Marketplace - Inside Intel’s issues

Episode Date: September 23, 2024

There’s a good chance you’ve used a computer powered by Intel — it’s a longtime Silicon Valley giant. But rival chipmaker Qualcomm is looking to get bigger. In this episode, why Intel, legendary but past its prime, may be ripe for takeover. Plus: Southwest Airlines faces pressure from an activist investor, talking to a human customer service rep has become a privilege and federally sponsored free COVID tests are back.    

Hi, I'm Kyle Rizdal, the host of How We Survive. It's a podcast from Marketplace. In 1986, before I was a journalist, I was flying for the Navy. Mr. Gorbachev, tear down this wall. It was the Cold War and my first deployments were intercepting Russian bombers. Today though, there's another threat out there, climate change. This could be the warmest year on record. Climate change is here.

Temperatures here are warming faster than anywhere on earth. And while the threat seems new, the Pentagon's been funding studies on climate change since the 1950s. I think we will put our troops and our forces at higher risk if we don't recognize the impact of climate change. This season, we go to the front lines of the climate crisis to see how the military is preparing for the threat. Listen to how we survive wherever you get your podcasts.

On the program today, Corporate America. Remember them? From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdal. It is Monday today, the 23rd of September. Good as always to have you along, everybody. It has been, I believe, a good long while since we've led this program with corporate America. Lots of interest rate and inflation and consumer news, which, given everything, makes sense.

But companies matter too, you know. So that's where we begin today. It is never a good thing when corporate leadership warns of difficult decisions. That's a quote that are going to have to be made. Bloomberg had the story that Southwest Airlines is trying to improve profitability because it's under pressure from an activist investor. Elliott Investment Management is pushing the airline

to find a new CEO and, overall, it's bored to improve the company's finances and boost its share price. Southwest, it's relevant to note here, is far from alone in dealing with that kind of pressure. As Market it's relevant to note here, is far from alone in dealing with that kind of pressure. As Marketplace's Henry Epp explains, it's right out of the Activist Investors Standard Playbook. Activist investors have a very straightforward motive, says Marguerite Weersema, a strategic management professor at UC Irvine.

They all want to see the stock price go up. That's the main general objective. But they're not just going to sit around and wait for that. They're going to try to make it happen. First she says by doing a deep dive. They do a lot of research on the company. They point out the shortcomings of the firm relative to its competitors in the industry. That last part is key says Nell Minow, vice chair at Value Edge Advisors. She was an activist investor in the 90s.

If the company is doing poorly when its peers are doing well, then you've got something to work with. Because she says that's an indication that the company could be doing better. Once they've got the evidence that the targeted company is falling short, they go make their case to other investors. We would reach out to large investors, usually pension funds. And we found that like us, they felt that the company needed to make some changes. With that backing, they go to company leaders with demands.

And a lot of times everything gets worked out behind closed doors, says Greg Taxon at Spotlight Advisors. But at the other end of the spectrum, there are campaigns like the one at Southwest. These more public spats, which can involve things like a contested election, But at the other end of the spectrum, there are campaigns like the one at Southwest. These more public spats, which can involve things like a contested election for the board seats at the company. Because that's generally the limit of shareholders' actual influence. But the larger context is, what direction should the company go in and has the board

either made mistakes or failed to get the company on the right path. Taxon says companies have actually been winning more of these votes lately, in part, he says, because they've gotten more transparent about their shortcomings and how they plan to fix them. I'm Henry App for Marketplace. There were reports over the weekend that the chip giant Qualcomm is interested in buying Intel, also, as you know, a chip giant Qualcomm is interested in buying Intel, also as you know, a chip giant.

Both companies are keeping mum about what might be happening, but this would be a very big deal. Marketplace is Stephanie Hughes, looks at what made Intel, Intel and where it sits in chip world today. The chip that's central to Intel success is called the Central Processing Unit, or CPU. Intel released its first version in 1971, says David Laws, the semiconductor curator at the Computer History Museum

in Mountain View, California. It did take off as basically a simple controller and everything from traffic lights to cow milking machines eventually became the central processor of major computers. You can think of CPUs as the computer's brain. Intel sells them to the makers of personal computers and to companies that rely on big data centers, says Angelo Zeno, an equity research analyst at CFRA. For years, they have kind of been perceived as the most important component of a device.

But now, more companies want their devices to have AI capabilities. And for that, Zeno says you need a different kind of chip called a GPU or an accelerator. Essentially accelerators kind of help do exactly what the word is and that is accelerate the kind of computing power of a device out there. This would be the computer's brain on a mega dose of coffee. Zeno says Intel doesn't specialize in making GPUs. They continue to lag on that side of things. In addition to missing the shift to AI, Zeno says Intel has also lost market share on its

bread and butter, CPUs. So now Intel is leaning hard into manufacturing and has a plan to make chips for other companies, not just its own designs, says Bloomberg intelligence analyst Kunjan Chobhani. That would open up a massive new market for them. Chobhani points out Intel's also gotten billions in chipset funding to help manufacture chips in the US in factories called foundries. They can build a CPU for a customer, they can build a GPU, so they don't have to be limited to a certain type of chip.

But these factories require a lot of liquidity to build. And Jabbani says, while Intel's struggling with that, makes it a potential takeover target. I'm Stephanie Hughes from Marketplace. I thought about starting us off today with a look at the week to come in economic data. But then I decided I wouldn't do that to you. You're welcome.

There is, though, just one thing I will mention. Friday is going to bring us the Fed's preferred measure of inflation altogether now, because I know you've heard me say it, the Personal Consumption Expenditures Price Index. That is the biggie. Wall Street today, you know, was fine for a Monday. We'll have the details when we do the numbers. Among the worst kept secrets in the macroeconomic world was that the Federal Reserve was going to cut interest rates. I mean, you can't even call it a secret, really.

Jay Powell literally told us what the central bank was going to do. But because of that, and because of all the telegraphing that Fed officials had been doing the past couple of months, markets knew the Fed was going to change economic gears. And nowhere was that more clear than in the mortgage market, where rates have been falling for nigh on a year now. It is 6.09% on average for a 30-year fix. That is from Freddie Mac. That is still, though, a far cry from the 2.5% to 3% we saw during the first couple of years of the pandemic, and a whole lot of would-be home buyers are wishing they could

go back in time, minus the pandemic part, of course. But what if they can? Marketplace's Amy Scott explains. Earlier this year, Hassan and Macy Hader were renting a three-bedroom apartment in St. Petersburg, Florida when they learned that Macy was pregnant. They both worked from home for a homeowners insurance company. And we started thinking, okay, well, we're going to need a little more space. We got to start thinking about, like, are we in a decent school area? So they started shopping for a house, their first. But with high prices and high interest

rates, they got quotes of around 6.75%, they quickly realized they couldn't afford more space. So I just kept looking into like, is there some way we could get a low interest rate? Like is that even a thing? So I was just Googling low interest mortgages. And he came across a startup called Roam, R-O-A-M, one of a few companies that help buyers find properties with assumable mortgages, meaning the buyer can take over the seller's loan with the same terms, at interest rates as

low as 2%. I was like, is this a scam? Is this real? I was asking people, I was calling family, I was like, have you guys ever heard of this? It wasn't a scam. Ranak Singh is founder and CEO of Roam. He says, assumable mortgages were popular back in the early 1980s when mortgage interest rates shot up as high as 18%.

But they fell out of favor when rates went back down. And now, assumable mortgages are making a comeback because people can't afford to be able to purchase at today's prevailing rates. Only government-backed mortgages from the VA, FHA, or USDA are assumable. Conventional mortgages typically have to be paid off when the house is sold. But Singh says about a third of the mortgages issued in the ultra-low-rate years of 2020 and 2021 are eligible. The trick is finding them. Unfortunately, 98% of sellers don't actually know that they're eligible for the opportunity

to include their mortgage in their home sale. And, furthermore, buyers don't know how to find these homes, and agents don't know how to coordinate the purchase. That's where Roam comes in. The company merges mortgage data with real estate listings to identify homes for sale with assumable mortgages, and then helps buyers through the process, for a fee, 1% of the sale price. So far, Roam's listings cover just six states—Arizona, Colorado, Florida, Georgia, Texas, and Illinois. That's where Hasan and Macy Hader eventually started searching to be closer to family.

And it was just like every house we saw checked every box. I mean, it was crazy. It was like, we could totally afford this. They found a house in Huntley, Illinois, in suburban Chicago, with a 2.6% interest rate. But there was a catch. The way the assumption works is you have to cover the difference between the purchase price and how much is left on the mortgage. The way home values have soared in the past few years, that difference can be sizable.

For the haters, it was $127,000. They put down as much cash as they could and got a second mortgage with a 9% interest rate to cover the rest. With taxes and insurance, their monthly payment for a five-bedroom house worked out to about $3,400. It was still made sense dollar-wise. Yeah, it was still cheaper than renting in Florida. Now, it did take 72 days to close. The average for a traditional deal is less than 45 days. That's a potential deterrent for both buyers and sellers. Ted Tozer is a former mortgage banker who's now a fellow at the Urban Institute.

He says mortgage servicers don't love assumptions because under government rules, they can't charge enough to cover their costs. So right now you're in a situation where lenders will do them because they're required to do them, but they're probably not going to get high priority, which means it could take months to get an assumption processed. As interest rates come down, Tozer says demand for assumptions will too. As for how companies like Rome will stay in business, Singh says he has other ideas, including portable mortgages that stay with the owner instead of the house.

I'm Amy Scott for Marketplace. If you've been on the phone with customer service as of late, it is way more likely than not that your first interaction was with a bot or maybe some kind of automated voice menu telling you to press some number to get the answer to whatever it is you're calling about, which of course never number to get the answer to whatever it is you're calling about which of course never Actually get you the answer Long long gone are the days you'd be greeted by an IRL human person who might actually be able to help you Emily Stewart wrote about the latest developments in customer service calls for business insider. It's good to have you back on the program Thanks for having me. So why is it so hard to get a real life human being on the phone and also is that ever going to change?

I mean, I wish I had a better answer or a happier answer to this question. I mean, the obvious answer is that it's hard to speak to somebody because a company paying somebody to speak to you costs them money and they would rather not spend that money. And so we've really seen, you know, over the past several years, the death of the customer service hotline companies have shut down, their call centers, they don't want to pay people. And so I think I'm not telling you anything new,

but we've all kind of been stuck in a situation where you're dealing with an army of bots and automated systems that seem designed to prevent you to ever speaking to a human. Okay, so there is a generation or two in this country and I will date myself a little bit and put myself in one of those two generations, which has an expectation to be able to talk to a person on the phone if I've got a customer service complaint. The kids however might not have that expectation

and are the companies banking on that? I mean to some extent a lot of Millennials and certainly Gen Z will say that they don't want to talk to a person, that they're actually fine talking to a chatbot, they don't want to speak to somebody. That being said, one thing that I was looking at recently was this research out of McKinsey that found when it comes to premium services and products, Gen Z wants to speak to a person. Let's say they have a fancy American Express card. Basically, they're calling it the same rates as Baby Boomers and more than Millennials.

What McKinsey thinks is going on there is that they see the ability to call someone as a concierge like service they let them skip to the front of the line so basically for Gen Z like the phone is fancy it's you know I'm paying $600 for this credit card $700 for this credit card a year I should be able to call somebody and they fix my problem for me. And and do companies get that I mean are they are they amenable to that? I think so I mean to some extent you kind of see this in different parts of business in the economy this is kind of I think so. or a $5 agent assistance fee if you want to pay your bill on the phone. If you want to speak to a person. Now, what these companies say is there are plenty of other ways to pay your bill, but if maybe you're an older person, you want to speak to somebody.

Yahoo will charge you, but anyway. Yeah, not to be mean to Yahoo, but even there are certain financial investment firms that will say, okay, if you want access to a specialized phone advisor and you want to speak on the phone, you have to give us $50,000 to invest with us first. And so this is a way that companies have kind of said, okay, listen, if you insist on speaking on the phone, you have to kick in a little bit and maybe we'll say it's a premium service. And with airlines, we see this a lot, right? People with higher status,

they used to be able to call a fancy number. Now they don't even have the special number. The minute you pick up the phone, if you're a customer with status, you get routed to better service. Yep. So I might, if I had a thorny issue, I might pay like five bucks maybe to talk to an actual person

You what would you do? I? Mean it depends on how how motivated am I I think it's my question right if it's I've ordered I don't know a rug and I need to get through to FedEx or whoever I've ordered it for and the rug is $500, I would probably kick in $10. But also if it's something where it's like, I just don't care anymore, I'll dispute this on my credit card bill or whatever,

it's a different story. Emily Stewart at Business Insider. Emily, thanks a bunch. Thank you. Should you miss something on the air or just want to hear it again, we totally get that, which is why we have a podcast. Marketplace.org or the platform of your choice, just follow us there. Coming up... Just really conserving our energy for weekend sales is what's happening right now.

Hey, you gotta rest up, right? But first, sure, why not? Let's do the numbers. Dow Industrial's up 61 points today, about two tenths percent, finished at 42,124. The Nasdaq up 25 points, about a tenth percent, 17,974. The S&P 516 points to the good, three tenths percent, 57 and 18 there. We heard from Stephanie Hughes about what exactly Intel makes and why it might be at a takeover.

Target Intel charged up three and three tenths percent today Qualcomm which might want to buy it lost one and three-quarters percent competitor Nvidia rose two tenths of one percent we heard from Amy Scott about assumable mortgages well in mortgage related stocks Walker and Dunlop gained 2.2 percent today lending tree drooped get it lending tree drooped three and two tenths percent. Died the park gets the credit there. The state of California is suing Exxon Mobil, saying that the company has been polluting the state

and misleading the public about how recyclable plastics really are. Exxon Mobil up about 1.8% and other petroleum stocks. Chevron grew one and three tenths percent. Today, Royal Dutch Shell closed up about a half percent. Bonds fell. The yield on the 10-year T-note rose to 3.75%. Now why, you might ask yourself.

Are yields going up when the Fed is lowering interest rates? We should probably do that explainer, right? You're listening to Marketplace. Some of the toughest moments we'll experience in life often come with the hardest financial decisions. Like how much to spend when your pet is dying. Or what to do if you uncover a loved one's financial secrets after they've passed.

It's like having this albatross that's like monkey on your back that you don't want amongst everything else. I'm Rima Grace, host of This Is Uncomfortable, a podcast from Marketplace. This season, we've got a wide range of stories about life and how money messes with it, including the unexpected ways money can shape our journeys through loss and grief. Listen to This Is Uncomfortable wherever you get your podcasts. This is Marketplace. I'm Kai Rizdal. A story now about supply chains and COVID and maintaining supply in the face of fluctuating

demand. The government, as you might have heard, has decided to re-up its program that will mill you free COVID tests. Standard deal, four tests per household. covidtests.gov is the website. It's supposed to be live before the end of the month. I did try it today. Got that could not connect to server malfunction,

so maybe give it a couple of days. But the new offer is a chance for people to restock ahead of respiratory virus season and holiday travel. And it is perhaps not coincidentally support for the test manufacturers that are dealing with uneven demand. Marketplaces of Anamar has more on that. Rapid at-home COVID tests were once a hot commodity.

Now some of us let them pile up in our medicine cabinets until they expire. Julie Swan, an expert on healthcare supply chains at North Carolina State University says that boom and bust cycle is familiar for companies that manufacture emergency supplies. And that makes it difficult to sustain the operation for tests, for treatments, even for vaccines. But the market for test kits has been especially volatile as the virus and our attitudes about catching it have shifted, says Gigi Granval at the Johns Hopkins Center for Health Security. I think people are a little bit more laissez-faire.

And less and less likely to test when they feel sick. It's not a huge demand like it used to be. Demand for tests does still surge, mostly around the holidays or regional uptake in cases, but without more certainty. It's hard to wanna invest in the manufacturing of that device. Amy Kelbic, Health Policy Director with the consulting firm McDermott Plus, says some companies that sprung up

to meet peak pandemic demand have scaled back or closed down. Government orders have helped steady business for others, particularly now that insurance coverage for home tests has gotten spotty. It really is the federal government that is most likely the biggest customer for a lot of these testing manufacturers. Which is a lot less risky than relying on the market, says Gigi Granvall at Johns Hopkins. You want to make sure that the tests are there when you need it. And that manufacturing capacity is there for

other tests we don't yet know we'll need. I'm Savannah Marr for Marketplace. On the Economic Data Calendar for the week, on top of that PCE inflation number I mentioned up at the top of the program is August consumer spending. It's courtesy of the Department of Commerce and it will be here on Friday. But why wait for official data if you've got another way to find out what's going on? Which we do. We've called one of our retail regulars, Annie Lang Hartman, who runs the stationery and gift retailer Wild Letty

in Lenaunah County, Michigan, to see how things have been going. We're really, honestly, very on par with what we did last year. There hasn't been any significant growth as far as sales, but there are some other metrics that I've been taking a look at that we have been growing in. that I've been taking a look at that we have been growing in. Right now we're up 30% in online sales. Our returning customer rate's up 25% and our average order value is also up. That is telling me that the marketing that we're doing, emailing that we're doing, is paying off.

Right now in September, I feel like every year there's a dip in tourism. Being busy every day in the summer versus being really busy every weekend in the end of September and into October is where we're at. So, um, just really conserving our energy for weekend sales is what's happening right now. Next on the to-do list for the business is making sure our retailers have everything they need for Christmas sales just like us and then I can not do the more forward-facing things I've been doing helping in the stores but doing things on the back end so actually doing the creative work for the business which is always my favorite time of year because I right now I have a backlog of you know basically a year's worth of year because I, right now, I have a backlog of, you know, basically a year's worth of ideas

that I can start working through, which is actually really fun. That's why I have my business. Being a small business owner and seeing things like the Fed cut interest rates, your immediate knee-jerk reaction is, oh my gosh, that's gonna be great, but I'm just gonna keep doing what I'm doing, which is just working really hard to make sure our business keeps growing every year and my

employees are taken care of and we have products that our customers love. products that our customers love. Annie Lang Hartman, Wild Letty is the store, Lelandaw County, Michigan is the place. Here I am again, huh? This final note on the way out today. We started with corporate America, we end with corporate America. Boeing has made what it says is its best and final offer to its 33,000 striking machinists, a 30% raise over the four years of the deal. That is up from 25%. End of the day Friday is the company's deadline.

Our daily production team includes Andy Corbin, Elise Haassen, Maria Hollenhorst, Sarah Leeson, Sean McHenry and Sophia Terenzio. I'm Kyle Rizdall, we will see you tomorrow everybody. This is APM. Some of the toughest moments we'll experience in life often come with the hardest financial decisions. Like how much to spend when your pet is dying. Or what to do if you uncover a loved one's financial secrets after they've passed. It's like having this albatross, this like monkey on your back that you don't want amongst everything else. I'm Rima Grace, host of This Is Uncomfortable, a podcast from Marketplace.

This season, we've got a wide range of stories about life and how money messes with it, including the unexpected ways money can shape our journeys through loss and grief. Listen to This Is Uncomfortable wherever you get your podcasts.