(INTC) - Page 11 - Mad Hedge Fund Trader

Here Are Some Early 5G Wireless Plays

Tech Letter

How would you like to be part of the biggest business development in the history of mankind?

This revolution will increase business functionality up to 10 times while flattening costs by up to 90%.

Still interested?

Enter the Internet of Things (IoT).

The Internet of Things (IoT) can be boiled down to Internet connectivity with things.

Your luxury juice maker, hair removal kit, and multi-colored Post-its will soon be online.

No, you won't be able to have Tinder chats with the new connectivity, but embedded sensors, tracking technology, and data mining software will aggregate a digital dossier on how products are performing.

The data will be fed back to the manufacturing company offering a comprehensive and accurate review without ever asking a human.

The magic glue making IoT ubiquitous and stickier than a hornet's nest is the emergence and application of 5G.

4G is simply not fast enough to facilitate the astronomical surge in data these devices must process.

5G is the lubricant that makes IoT products a reality.

Verizon Communications (VZ) and AT&T (T) have been assiduously rolling out tests to select American cities as they lay the groundwork for the 5G revolution.

The aim is for these companies to deliver customers a velocious 1 Gbps (gigabits per second) wireless connection speed.

Delivering more than 10 times the average speed today will be a game changer.

America isn't the only one with skin in the game and some would say we are not even leading the pack.

China Mobile (CHL) is carrying out a bigger test in select Chinese cities, and Chinese telecom company Huawei can lay claim to 10% of the 5G patents.

Americans should start to notice broad-based adoption of 5G networks around 2020.

Once widespread usage materializes, watch out!

It will go down in history books as a transformational headline.

The IoT revolution will follow right after.

Until the 5G rollout is done and dusted, tech companies are licking their chops and preparing for one of the biggest shifts in the tech ecosphere affecting every product, service, and industry.

The worldwide IoT market is poised to mushroom into a $934 billion market by 2025 on the back of cloud computing, big data, autonomous transport technology, and a host of other rapidly emerging technology.

The arrival of 5G will have an astronomical network effect. Companies will be able to enhance product specs faster than before because of the feedback of data accumulated by the tracking technology and sensors.

The appearance of this flashy new technology will spawn yet another immeasurable migration to technological devices by 2020.

In just two years, the world will play host to more than 50 billion connected devices all pumping out data as well as consuming data.

What a frightful thought!

IoT's synergies with new 5G technology will have an unassailable influence on the business environment.

For instance, industrial products in the form of robots and equipment will be a huge winner with 5G and IoT technology.

The industrial IoT market is expected to sprout to $233 billion by 2023.

Robots will pervade deeply into economic provenance acting as the mule for brute strength heavy labor plus more advanced tasks as they become more sophisticated.

Total global spending related to IoT products will surpass 1.4 trillion dollars by 2021, according to the International Data Corporation (IDC).

IoT growth will become most robust in the thriving Asian markets fueled by a bonus tailwind of the fastest growing region in the world.

The advanced automation abilities of Germany and the U.K. will also give them a seat at the table.

Micron CEO Sanjay Mehrotra gushed about the future at Micron's investor day celebrating IoT and data as the way forward. Mehrotra explained that the explosion of IoT products will create a new tidal wave of "growing demand for storage and memory."

Chips are a great investment to grab exposure to the 5G, IoT, and big data movement.

Up until today, the last generation of technological innovation brought consumers computers and smartphones.

That world has moved on.

Open up your eyes and you will notice that literally everything will become a "data center on wheels or on feet."

To arrive at this stage, products will need chips.

As many high-grade chips as they can find.

Data centers are one segment in dire need of chips. This market will more than double from $29 billion in 2017 to $62 billion in 2021.

The general-purpose chip market for servers is cornered by Intel.

Industry insiders estimate Intel's market share at 98% to 99% of data center chips. Clientele are heavy hitters such as Amazon Web Services, Google, and Microsoft Azure along with other industry peers.

The only other players with data server chips out there are Qualcomm (QCOM) and Advanced Micro Devices Inc. (AMD).

However, there have been whispers of Qualcomm shutting down the 48-core Centriq 2400 chip for data centers that was launched only last November after head of Qualcomm's data center division, Anand Chandrasekher, was demoted via reassignment.

AMD's new data center chip, Epyc, has already claimed a few scalps with Baidu (BIDU) and Microsoft Azure promising to deploy the new design.

IoT integration is the path the world will take to adopting full-scale digitization.

Microsoft just announced at its own Build 2018 conference its plans to invest $5 billion into IoT in the next four years.

The Redmond, Washington-based company noted operational savings and productivity gains as two positive momentum drivers that will benefit IoT production.

Consulting firm A.T. Kearny identified IoT as the catalyst fueling a $1.9 trillion in productivity increases while shaving $177 billion off of expenses by 2020.

These cloud platforms give tech companies the optimal stage to win over the hearts and dollars of non-tech and tech companies that want to digitize services.

Many of these companies will have IoT products percolating in their portfolio.

Examples are rampant.

Schneider Electric in collaboration with Microsoft's IoT Azure platform brought solar energy to Nigeria by the bucket full.

The company successfully installed solar panels harnessing its performance using IoT technology through the Microsoft cloud.

Kohler rolled out a new lineup of smart kitchen appliances and bathroom fixtures coined "Kohler Konnect" with the help of Microsoft's Azure IoT platform.

Consumers will be able to remotely fill up the bathtub to a personalized temperature.

Real-time data analytics will be available to the consumer by using the bathroom mirror as a visual interface with touch screen functionality giving users the option to adjust settings to optimal levels on the fly.

Kohler's tie-up with Microsoft IoT technology has proved fruitful with product development time slashed in half.

To watch a video of Kohler's new budding relationship with Microsoft's Azure IoT platform, please click here.

It is safe to say operations will cut out the wastefulness using these new tools.

Look no further than legacy American stocks such as oil and gas producer Chevron (CVX), which wants a piece of the IoT pie.

Chevron announced a lengthy seven-year partnership with Microsoft's Azure platform.

The fiber optic cables inside oil production facilities generate more than 1 terabyte of data per day.

In the Houston, Texas, offices, sensors installed six miles below the surface shoot back data to engineers who monitor human safety and system operations on four continents from the Lone Star State.

The newest facility in Kazakhstan, using state-of-the-art technology, will produce more data than all the refineries in North America combined.

Using the aid of artificial intelligence (A.I.), computers will analyze seismic surveys. This pre-emptive technology customizes solutions before problems can germinate.

The new smart-work environment will multiply worker productivity that has been at best stagnant for the past generation.

To get in on the IoT action, buy shares of companies with solid IoT cloud platforms such as Microsoft and Amazon.

Buy best-of-breed chip companies such as Nvidia (NVDA), Intel (INTC), Advanced Micro Devices (AMD) and Micron (MU).

And buy tech companies that produce wafer fab equipment such as Applied Materials (AMAT) and Lam Research (LRCX).

_________________________________________________________________________________________________

Quote of the Day

"Don't be afraid to change the model." - said cofounder and CEO of Netflix Reed Hastings.

May 29, 2018/by MHFTR

May 25, 2018

Tech Letter

Mad Hedge Technology Letter
May 25, 2018
Fiat Lux

Featured Trade:
(WHERE 5G CONNECTIVITY WILL TAKE US),
(T), (VZ), (INTC), (TSLA), (AAPL), (GOOGL)

May 25, 2018/by MHFTR

Where 5G Connectivity Will Take Us

Tech Letter

AT&T (T), Verizon (VZ), and the other telecom heavies are in the process of investing $30 billion to make sure that fifth-generation wireless, or 5G, will roll out on time in 2020.

What 5G will do is improve the functionality of IoT (Internet of Things) by 10 times at one-tenth the cost, bringing a 100X increase of functionality over price.

The last time I saw a leap that great was when Intel (INTC) brought out its groundbreaking 8008 8-bit microprocessor chip in 1972. I remember it like it was yesterday.

The news that gravitational waves were discovered, as well as wrinkles in the space-time continuum, was big news in my family. 5G will be of that order.

Of course, we knew it was coming. It was just a matter of when.

I have 11- and 13-year-old girls (I can't help it if the plumbing still works!). Whenever we drive somewhere, we carry out what Einstein called "thought experiments."

They will come up with scientific questions, and I then direct them into finding their own answers through a series of prodding and hopeful questions.

It is much like how the children of royalty were tutored during the Middle Ages.

So they asked, "When will we get driverless cars?" which they had heard about on TV.

I answered in about two years, but that I had friends who run Tesla (TSLA) who already have them now.

And you know the interesting thing they discovered? After two years of beta testing, the cars are starting to develop their own personalities.

Each car has highly advanced learning software. When the mapping software requires one to take a difficult sharp left turn, the vehicle may miss it the first time.

It will then make the next legal U-turn, and then nail that turn every time in the future.

The cars are all programmed to drive like little old ladies. It will never speed, break the law, and always lets other cars cut in front. Over time, some are becoming cautious, while others are getting more aggressive depending on each individual's driving experience.

In other words, experience is turning them into "people."

I asked my daughters, "What would the world be like if everyone had driverless cars?" which will occur in about 30 years, or during their middle age.

They pondered for a moment. Then my older daughter shouted out, "There won't be car accidents anymore!" "Right!" I answered.

"But what will that mean?" I asked.

They puzzled over this.

A few seconds passed. Then it came. "The people who fix cars won't have anything to do!"

"You got it," I replied.

In fact, about 1 million people in the car repair industry will lose their jobs. A small group of vintage car fanatics will survive, much like horse and buggy hobbyists do today.

I pointed out that this is already happening because electric cars don't require any maintenance. You just rotate the tires every 6,000 miles (because electric batteries are so heavy).

I moved on. "Who else will lose their jobs when cars become self-driving?" They hit a brick wall. Then I asked "What else breaks when cars have accidents?"

A few seconds later it came. "People!"

"For sure," I shot back.

Actually, about 35,000 people die in car accidents every year in the United States, and another 500,000 are injured.

This means the demand for doctors, hospitals, and ambulances will go down. Say goodbye to another 1 million jobs.

"So, what else will self-driving cars do?" I was relentless.

My older girl was first: "If cars are driven by computers, it means they can drive closer together." I said, "That was true, but what was the consequence of that?"

The mountain scenery whizzed by. Then they got it.

"There won't be traffic jams anymore."

"Yes!" I blurted out. If a car can drive 70 miles per hour, but only needs to remain one car length behind the one in front of it, that effectively increases the capacity of freeways seven times.

We will never need to build another freeway again. Another 1 million jobs go down the drain.

"What else will self-driving cars do?" I carried on.

They hit a dead end. So, I gave a hint. "What do you see in cities?" After going through buildings, parks, roads, lots of cars, and bridges, I finally got the answer I wanted: "Parking lots."

I then posed the conundrum, "What's the connection between self-driving cars and parking lots?"

Now they were getting into the spirit of the thing. "They won't need them." I replied, "Absolutely."

Self-driving cars won't need to park. They'll just be able to drop you off and drive around the block until you are ready to go home.

This will be economical because after three decades of battery and solar improvements, energy will effectively be free, like air is today.

Oh, and at least 100,000 parking attendants might as well start joining the unemployment lines now.

It gets better.

Entrepreneurs now are developing apps for cars so they never need to park.

In an iteration of the sharing economy, and in a club or membership type format, your car will just drive person to person, selling rides, until you are ready to go home.

Think of it as Uber, without the drivers, that pays you.

Today, parking lots occupy about 15% of the land area of large cities. Self-driving cars will free up a lot of that space for other uses, such as housing and parks.

Then I asked the really big question. "What do all of these changes have in common?"

My 11-year-old picked up on this immediately. "A lot of people are going to lose their jobs!"

"For sure," I bubbled. Notice that every new technology improvement creates a lot of job losses. I went on.

"The trick for you girls is to always stay ahead of the technology curve so your job doesn't get lost, too." This is why I have been sending them to Java development school since they were 8 and 9.

They looked daunted.

And this is what 11- and 13-year-olds were able to figure out. Granted, they were MY kids.

Imagine what Google (GOOGL), Apple (AAPL), and Tesla are doing with this idea. It has become a hot bottom "next big thing." Silicon Valley is now rife with rumors of breakthrough developments and the poaching of staff.

The U.S. military and the Defense Advanced Research Projects Agency (DARPA) are involved in self-driving vehicles in a big way as well, holding regular contests with big prize money and the prospect of mammoth government contracts.

More and more generals and admirals are telling me that the wars of the future will be fought with software.

The bottom line is that things are happening much faster than we imagined possible only a few years ago.

Then my oldest daughter piped up.

"Dad, can I get my driver's license before all the cars are self-driving?" I said, "Sure. What kind of car do you want?"

"A red one."

My first car was a red 1957 Volkswagen Beetle.

On our next trip we will cover gravitational waves, Einstein's Theory of Relativity, and the significance of the clock tower in Bern, Switzerland.

By the way, these girls will be graduating from college in 2026 and 2027 and will be looking for jobs.

Just let me know. :-)

_________________________________________________________________________________________________

Quote of the Day

"Homo sapiens, the first truly free species, is about to decommission the natural selection, the force that made us," said E.O. Wilson, a Harvard University biology professor.

May 25, 2018/by MHFTR

May 23, 2018

Tech Letter

Mad Hedge Technology Letter
May 23, 2018
Fiat Lux

Featured Trade:
(WHY THE BIG DEAL OVER ZTE?),
(MU), (QCOM), (INTC), (AAPL), (SWKS), (TXN), (BIDU), (BABA)

May 23, 2018/by MHFTR

Why the Big Deal Over ZTE?

Tech Letter

Here's the conundrum.

Beyond cutting-edge technology, there's nothing that China WANTS OR NEEDS to buy from the U.S. China's largest imports are in energy and foodstuffs, both globally traded commodities.

China is playing the long game because it can.

Earlier this year, China altered its constitution to remove term limits and any obstacle that would hinder Chairman Xi to serve indefinitely.

If it's two, four, eight or 10 years, no problem, China will wait it out.

As it stands, China is enjoying the status quo, which is a robust economic trajectory of 6.7% economic growth YOY and at that rate will leapfrog America as the biggest economy in the world by 2030.

China does not need handouts.

It already has its mooncake and is eating it.

The Chinese are also betting that Donald Trump fades away with the passage of time, possibly soon, and that a vastly different administration will enter the fray with an entirely different strategy.

The indefinite "hold" pattern is a polite way to say we surrender.

ZTE Corporation is a Chinese telecommunications equipment manufacturer and low-end smartphone maker based in Shenzhen, China.

This seemingly innocuous company is ground zero for the U.S. vs China trade practice dispute.

The U.S. Department of Commerce banned American tech companies from selling components to ZTE for seven years, crippling its supply chain after violating sanctions against Iran and North Korea.

ZTE uses about 30% of American components to produce its smorgasbord of telecom equipment and down-market cell phones.

What most people do not know is that ZTE is the fourth most prevalent smartphone in America, only behind Apple, Samsung, and LG, commanding a 12.2% market share, and its phones require an array of American made silicon parts.

In 2017, the company shipped more than 20 million phones to the United States.

The ruling effectively put ZTE out of business because the lack of components shelved production.

Low-end smartphones account for almost one-third of total revenue.

ZTE could very well have survived with a direct hit to its consumer phone business, but the decision to ban components made the telecom equipment division inoperable.

This segment accounts for a heavy 58.2% of revenue. Therefore, disrupting ZTE's supply chain would effectively take down more than 91% of its business for a company that employs 75,000 employees in over 160 countries.

Upon news of ZTE's imminent demise, the administration made a U-turn on its initial decision stating "too many jobs in China lost."

The reversal made America look bad.

It shows that America is being dictated to and not the other way around.

When did it become the responsibility of the American administration to fill Chinese jobs for a company that is a threat to national security?

The Chinese refused to continue talks with the visiting delegation until the ZTE situation was addressed.

Treasury Secretary Steve Mnuchin and company were able to "continue" the talks then were politely shown the door.

Bending the rules for ZTE should have never been a prerequisite for talks, stressing the lack of firepower in the administration's holster.

However, stranding the delegation in Chinese hotel rooms for days waiting in limbo, without offering an audience, would have caused even more humiliation and anguish for the administration.

China is not interested in buying much from America, but one thing it needs -- and needs in droves -- are chips.

Long term, this ZTE ban is great for China.

I believe China will use this episode to rile up the nationalistic rhetoric and make it a point to wean itself from American chips.

However, for the time being, American chips are the most valuable import America can offer China, and that won't change for the foreseeable future.

The numbers back me up.

Micron (MU) earns more than $10 billion in revenue from China, which makes up over 51% of its total revenue.

Qualcomm (QCOM), mainly through its lucrative licensing division, makes more than $14.5 billion from its Chinese revenue, which comprises over 65% of revenue.

Texas Instruments (TXN) earns more than 44% of revenue from China, and almost a quarter of Intel's (INTC) revenue is derived from its China operations.

The biggest name embedded in China is Apple (AAPL), which earned almost $45 billion in sales last year. Its China revenue is three times larger than any other American company.

In less than a decade, China has caught up.

China now has adequate local smartphone substitutes through Huawei, Oppo, Vivo, and Xiaomi phones.

Skyworks Solutions (SWKS), a chip company reliant on iPhone contracts, is most levered toward the Chinese market capturing almost 83% of revenue from China.

You would think these chips would be the first on the chopping block in a trade war. However, you are wrong.

China needs all the chips it can get because there is no alternative.

Stopping the inflow of chips is another way of stopping China from doing business and developing technology.

The Chinese economy has been led by the powerful BATs of Baidu (BIDU), Tencent, and Alibaba (BABA) occupying the same prominent role the American FANGs hold in the American economy.

They are not interested in digging their own grave.

To execute the 2025 plan to become the world leaders in advanced technology, they need chips that power all modern electronic devices.

The most likely scenario is that China maintains development using American chips for the time being and slowly pivots to the Korean chip sector, which is vulnerable to Chinese political pressure.

Remember that South Koreans have two of the three biggest chip companies in the world in Samsung and SK Hynix. China has used economic coercion to get what it wants from Korea in the past or to prove a point.

Korean multinational companies, shortly after the Terminal High Altitude Area Defense (THAAD) installation on the Korean peninsula, were penalized by the Chinese government shutting down mainland Korean stores, temporarily banning Chinese tourism in South Korea, and blocking K-pop stars from performing in the lucrative Chinese market.

The Chinese communist government can turn the screws when it wants and how it wants.

Therefore, the next battleground for tech could migrate to South Korean chip companies as China is on a mission to suck up as much high-grade tech ingenuity as possible while it can.

China has some easy targets to whack down if the administration forces it into a corner with a knife to its throat.

Non-tech companies are ripe for massacre because they do not produce chips.

Companies such as Procter & Gamble, Starbucks, McDonald's, and Nike could be replaced by a Chinese imitation in a jiffy.

Apple is the 800-pound gorilla in the room.

An attack on Apple would hyper-accelerate tension between two leaders to the highest it's ever been and would be the straw that breaks the camel's back.

Technology has transformed the world.

Technology also has been adopted by nations as a critical component to national security.

Nothing has changed fundamentally, and nothing will.

China will become the biggest economy in the world by 2030.

China will kick the proverbial can down the road because it can. It never has to cooperate with America again.

Contrary to expectations, American chip companies are untouchable, and investors won't see Micron suddenly losing half its revenue over this trade war.

Until China can produce higher quality chips, it will lap up as much of Uncle Sam's chips until it can force transfer the chip technology from the Koreans.

American chip companies can breathe a sigh of relief.

_________________________________________________________________________________________________

Quote of the Day

"If we go to work at 8 a.m. and go home at 5 p.m., this is not a high-tech company and Alibaba will never be successful. If we have that kind of 8-to-5 spirit, then we should just go and do something else." - said Alibaba founder and executive chairman Jack Ma.

May 23, 2018/by MHFTR

April 30, 2018

Tech Letter

Mad Hedge Technology Letter
April 30, 2018
Fiat Lux

Featured Trade:
(RIDING THE CHIP ROLLER COASTER),
(Samsung), (SK Hynix), (AMD), (NVDA), (INTC), (MU)

April 30, 2018/by MHFTR

Riding the Chip Roller Coaster

Tech Letter

The supply side of the chip market is spectacularly volatile, rotating between supply constraints and times of overcapacity.

A good place to analyze the heartbeat of the chip market is across the Pacific on South Korean shores.

South Korea takes pride and joy in having given the world two first-rate semiconductor companies - Samsung and SK Hynix.

Samsung is just behind Intel (INTC) in total annual sales.

American consumers are more familiar with Samsung through its consumer electronics division that constructs Samsung smartphones and tablets.

Samsung's silicon business mirrors the elevated earnings results stateside, as muscular demand derived from global data center expansion devours more chips than Samsung can pump out.

Global data centers in the U.S. and Asia will sustain blistering growth levels into the second quarter.

Samsung has displayed resilience to seasonally shift in the consumer electronics segment by staunchly bolstering its relentless chip business.

Samsung is harvesting the benefits of bountiful investments from over the past decade when this overly cyclical industry was exposed to extreme shifts in worldwide appetite for consumer electronics devices.

More than 70 percent of revenue was generated by the chip division boasting quarterly revenue of $19.25 billion.

In the past, memory chip companies endured a ruthless market environment with a diverse set of players ratcheting up supply on a whim then finding demand crumbling before their eyes.

Restructuring has left the burden of supplying the next generation of technology a backbreaking burden.

Tight chip supply and the general shortage of hardware rears its ugly head in earnings reports with a slew of CEOs complaining about input prices rising worse than global warming sea levels.

In Samsung's earnings call, management groaned that "memory supply and demand fundamentals remain tight."

In SK Hynix's earnings call, it echoed that "demand and supply dynamics in the market will remain favorable."

As large cap tech expands data center initiatives and throws piles of money at autonomous cars, A.I. and cloud computing, Samsung's semiconductor division appears nearly immortal.

Chip prices skyrocketed in this sellers' market and the UBS downgrade of Micron (MU) was a headscratcher.

Analyst Timothy Arcuri turned bearish on Micron citing "cyclical memory concerns" and "big estimate cuts."

Sometimes it feels that analysts don't follow the industry they cover.

It is fair to say chip volume might face marginal cuts closer to 2019, but the pendulum hasn't even started to shift back over to that direction.

Suppliers and buyers both agree that capturing the appropriate volume of chips is the first order of the day.

In response to outsized demand, Samsung will double chip capital spending because of failing to match skyrocketing demand.

Fortifying the bull case, SK Hynix guesstimated DRAM demand for the rest of 2018 to be in the "low-20 percent" and even the injection of new funds for facility expansion is not a proper solution.

Samsung also hammered into investors that it is not in the business to drive the chip prices to zero, and the gross profit metric is more important to them than most people expect.

A goldilocks scenario could ensue with Samsung supplying enough to create price hikes and ploughing its cash back into more silicon expansion.

Korean memory chip producers are expected to enjoy a booming business during the remainder of this year as global DRAM chip demand will surpass supply.

SK Hynix also indicated that server products would supersede mobile products as data center related products are all the rage.

Korea's No. 2 said NAND demand would rise by "mid-40 percent" in 2018, which is double the rise in demand than DRAM products.

Instead of the estimate cuts on which UBS is waiting, the more likely scenario is an easing of chip constraints. The easing will last just long enough before the next massive wave of demand hits with a vengeance.

You read my thoughts - the generational paradigm shift due to hyper-accelerating technology has largely made the boom-bust cycle irrelevant.

Chip demand will go up in a straight line, and this is just the beginning.

Legend has it that demand weakness shows up every 15 years. The last one was the global financial crisis in 2008, and the one before that was the dot-com crash of 2001.

In both instances, the disappearance of demand contributed to massive oversupply. The declining prices set off a price war eradicating margins and revenue.

SK Hynix net profit was $2.89 billion last quarter, an increase of 64.4 percent YOY.

SK Hynix capital allocation layout includes a spanking new factory in Cheongju, a city in South Korea.

The insatiable demand brought on by China's quest for technological supremacy is the market the new Cheongju factory will serve.

International chip directors fret that a sudden breakthrough in local Chinese technology could ignite a supply bonanza of cut-rate semiconductors, forcing a recapitulation of the entire industry that encountered egregious oversupply issues about 10 years ago.

But China can't dump low-cost chips into the market due to technological frailties.

Notice that Chinese capital has been flirting with American chip companies for years without success.

The Chinese government even initiated an investigation at the tail end of last year because DRAM price spikes were indigestible for local Chinese companies.

The dearth of supply is not just restricted to one extraneous niche of the hardware industry, as the tightness is broad-based.

Don't look further than AMD (AMD), which specializes in GPU (graphics processing unit) products and has received glowing reviews for its Ryzen and EPYC CPU processors that boast higher-level performance than previous products.

The RX Vega series is the new line of GPUs from AMD that launched last August. Tech-enthusiast website techspot.com described finding these GPUs on sale in stores as "next to impossible."

AMD is well informed of the market outlook and NVIDIA (NVDA) notes that hardware-intensive cryptocurrency mining is stoking excess marginal demand for its products.

AMD is boosting production, but manufacturing is set back by a component shortage in GDDR5 memory, which is needed in the RX 400 card.

The RX 500 card, part of the RX Vega line, is also having delays with a lack of HBM2 memory.

Crypto-fanatics aren't the only consumers clamoring for extra GPUs; gamers require GPUs to perform at top levels.

AMD has even urged retailers to advise gamers of any outlets where they can buy GPUs because of the dearth of supply.

Gamers are being outmaneuvered for GPUs as crypto-miners usually buy up every last unit to transport to mining farms in far-flung places with cheap energy.

Hardware products cannot be produced fast enough to meet demand.

Other industries vying for a portion of chips are military, aerospace, IoT (Internet of Things) products, and autonomous cars.

Incremental supply is accruing but often the supply is added slower than initially thought. Suppliers are hesitant to double down on new factories because of past, bitter experiences at the end of a cycle.

Management monitors inventory channels like a hawk eyeing its prey, and it's clear that organic demand is following through.

After running away with 22.2% growth in 2017, the semiconductor industry is due to take a quick breather expanding in the upper teens in 2018.

A year is an eternity in technology and calling for production "cuts" in a period of massive undersupply is premature.

The claim of "cyclical" headwinds comes at a time of a new-found immunity to cyclical demand and is dubious at best.

This secular story has legs. Don't believe every analyst that pushes out reports. They often have alternative motives.

Nvidia (NVDA) reports earnings on May 10, and CEO Jensen Huang does a great job explaining the development at the front-end of the tech revolution.

Earnings should be extraordinary. Imagine if the price of bitcoin stabilizes, GPU manufacturers will wrestle with continuous quarters of strained supply.

I am bullish on chips.

_________________________________________________________________________________________________

Quote of the Day

"Focus on the 20 percent that makes 80 percent of the difference." - said Salesforce CEO Marc Benioff when asked to explain the story of his cloud business.

April 30, 2018/by MHFTR

April 6, 2018

Tech Letter

Mad Hedge Technology Letter
April 6, 2018
Fiat Lux

Featured Trade:
(THE IMPLICATIONS OF INTEL'S LOST APPLE CONTRACT),
(INTC), (AAPL), (AVGO), (QCOM), (AMD), (NVDA)

April 6, 2018/by MHFTR

The Implications of Intel's Lost Apple Contract

Tech Letter

There is plenty of turmoil in chip land these days.

Investors should not freak out, or worse, dump their Intel (INTC) shares on pain of death.

Take a deep breath ... and I'll explain why Intel is still a great stock into which you should dip your toes.

Apple (AAPL) reportedly plans to replace Intel processors in Mac computers with its own proprietary chips starting around 2020. It is useless for investors to prognosticate the worst-case scenario playing out because this announcement will not put Intel out of business.

This is not the first phase of the death of Intel and represents a fabulous entry point into a beacon of tech stability.

Apple started placing Intel CPUs into its MacBook Pro and iMac in 2006 and have enjoyed a fruitful relationship since then.

As technology mutates at lightning speed, Apple justifiably desires more control over its chip design to create the innovative end product it envisions and provide a smoother experience between mobile and desktop devices.

Intel's engineers cannot match the pace of Apple's chip improvements that use ARM-based processors, which Apple has stuck into devices using the iOS system, including the Apple Watch and the Apple TV.

Apple's latest gadgets are more powerful than its past Macs, and its future is better served by tailor-making its chip architecture for its devices.

Security will be bolstered by procuring more control over design construction.

Intel still boasts the world's most popular CPU chip line for laptops and desktop computers, and hyper-increasing global demand for silicon chips will fail to disrupt Intel's growth trajectory.

Remember that the CPU chip line is Intel's legacy business, and this lump of the operation will slowly fade away into oblivion anyway.

Apple's top-end computers will still use Intel's chips such as the iMac Pro and Mac Pro revision until they can transition to in-house chips.

This trend has staying power with Apple designing its own iPhone chips partially due to removing its heavy reliance on Qualcomm (QCOM). It also has locked horns in court for years adding tension to the relationship.

On a relative basis, iMacs are just a fragment of the overall laptop market at 7.3% during the fourth quarter of 2017.

Apple's announcement could shed $1.8 billion in annual gross profit from Intel's earnings.

Intel accumulated $62.8 billion in sales in 2017, and losing Apple's business is only a small hiccup in the bigger scheme of things.

In late 2017, Intel poached the former head of AMD's (AMD) graphics business to head up a new high-end graphics division.

Raja Koduri, the new chief architect and senior vice president of the newly formed Core and Visual Computing division at Intel, will enable the company to directly compete with AMD and Nvidia (NVDA) in the GPU market.

The competition with AMD is a big deal because AMD has caught up with Intel and could steal CPU market share.

AMD has built its own comprehensive lineup of PC CPU chips while Intel unveiled its eighth generation Core processors on April 3.

Acquiring new segments with its cash hoard is another way to move forward.

Rumors were rife with reports suggesting Intel would acquire Broadcom (AVGO) to create the biggest chip maker in the world.

This was a defensive maneuver to combat the possible combination of a Broadcom-Qualcomm merger that would damage Intel's market share in chips for mobile phones and cars.

By getting into bed with Broadcom, Intel could scrap the construction of the world's third-largest chipmaker, after Intel itself and Korea's Samsung.

Altera and Mobileye are companies Intel added to its lineup using its egregiously large cash hoard.

Mobileye, an Israeli company, provides advanced driver assistance software that prevents collisions. This purchase clearly bolsters its autonomous vehicle technology division.

Altera, a San Jose, Calif.-based company, manufactures integrated circuits.

Intel is likely to remain the dominant force at the very high end of computing.

It would be foolish to only analyze Intel based on its legacy business as it has veered into a different growth mode and is not just a chip company anymore.

Intel has been weaning itself from the secular downtrend of computer chips and strategically established an unmovable position in the massive cloud data center and server business.

The Data Center Group, Intel's second largest segment and most vital, grew 20% YOY, with $5.6 billion in revenue. Investors must keep close tabs on how this area performs because it is the lynchpin to emerging technologies such as artificial intelligence and 5G in terms of overall infrastructure.

Intel's data center performance represents the harbinger of success, and Intel is doubling down on this future growth driver.

Cloud capital expenditures will rise 30 percent in 2018 because chunks of money must be thrown at this segment to stay relevant from cutthroat competition.

Computing is at an inflection point in 2018. Priorities have rotated to the data-centric phase of development. And Intel's CEO Brian Krzanich, who just received a nice pay rise to $21.5 million per year, will fill us in at Intel's next earnings call on April 26.

To visit Intel's website please click here.

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Quote of the Day

"Quality is much better than quantity. One home run is much better than two doubles." - said former Apple CEO, Steve Jobs in 2006.

April 6, 2018/by MHFTR

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