 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. The latest ARM NeoVerse announcement further cements our opinion that its architecture, business model, and ecosystem execution are defining a new era of computing and leaving Intel in its dust. We believe the company and its partners have at least a two-year lead on Intel and are currently in a far better position to capitalize on the major waves that are driving the technology industry and its innovation. To compete, our view is that Intel needs a new strategy. Now, Pat Gelsinger is bringing that, but they also need financial support from the US and the EU governments. Pat Gelsinger was just noted as asking or requesting from the EU government $9 billion, sorry, the 8 billion euros in financial support. And very importantly, Intel needs a volume for its new foundry business. And that is where Apple could be a key. Hello, everyone, and welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we'll explain why Apple could be the key to saving Intel and America's semiconductor industry leadership. We'll also further explore our scenario of the evolution of computing and what will happen to Intel if it can't catch up. Here's a hint, it's not pretty. Let's start by looking at some of the key assumptions that we've made that are informing our scenarios. We've pointed out many times that we believe ARM wafer volumes are approaching 10 times those of x86 wafers. This means that manufacturers of ARM chips have a significant cost advantage over Intel. We've covered that extensively, but we repeat it because when we see news reports and analysis in print, it's not a factor that anybody's highlighting. And this is probably the most important issue that Intel faces. And it's why we feel that Apple could be Intel's savior. We'll come back to that. We project that the chip shortage will last no less than three years, perhaps even longer. As we reported in a recent Breaking Analysis, while Moore's law is waning, the result of Moore's law, i.e. the doubling of processor performance every 18 to 24 months is actually accelerating. We've observed and continue to project a quadrupling of performance every two years, breaking historical norms. ARM is attacking the enterprise and the data center. We see hyperscalers as the tip of their entry spear. AWS's Graviton chip is the best example. Amazon and other cloud vendors that have engineering and software capabilities are making ARM-based chips capable of running general-purpose applications. This is a huge threat to x86. And if Intel doesn't respond quickly, we believe ARM will gain a 50% share of enterprise semiconductor spend by 2030. We see the definition of cloud expanding. Cloud is no longer a remote set of services in the cloud. Rather, it's expanding to the edge where the edge could be a data center, a data closet or a true edge device or system. And ARM is, by far in our view, in the best position to support the new workloads and computing models that are emerging as a result. And finally, geopolitical forces are at play here. We believe the US government will do or at least should do everything possible to ensure that Intel and the US chip industry regain its leadership position in the semiconductor business. If they don't, the US and Intel could fade to irrelevance. Let's look at this last point and make some comments on that. Here's a map of the South China Sea. And way off in the Pacific, we've superimposed a little pie chart and we asked ourselves, if you had a hundred points of strategic value to allocate, how much would you put in the semiconductor manufacturing bucket and how much would go to design? And our conclusion was 50-50. Now it used to be because of Intel's dominance with x86 and its volume that the United States was number one in both strategic areas. But today, that orange slice of the pie is dominated by TSMC, thanks to ARM volumes. Now we've reported extensively on this and we don't want to dwell on it for too long, but on all accounts, cost, technology, volume, TSMC is the clear leader here. China's president Xi has a stated goal of unifying Taiwan by China's centennial in 2049. Will this tiny island nation, which dominates a critical part of the strategic semiconductor pie, go the way of Hong Kong and be subsumed into China? Well, military experts say it would be very hard for China to take Taiwan by force without heavy losses and some serious international repercussions. The U.S.'s military presence in the Philippines and Okinawa and Guam combined with support from Japan and South Korea would make it even more difficult. And certainly the Taiwanese people you would think would prefer their independence, but Taiwanese leadership, it ebbs and flows between those hardliners who really want to separate and want independence and those that are more sympathetic to China. Could China, for example, use cyber warfare to over time control the narrative in Taiwan? Remember, if you control the narrative, you can control the meme. If you control the meme, you can control the idea. If you control the idea, you can control the belief system. And if you control the belief system, you can control the population without firing a shot. So is it possible that over the next 25 years, China could weaponize propaganda and social media to reach its objectives with Taiwan? Maybe it's a long shot, but if you're a senior strategist in the U.S. government, would you want to leave that to chance? We don't think so. Let's park that for now and double click on one of our key findings. And that is the pace of semiconductor performance gains. As we first reported a few weeks ago, while Moore's law is moderating, the outlook for cheap, dense, and efficient processing power has never been better. This slide shows two simple log lines. One is the traditional Moore's law curve. That's the one at the bottom. And the other is the current pace of system performance improvement that we're seeing measured in trillions of operations per second. Now, if you calculate the historical annual rate of processor performance improvement that we saw with this x86, the math comes out to around 40% improvement per year. Now that rate is slowing. It's now down to around 30% annually. So we're not quite doubling every 24 months anymore with x86, and that's why people say Moore's law is dead. But if you look at the combinatorial effects of packaging CPUs, GPUs, NPUs, accelerators, DSPs, and all the alternative processing power you can find in SOC's system on chip. And eventually system on package, it's growing at more than 100% per annum. And this means that the processing power is now quadrupling every 24 months. That's impressive. And the reason we're here is ARM. ARM has redefined the core processor model for a new era of computing. ARM made an announcement last week, which really recycles some old content from last September, but it also put forth new proof points on adoption and performance. ARM laid out three components in its announcement. The first was Neoverse version one, which is all about extending vector performance. This is critical for high performance computing, HPC, which at one point you thought that was a niche, but it is the AI platform. AI workloads are not a niche. Second, ARM announced the Neoverse N2 platform based on the recently introduced ARM V9. We talked about that a lot in one of our earlier breaking analyses. This got a performance boost of around 40%. Now the third was called CMN 700. ARM maybe needs to work on some of its names, but ARM said this is the industry's most advanced mesh interconnect. This is the glue for the V1 and the N2 platforms. The importance is it allows for more efficient use and sharing of memory resources across components of the system package. We talked about this extensively in previous episodes, the importance of that capability. Now let's share with you. This wheel diagram underscores the completeness of the ARM platform. ARM's approach is to enable flexibility across an open ecosystem, allowing for value add at many levels. ARM has built the architecture and design and allows an open ecosystem to provide the value added software. Now very importantly, ARM has created the standards and specifications by which they can with certainty, certify that the foundry can make the chips to a high quality standard. And importantly, that all the applications are going to run properly. In other words, if you design an application, it will work across the ecosystem and maintain backwards compatibility with previous generations. Like Intel has done for years, but ARM as we'll see next is positioning not only for existing workloads, but also the emerging high growth applications to wit. Here's the ARM total available market as we see it. We think the end market spending value of just the chips going into these areas is $600 billion today and it's going to grow to $1 trillion by 2030. In other words, we're allocating the value of the end market spend in these sectors to the marked up value of the silicon as a percentage of the total spend. It's enormous. So the big areas are hyperscale clouds, which we think is around 20% of this TAM and the HPC and AI workloads, which account for about 35% in the edge will ultimately be the largest of all, probably capturing 45%. And these are rough estimates and they'll ebb and flow and there's obviously some overlap but the bottom line is the market is huge and growing very rapidly. And you see that little red highlighted area, that's enterprise IT, traditional IT and that's the x86 market in context. So it's relatively small and what's happening is we're seeing a number of traditional IT vendors packaging x86 boxes, throwing them over the fence and saying, we're going after the edge. And what they're doing is saying, okay, the edge is this aggregation point for all these endpoint devices. We think the real opportunity at the edge is for AI inferencing that that is where most of the activity and most of the spending is going to be and we think ARM is going to dominate that market. And this brings up another challenge for Intel. So we've made the point a zillion times that PC volumes peaked in 2011 and we saw that as problematic for Intel for the cost reasons that we've beat into your head. And lo and behold, PC volumes, they actually grew last year thanks to COVID and will continue to grow, it seems for a year or so. Here's some ETR data that underscores that fact. This chart shows the net score, remember that's spending momentum, it's the breakdown for Dell's laptop business. The green means spending is accelerating and the red is decelerating and the blue line is net score, that's spending momentum. And the trend is up and to the right. Now, as we've said, this is great news for Dell and HP and Lenovo and Apple for its laptops, all the laptop sellers, but it's not necessarily great news for Intel. Why? I mean, it's okay, but what it does is it shifts Intel's product mix toward lower margin PC chips and it squeezes Intel's gross margins. So the CFO has to explain that margin contraction to Wall Street. Imagine that, the business that got Intel to its monopoly status is growing faster than the high margin server business and that's pulling margins down. So as we said, Intel is fighting a war on multiple fronts. It's battling AMD in the Core X86 business, both PCs and servers. It's watching ARM mop up in mobile. It's trying to figure out how to reinvent itself and change its culture to allow more flexibility into its designs and it's spinning up a foundry business to compete with TSMC. So it's got to fund all this while at the same time propping up its stock with buybacks. Intel last summer announced that it was accelerating its $10 billion stock buyback program. 10 billion dollars, buy stock back or build a foundry. Which do you think is more important for the future of Intel in the US semiconductor industry? So Intel, it's got to protect its past while building its future and placating Wall Street all at the same time. And here's where it gets even more dicey. Intel's got to protect its high-end X86 business. It is the cash cow and funds their operation. Who's Intel's biggest customer? Dell, HP, Facebook, Google, Amazon? Well, let's just say Amazon is a big customer. Can we agree on that? And we know AWS's biggest revenue generator is EC2. And EC2 was powered by microprocessors made from Intel and others. We found this slide in the ARM NeoVerse deck and it caught our attention. The data comes from a data platform called Lifter Insights. The charts show the rapid growth of AWS's Graviton chips, which are their custom design chips based on ARM, of course. The blue is that Graviton and the black vendor A presumably is Intel and the gray is assumed to be AMD. The iPopper is the 2020 pie chart. The instant deployment is nearly 50% are Graviton. So if you're Pat Gelsinger, you better be all over AWS. You don't wanna lose this customer and you're gonna do everything in your power to keep them, but the trend is not your friend in this account. Now the story gets even gnarlier. Here's the killer chart. It shows the ISV ecosystem platforms that run on Graviton too. Because AWS has such good engineering and controls its own stack, it can build ARM based chips that run software designed to run on general purpose x86 systems. Yes, it's true, the ISVs, they gotta do some work, but large ISVs, they have a huge incentives because they wanna ride the AWS wave. Certainly the user doesn't know or care, but AWS cares because it's driving costs and energy consumption down and performance up. Lower cost, higher performance. Sounds like something Amazon wants to consistently deliver, right? And the ISV portfolio that runs on ARM based Graviton is just gonna continue to grow. And by the way, it's not just Amazon, it's Alibaba, it's Oracle, it's Marvell, it's Tencent, the list keeps growing. ARM trotted out a number of names and I would expect over time it's gonna be Facebook and Google and Microsoft if they're not already there. Now, the last piece of the ARM architecture story that we wanna share is the progress that they're making and compare that to x86. This chart shows how ARM is innovating and let's start with the first line under platform capabilities, number of cores supported per die or system. Now die is what ends up as a chip on a small piece of silicon. Think of the die as a circuit diagram of the chip, if you will. In these circuits, they're fabricated on wafers using photolithography. The wafers then cut up into many pieces, each one having a chip. Each of these pieces is the chip and two chips make up a system. The key here is that ARM is quadrupling the number of cores. Instead of increasing thread counts, it's giving you cores. Cores are better than threads because threads are shared and cores are independent and much easier to virtualize. This is particularly important in situations where you want to be as efficient as possible, sharing massive resources like the cloud. Now as you can see in the right hand side of the chart under the orange, ARM is dramatically increasing the amount of capabilities compared to previous generations. And one of the other highlights to us is that last line, the CCIX and CXL support. Again, ARM maybe needs to name these better. These refer to ARM's memory sharing capabilities within and between processors. This allows CPUs, GPUs, NPUs, et cetera to share resources very efficiently, especially compared to the way x86 works where everything is currently controlled by the x86 processor. CCIX and CXL support, on the other hand, will allow designers to program the system and share memory wherever they want within the system directly and not have to go through the overhead of a central processor, which owns the memory. So for example, if there's a CPU, GPU, NPU, the CPU can say to the GPU, give me your results at a specified location and signal me when you're done. So when the GPU is finished calculating and sending the results, the GPU just signals the operation as it's complete versus having to ping the CPU constantly, which is overhead intensive. Now composability in that chart means the system, it's not fixed, rather you can programmatically change the characteristics of the system on the fly. For example, if the NPU is idle, you can allocate more resources to other parts of the system. Now Intel is doing this too in the future, but we think ARM is way ahead at least by two years. This is also huge for NVIDIA, which today relies on x86. A major problem for NVIDIA has been coherent memory management because the utilization of its GPU is appallingly low and it can't be easily optimized. Last week, NVIDIA announced its intent to provide an AI capability for the data center without x86, i.e. using ARM-based processors. So NVIDIA, another big Intel customer, is also moving to ARM. And if it's successful acquiring ARM, which is still a long shot, this trend is only gonna accelerate. But the bottom line is if Intel can't move fast enough to stem the momentum of ARM, we believe ARM will capture 50% of the enterprise semiconductor spending by 2030. So how does Intel continue to lead? Well, it's not gonna be easy. Remember, we said Intel can't go it alone. And we posited that the company would have to initiate a joint venture structure. We proposed a triumvirate of Intel, IBM with its power 10 and memory aggregation and memory architecture and Samsung with its volume manufacturing expertise on the premise that it coveted an on US soil presence. Now upon further review, we're not sure that Samsung is willing to give up and contribute its IP to this venture. It's put a lot of money and a lot of emphasis on infrastructure in South Korea. And furthermore, we're not convinced that Arvin Krishna, who we believe ultimately made the call to Jettison's, Jettison IBM's microelectronics business, wants to put his efforts back into manufacturing semiconductors. So we have this conundrum. Intel is fighting AMD, which is already at seven nanometer. Intel has fallen behind in process manufacturing, which is strategically important to the United States, it's military and the nation's competitiveness. Intel is behind the curve on cost and architecture and is losing key customers in the most important market segments. And it's way behind on volume, the critical piece of the pie that nobody ever talks about. Intel must become more price and performance competitive with x86 and bring in new composable designs that maintain x86 compatibility and give the ability to allow customers and designers to add and customize GPUs, NPUs, accelerators, et cetera, all while launching a successful foundry business. Whoo! So we think there's another possibility to this thought exercise. Apple is currently reliant on TSMC and is pushing them hard toward five nanometer. In fact, it's sucking up a lot of that volume and TSMC is maybe not servicing some other customers as well as servicing Apple because it's a bit distracted. And you have this chip shortage. So Apple, because of its size, gets the lion's share here of the attention. But Apple needs a trusted onshore supplier. Sure, TSMC is adding manufacturing capacity in the US and Arizona, but back to our precarious scenario in the South China Sea. Will the US government and Apple sit back and hope for the best? Or will they hope for the best and plan for the worst? Let's face it. If China gains control of TSMC, it could block access for the latest and greatest process technology. Apple just announced that it's investing billions of dollars in semiconductor technology across the US. The US government is pressuring big tech. What about an Apple Intel joint venture? Apple brings the volume, it's cloud, it's cloud, sorry, it's money, it's design leadership, all that to the table. And they could partner with Intel. It gives Intel the foundry business and a guaranteed volume stream. And maybe the US government gives Apple a little bit of breathing room in the whole break up big tech narrative, even though it's not necessarily specifically targeting Apple, but maybe the US government needs to think twice before it attacks big tech and thinks about the longterm strategic ramifications. Wouldn't that be ironic? Apple dumps Intel in favor of ARM for the M1 and then incubates and essentially saves Intel with a pipeline of foundry business. Now, back to IBM in this scenario, we put a question mark on the slide because maybe IBM just gets in the way and why not a nice clean partnership between Intel and Apple? Who knows, maybe Gelsinger can even negotiate this without giving up any equity to Apple, but Apple could be a key ingredient to a cocktail of a new strategy under Pat Gelsinger's leadership, gobs of cash from the US and EU governments and volume from Apple. Whoa, still a long shot, but one worth pursuing because as we've written, Intel is too strategic to fail. Okay, well, what do you think? You can DM me at dvolante or email me at david.volante at siliconangle.com or comment on my LinkedIn post. Remember, these episodes are all available as podcasts, so please subscribe wherever you listen. I publish weekly on wikibon.com and siliconangle.com and don't forget to check out ETR.plus for all the survey analysis. And I want to thank my colleague, David Floyer, for his collaboration on this and other related episodes. This is Dave Volante for theCUBE Insights powered by ETR, thanks for watching. Be well and we'll see you next time.