INTC keeps spending , but why?
Now here is my argument on why it makes little sense for INTC to keep spending this kind of money. I agree that it still makes tactical sense to have in-house fabs but for how long is the question. The Ghz race is over, PC cycle is gone to replacement-cycle . INTC, AMD and other major IDMs have to become consumer IC companies and consumer ICs are built cheap. Most of us consumers don't really need a 4GHz Pentium or dual core Opteron for that matter. We just need a high bandwidth connection with safe web-browser-like application (no not IE) and a 2GHz machine will be more than enough.
Semiconductors will be for consumer market where its about cost not necessarily raw-power. Selling to consumers requires marketing prowess not souped up clock speed. It's going to be about marketing the box, ask AAPL which has done a faboulous job selling the iPod to masses. Does the iPod have "PortalPlayer Inside" stickers on it? It doesn't matter to a consumer who is inside the iPod they want the iPod to be as cheap as possible and still perform well. So without the "speed-race" do INTC really need to build new cutting edge fabs? They can build them but I would worry about the ROI coming down dramatically on the fabs which will hurt the gross margin at INTC. Even with all this spending INTC revs grew 13.5% in 2004 where as the semi industry revs grew 28-30%. That is on top of the usual pricing pressure that comes naturally with playing in highly competitve consumer market. Spending large amounts does not necessarily mean revenue growth and with revenue growth slowing and spending increasing the overall equation will change and margins will shrink. But timing is everything and this will not play out in a quarter or two so until then let INTC keep pushing the Ghz and the dual-core mantra and lets hope the consumer buys it.
I would truely appreciate feedback on this from both professional and amateur investors .