customer. Like for example, if it is a mobile related, you've got to have low power IP set that you need to have.

6:33Without that, you cannot serve them. It's a service business. It's a trust business. If people want to give you, you know, orders to have wafer to come, if the yield not good, they will be toast in terms of revenue miss. So with that, I think it's very important to really focus on the yield, the defect density, the cycle time, and then make sure that you're really able to meet and serve the customer in high quality and reliable. And so those are the things that I really focus on it. And eventually you have to really move into a full stack. So not just a silicon, you need to have a software. And some of the customer asked me, give me the whole rack.

7:13So there's a system that you have to build. And so I think those are the things that I quietly building step-by-step and recruit some of the best talent I can find. By the way, all the recruitment, I do it myself, no search firm helping. And so I think sometimes it's good to have a rotor deck that you know who to reach out to call for. Yeah, I mean, you've been in the business for so long and you've run a cadence for, I think, 12 years before this. 13 years. And then two more years as executive chairman. So 15 years. I signed up for three months. three months. So right now I'd be very careful.

7:48The moment you said, I'll just do it for three months, it turned out to be 15 years. Yeah. Well, it seems like you have a lot of longevity ahead of you here as well. And so, um, the other big initiative that, that has been sort of talked about is TerraFab and working with Elon Musk on that. Can you tell us a bit more about how that came together and then your involvement and how you all are collaborating? Yeah, good. I mean, Elon Musk, I think we all agree is one of the best, if not the best, entrepreneur in this century. He and I, we share the same view that semiconductor infrastructure actually is not catch up with the AI growth.

8:23And in terms of you need the capacity, you need to have the productivity and you have the dry efficiency. And so those are the things that he and I, we share that there's something missing. And then secondly, he's just delighted to work with him. And he's very, I call it unconventional. And he basically questioned every step and why this traditional way of doing things. And in some ways, very refreshing. And I like that. I like people have different opinions. And let's work together, find what is the best route. And we both can learn a lot together. And then I think clearly he have a vision that his robots and his car, he need a lot of silicon.

9:05Yeah. Could you actually explain what TerraFab is for people who aren't familiar with it? Yeah. TerraFab, he decided he wanted to build his own fab. And then meanwhile, we are delighted to work with him and then make sure that we can work together and enable him to be faster and quicker to the production and then using some of our technology and some of our process. And that's something that we both kind of collaborate together. And he's a very good team that I work with weekly and it's just refreshing to work with him. And he's talked about things like he wants you to be able to smoke inside the clean room and all these things that normally are considered.

9:38Yeah. I think I don't go that far. Maybe some part of the clean room, you can do that. But I think something that is open mind and then we also listen and see whether we can do that. Yeah, I mean, it's very exciting to see how you're morphing the business here in the US in terms of incrementally building out the foundry business, in terms of collaborating with things like TerraFab. If you think about the global AI and semiconductor supply chain, so say that you were to look at the changes that AI is driving on a macro basis, country by country. And if I look at certain countries, when I look at the layoffs that are claimed from AI, for example, most of them I think are overstated right now.

10:16Most of the layoffs are actually just overhiring during the 2020 COVID period. But the first things I see actually being cut are outsourced firms where you'd rather cut external headcount versus internal. So you're cutting external customer support, you're cutting external IT. And that has more of an impact, I think, for certain countries which have big BPOs, the Philippines, India, et cetera. And so they may be impacted in the short run by AI. And then if you ask, how do companies participate in the future in a positive way in AI? You have to almost go country by country, right? Places with cheap energy will do data centers.

10:47Places with the ability to train models will train models, but it's probably only the US and one or two other places. How do you think about the shift in global supply chain for the semiconductor industry? Should certain countries invest more? Should Israel be doing more given Melonics and NVIDIA and Intel presence there? And should they try to do more in semiconductors? Should the Philippines move back to more of a manufacturing base? Like, how do you think about that on a global basis? Yeah, good question. So I think clearly the AI is changing the whole landscape. And I think the impact will be bigger than internet.

11:18And it's more profound also. So I think the AI, you know, initially is able to help you to do things more efficiently. And then with a lot of agents helping you to do things that is kind of mundane that you need to do, but now they can give it to you faster. So in some way, I think it can drive a lot of efficiency. Even the semiconductor design, how much you can drive the efficiency in terms of timing, how quickly can you come out, and secondly, the cost. And so I think those will be helping you to drive that. And then I think a couple of bottlenecks for the AI demand and growth. One is, of course, everybody knows power constraint.

12:00Some countries, the power, they just don't have that. It gets impacted. And then secondly, a lot of people didn't realize the helium impact can be also quite significant for semiconductor. And then the thirdly is everybody know right now, memory is a bigger shortage and everybody tried to scramble for memory. And then even though you want to build a fab to capacity increase, it will take a couple of years to do that. And same thing for CPU, GPU, and all this will be highly demanded. And I think also the pricing also go up because we have to pass the price, the cost to the customer. So I think those would be the impact, the industry growth.

12:40And then I think overall, I felt that the company that most impacted is you're not embracing AI. And because AI can help you to drive a lot of efficiency across all the different functions of the enterprise, we should embrace and also find a way to better use AI for your prediction, for your design, for your, you know, all the different part of the workload. And I think that's tremendous. A number of people would say the simplistic argument against TerraFab, against Intel Foundry being competitive is really a question of, you know, there's all the factors internal to the building, right? You describe IP and velocity of just how you're doing business.

13:26Then there's external factors. And, you know, Alad's talking about a number of them. But one of them is the cost of labor and actually the manufacturing capacity. You know, in investing in the foundry business, you obviously believe there's a version where you can manufacture domestically. And Elon does, too. Can you talk a little bit about that and, you know, how real that constraint is, the labor constraint? Right. So I think, you know, when I decided whether I should double down on foundry or should I get out of the foundry. And there's a lot of voices. A lot of voices in the marketplace, as you can tell.

14:00It's very expensive. It's not going to work. It's very expensive. It's not going to work. But I finally decided this is very important for the United States and also very important for the industry. And I'll give you the idea that we all live through these challenges of supply chain. And it's very important for any of the big companies in semiconductor and really have to think about the supply chains. And you have to have a robust and resilient supply chain. You cannot just depend on one or two players in different geographic goals. And so I think, you know, more and more people are going to realize making in the United States is critical.

14:38And then the most advanced process, like for example, we have the 14A is like 1.4 nanometer. And we are already starting to plan for 1 nanometer and 0.7 nanometer. It's getting smaller and smaller. So in a way, it's much like our hair, so thin. so it's a lot of complexity it's not that easy to do and every step if you make a mistake that you just go down you know go down the drain so in some way you have to be really precise and in that manufacturing so in some way this has become more and more going to be the bottleneck so we felt that we you know we have a lot of respect for tsmc we're a great partner and then the more important we both need to have more capacity to serve the customer And so I think we decided by the bullet, longer term, I think it's critical.

15:30And that's where I can create more value for the industry. People have been talking for a long time about eventually hitting a point of resolution where you can't really miniaturize things further. Like the line width just gets too small to be able to keep going. When do you think we actually hit that limit? Good question. So I think I can see, you know, right now we have 18A and then now going to production to 14A, I can see 10 and 7. And so I think that path, I think we can get there, but couldn't it be more and more expensive and more difficult to do? And that's why we need partners. We cannot just do it ourselves alone, partner with a subscript vendor, partner with equipment vendors, so that make sure that we can really drive those yield and performance.

16:16And then the other part also very become the bottleneck is packaging, the advanced packaging and so we all know about Cold War by TSMC now we have a really good one called EMT that is really next generation I had to make sure that you become able to do in the production year that meet the customer requirement and now CMOS starting to run out of steam like you described so right now I also look at some new materials so it become going back to the material size or the chemical table so got them nitride silicon carbide and Indian phosphide. So I invest in all three. And then looking at some of this new material, how can we really drive that?

16:58And then in terms of packaging, I started to invest into glass. Glass is a very good heat insulator. So I even invest in a venture site called 3DGS. Then I realized that Intel, we have like 1000 patterns on the module. So how do you know, subscript and the module put it together? and then we just announced a big program with Indian government manufacturing in India plus in the US and New Mexico. So I think this advanced packaging, very important. I also starting to look at artificial diamond and that's another very good insulator. So I also invest into diamond foundry and that's something is the next generation to look at.

17:40So new material, new subscript material and new design methodology to drive that. So one thing about being an engineer, you're always hitting the wall, then you find a way to either jump over the wall or you walk around the wall and then to get to the better result. And that's what I have been a long time as an investor and a building semiconductor from the EDA tool to design to manufacturing. It's kind of nice to have that experience. now I can help find a way to make a small contribution to the industry. Yeah, and it's very exciting. And one of the reasons I'm asking about it as well is, to your point, there's always some things that you can vent around, but there are also physical limits where once you hit seven angstroms or whatever the limitation is, you start to run into...

18:27Find new material. Yeah, you need to find new materials or find other workarounds. Yes. And then the interesting question is, and we've been talking about this for a long time. I remember 20 years ago, people were talking about how we'd eventually hit a point where we ran out of space on this, is do you run into some sort of asymptote that actually normalizes performance across different foundries or not? Yeah, good question. In terms of like most law, it's a double, you know, and then the power and the cost. And then you can double the performance, but you cannot double down on the cost and area.

18:59So those are the thing you have to give way unless you find some new way of material, new way of design. And then become material size, I starting to hire more people in the material science. So that is kind of innovation in our area. How can we do that? And I still remember 18 years ago, and I still investing in semiconductor. And actually most of the VC firm, some of them are very nice tier one venture firm, a good friend of mine. And initially the partners meeting, the whole partners in the room. Then after I talking about semiconductor, half make excuse to run out of the room. Then eventually the other half, they said, do you have any software service?

19:43So then everyone left with only two sympathetically listened to me. So it's kind of the history have changed. And now as a semiconductor, if you look at it, Janssen is a 5.3 trillion market cap company. And then Broadcom and TSMC is 2 trillion market cap company. And Lisa Su, my good friend at AMD, is almost 800 billion. and I'm close to$600 billion. So in some ways, kind of semiconductor become hot again and it become essential because 15 years, 20 years ago, when I invest in semiconductor, no VC want to join me except some of the big corporations like Samsung, Arm and SoftBank and others and investing with me.

20:27And then now I starting to see a lot of VC like to come investing in semi. So I'm very happy. Given the enormous interest and investing in this area that used to be considered too hard, right? Yes. What do you think, I mean, you've been a venture investor with Walden for a very long time, as well as an operator. You know, the general fears, I'm just going to list a bunch of them. The general fears have been, it's very capital intensive. And you should tell me what I'm missing. It's very unpredictable in terms of, you know, shipping a design that works, missing tape out. and you need to understand the workload very well.

21:07I think there's another, which is just like, it's very high risk for the customer to switch, right? I think, you know, we've been involved in companies together where, you know, there's a design win and then there's still the question of like scaling order volume. And then there's a cyclicality, right? Of, you know, you build hard manufacturing capacity and demand may change or not in any given year. What is your view on how a bunch of, you know, what makes it hard as an industry and then the secular demand growth from a bunch of different areas, right? So you have the recognition of how important a more diverse supply chain is.

21:49And then you have this like explosive demand growth on the AI side. How do you, you're still an investor and then you're making the biggest bet ever, like go be CEO. How do you think about these different risks and advise others about where to invest in this supply chain? I realize that's a very large question, but just given your history with it, I think there's a lot of YOLO action of there's a memory shortage by memory stocks, as well as just an unwillingness to take on things that have a 10-year timeline like material science. Good. You have quite a broad range of questions. Let me try to explain that.

22:26So first of all, I think, you know, the venture capital startup is in my blood and I really enjoy it. And so I think this is not time to brag about it. And so there's some good exit. You know, I still have 159 IPO, 126, you know, M &A, and that's include semiconductor. Just break down to semiconductor. I invest over the years, 200 and 38 % is in US. Yes. So what I usually look at, some... Just to be clear, that's incredible. Thank you. Thank you. I just enjoy building it. And, but more important, I will look at this. First of all, on the investment side, I always look at where is the bottleneck?

23:09What are you trying to solve? For example, I invest in a company called Cradle Semiconductor, AstraZeneca Lab. Is this interconnect become the bottleneck? So I decided to back, and also back Celestial AI in the optical side. And then because speed becomes more important in the interconnect, in the cluster. So I think optical becomes very important. Look at Jensen. He invests in almost every company that is photonic related. And then the other part I'm looking at is, you know, okay, what are the solutions that need? Like for example, we talk about design and then the complexity and also the cost.

23:47Can you find some using AI machine learning to drive a better design and better solution? So a couple of new startups actually go into the EDA-related area to drive performance improvement. I think it's a goldmine to do that. And then the other part, you look at the new material. We talk about this Indian phosphide. That's why I invested in Infi. And then Marvell bought it. And then you invest into some of the new material, the gallium nitride and the silicon carbide. And then some of the companies starting to be acquired, include one of them, you know, doing power management. And ADI is a sport called Empower.

24:26And so again, this IVR, that's a very, very good area in power management become bottleneck now in terms of converting from 40 volt down to one volt. And then those, in terms of that conversion, you lost a lot of power. And how you do try the power improvement. So I think power, thermal, those become the bottleneck. So I think I always look at from, what is the problem we try to solve? Is it real? is customer crying for it? And then I starting to invest. The next thing is look at, it's very important from day one, you'd have to target the first customer. And usually I like the customer is hyperscale.

25:02They have the scale. If they like what you have, they're willing to pay millions of dollars next few years. And even giving some warrant is worth it because you have a big one customer you can scale. So I always look at some of the formula. How do you do that? and then where do you get the talent? And then, you know, sometimes it's very important to find the talent. That's why I'm really interested in US and then Silicon Valley and then some Austin. And then the other part is Israel. A lot of talent. So I back quite a few, quite a significant amount of my investment in Israel. And then because they have very disruptive, innovative entrepreneur, they work really hard.

25:44Even in this wartime, they still have conference call and suddenly say, okay, there's a warning. I had to go to underground and then the internet may not be good. Maybe we just use voice. In some ways, it's kind of fun. They kind of resilient entrepreneurship I really enjoy. So I think all in all, I felt that there's a lot of opportunity and especially in the AI. And right now, beside the authentic AI, now you're looking at physical AI next to a mixed big frontier. And then you have to really look at a full stack. That's why I'm still involved with a lot of this frontier model that we're very familiar.