313: Intel's Very Bad Q2, AMD, Nick Howley on Transdigm, Topicus, Texas Instruments, NuScale, F-4 Phantom vs F-35, and Mad Men Final Season

“I feel the need… the need for speed!”

There’s nothing to writing. All you do is sit down at a typewriter and open a vein.

—Sol Stein

🤞🎲🍀🏗 Friend-of-the-show and supporter Cedric Chin (💚 🥃 🇸🇬) has a thought-provoking thread about some of Peter Thiel’s ideas on how framing ‘luck’ differently can lead to very different levels of effort and commitment (and thus outcomes):

“I think this is the challenge all of us have. It’s to work towards a future that’s not just static like a dead channel on tv, but that’s a definite future and that’s a radically better future that can motivate, coordinate and inspire a number of people to change the world.” [...] 

The basic setup: how do we think about luck? In the past, people saw luck as this thing to overcome. Today, we think luck is the natural order of things.

As a result, people in the past were more likely to make ambitious plans and then try and achieve them, overcoming the vagaries of luck in the process.

Today, we make less ambitious plans and instead talk about ‘making bets’ and ‘hedging risks’ and ‘diversifying our portfolios’.

If you believe in the former, you try to build crazy ambitious things and maybe you succeed, and it becomes a self-fulfilling prophecy.

If you believe in the latter, you go into finance and manage a portfolio and maybe you succeed, and it becomes a self-fulfilling prophecy.

It’s a subtle argument — and maybe I’m misunderstanding it — but I can definitely see how thinking that “I can definitely do this, I’ll move mountains and walk through walls to get it done, nothing will stop me” probably leads to a higher likelihood of success than “Well, I’m guessing we have about 10% chance of doing it, let’s give it our best try, but if it doesn’t work out, it’s fine, it was the most likely outcome anyway and we knew it probably wouldn’t work so we have all these other bets”. (I’m not thinking of passive investments, I’m thinking of the people who build things directly)

The latter may be correct as far as the probabilities go, but like Soros’ reflexivity, the way you go into the task will influence the outcome.

🏃‍♂️👟 🔁 🧠 Last Friday, I ran my usual loop around the neighborhood without walking at all for the first time. (so far I always run the same route because I like to keep most factors constant to have a better yardstick)

I now realize that doing it was almost entirely psychological.

I didn’t feel more physically ready than the previous few times. In fact, I slept badly the night before, so I felt worse.

But I realized I was always switching into a walk at around the same spot, and that with repetition, it had become a habit.

This time, I decided from the very start to just keep going. Every time I felt doubt creep up in my mind — oh, not today, you don’t feel well, do it next time instead — I immediately brushed it away and visualized myself getting to the end running.

I passed my usual walking mark and kept going. It was fine. In fact, I could probably have kept going some more after the finish line, which underlined just how much of a mind thing running is.

I mean, I *knew* that, but it’s one thing to hear about how sports are largely psychological on podcasts, it’s another to push through it yourself. It was a little breakthrough moment for me, and now I’m curious to see if I can start to expand the loop and start doing longer distances.

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Business & Investing

Intel’s Q2 😬

You know what they say about turnarounds… they’re easy and quick and painless.

"Intel’s revenue declined 22% year over year and missed consensus by 14%" 😬

Gross margin of 44.8%, down 15% YoY ("620bps below april outlook") 😬

EPS down 79% YoY ("$0.41 below April outlook") 😬

Datacenter and AI group: "Operating Income down 90%" 😬

Client Computing Group: "Operating Income down 73%" 😬

Full year 2022 outlook: EPS down 57%, gross margin down 9.1% 😬

I mean, I get it, they’re trying to get from here to there, and the road in between is going to be bumpy.

There’s no smooth path for Gelsinger and Intel. 🚧

But that’s some pretty big bumps, and not in a way that seemed to be predictable to management or the market (the stock is down almost 45% from its peak, down the most since 2009.) And if you’re going to throw the kitchen sink and do a massive investment cycle (having to beg for subsidies), why not cut the dividend?

Meanwhile:

Almost nobody would've believed the above possible over the past 20+ years...

Related: Alec Stapp points out the obvious, “The massive subsidies for US-based semiconductor manufacturing are going to be wasted unless policymakers also expand STEM immigration.” INTC 0.00%↑ AMD 0.00%↑

Interview: Nick Howley on Transdigm post-2006 🛩

Part 3 of the 50x Podcast series on Transdigm, and the second half of the interview with Nick Howley:

• 🎧 TransDigm: Operator to Capital Allocator with Nick Howley

I found his description of the succession process to find a new CEO to replace him fascinating. I think that was my favorite part because we don’t usually get the backstory and thought process that goes into these very important, company-defining decisions. TDG 0.00%↑

🇪🇺 Topicus 2022 M&A (so far) & 🌸 of Business Units 💶

Friend-of-the-show Nicoper has another great graph related to Constellation Software (check out his recent magnum opus).

Note: “Sygnity [in Poland] will contribute slightly less since part is non-controlling interest, unless something changes”.

Here’s Nicoper’s ‘flower’ graph for Topicus:

Source of the revenue estimates.

For more on Constellation Software:

• 🎧 Going deep on Constellation Software with Mostly Borrowed Ideas (MBI)

Texas Instruments Share Repurchase Tracker 📊

Every company should have a page on its investor relations website that looks like the Texas Instruments share repurchase page:

Give us share outstanding each year, net change (issuance or repurchase) in absolute number, and the dollar amounts of repurchases (if any) over as far back as available, all in one convenient spot. TXN 0.00%↑

h/t Friend-of-the-show and OG supporter (💚 🥃 🎩) Nick Ellis

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Science & Technology

NuScale: US regulator will certify small nuclear reactor design for first time ☢️🇺🇸

The U.S. Nuclear Regulatory Commission (NRC) announced:

NuScale submitted an application to the NRC on Dec. 31, 2016, to certify the company’s small modular reactor design for use in the United States.

The NRC staff met its schedule goals for completing its technical review. The design uses natural, “passive” processes such as convection and gravity in its operating systems and safety features, while producing up to approximately 600 megawatts of electricity.

The SMR’s 12 modules, each producing 50 megawatts, are all submerged in a safety-related pool built below ground level.

Very good, and only 6 years after the application was submitted.

Interesting comment on Hacker News:

So each module is a little smaller than the reactor of the 1960's era submarine I served on and is based on the same pressurized water technology. 

I was a "nuke" so had to go in the reactor compartment several times. As far as I can remember, the reactor was about 10 feet in diameter. We went in the shipyard for refueling after the lifetime of the rods, which was 15 years. I could never understand why we didn't build these for civilian use (cost I figured) but now we will. Cool.

Refueling once every 15 years! Not a bad “driving range”…

The NRC has previously certified six other designs: the Advanced Boiling Water Reactor, System 80+, AP600, AP1000, the Economic Simplified Boiling Water Reactor, and the APR1400.

Two Canadian provinces, Ontario and Saskatchewan, are also in the process of getting SMRs, having selected the GE-Hitachi BWRX-300 (300 MWe).

Why was the F-4 Phantom from the 1960s faster than the modern F-35? 🤔

In the immortal words of Maverick and Goose: “I feel the need… the need for speed!” 🏐

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The Arts & History

Mad Men final season thoughts 🚬🥃

Random thoughts:

• Don’s fight against his ego as he loses everything is quite something… and how I love to hate Lou! Scout’s Honor!

• S7E6: ‘The Strategy’. So good. Probably the best in S7 so far. So many character moments that move things along. Don’s in such a different place than ever before in the series. Great writing, love the late work scene with Peggy and Frank Sinatra playing in the background…

• S7E7: Is just as good if not better. Framing it around Apollo 11’s lunar landing is genius.

• Getting close to the end of the season. Eps 8 & 9 weren’t as good as 7, but still very strong. I liked Stan’s B plot with Pima, the push-pull of trying to be commercially successful and also an artist. Don has grown, but not necessarily those around him and/or they don’t believe his growth (Buffett’s thing about a reputation taking a lifetime to build and a moment to destroy)…

Only a few more to go! Then my wife & I plan to watch ‘Treme’ (HBO, 2010, David Simon). It’ll be a rewatch for me and first time for her (same as with Mad Men).