Good morning,

It has obviously been a pretty intense weekend as far as the news is concerned; I’m going to keep today’s update tech-focused as we all wait for markets to open after the U.S. and E.U. unwrapped a devastating set of economic sanctions on Russia over the weekend.

On to the update:

Russia and the Four Internets

From the Wall Street Journal:

U.S. tech giants are under pressure from both Russia and the West to respond to the conflict in Ukraine, highlighting their power over global discourse but also escalating a recent trend in which their businesses are squeezed by geopolitical events. Analysts say the conflict could accelerate the fracturing of the internet, which not so long ago was largely split between China and the rest of the world. Increasingly, big tech companies are beholden to a patchwork of local rules, leading some to believe the “splinternet” is coming closer to reality.

In the wake of Russia’s invasion of Ukraine, Russian officials restricted access to Meta Platforms Inc.’s Facebook products, alleging it blocked access to Russian media outlets. Facebook said it had been fact-checking and labeling news from state-owned media outlets and later said that it would prohibit Russian state media from running ads on its platform. Twitter Inc. also said access to its site had been limited. YouTube said it would pause the ability of several Russian channels to monetize and would limit recommendations to them, after U.S. Sen. Mark Warner (D., Va.) wrote to the Alphabet Inc. unit, as well as to other major tech companies, urging them to do more to combat Russian influence operations. Alphabet’s Google took similar measures to block monetization on its platforms by Russian state-funded media. Meanwhile, Ukrainian officials called on Apple Inc. to prohibit Russian access to its App Store.

Count me as one of the analysts! Obviously this shift isn’t new; I’ve covered it in a couple of Articles, including Cloudflare on the Edge and especially India, Jio, and the Four Internets; Russia certainly could have been classified as a fifth Internet, given the at-times adversarial relationship the country has had with social media networks, previous demands made of App Stores, and the fact that the country has its own search engine, social network, and messaging services. The primary reason not to include Russia is the relatively small size of its economy, which for a major Internet platform matters more than the relative size of its military.

This same reasoning obviously applies to the current conflict, above and beyond any questions of right or wrong, which made it inevitable that the big tech companies would weigh in on the Ukrainian side (more on this in a moment). What is interesting is that while this obviously aligns with the U.S. and European Internets, things are a bit more murky with China and India; both abstained from a U.N. Security Council resolution condemning Russia’s invasion (which was, unsurprisingly, vetoed by Russia).

China obviously has its own Internet (and its own territorial ambitions — more on this in a moment as well), which means that India is the biggest long-term opportunity for U.S. Internet companies. With that in mind, while I don’t want to read too much into this specific episode (India has a long-running relationship with Russia, who is its primary arms supplier), it is worth noting that India was one of the loudest objectors to Twitter’s suspension of President Trump’s account in January 2021 (because of the potential of a U.S. tech company controlling a politician’s voice in another country). Google et al took a relatively light touch to Russian state media so far, de-monetizing their accounts and reducing the likelihood they are recommended by their algorithms, as opposed to outright banning them (in the face of pressure to do just that); I wonder how much the knowledge that India was watching factored into that decision.

Shifts and Social Media

I found this tweet thread from Richard Fontaine about the significant geopolitical shifts that have occurred over the last few days to be very interesting; topics covered include the severity of the sanctions, Germany’s announcement that it would drastically increase defense spending, the E.U.’s decision to furnish military hardware to Ukraine, including fighter jets, and so on. This specific tweet, though, really jumped out to me:

The first part is obvious: Switzerland is famous for its neutral stance in European conflicts, so the fact it is freezing Russian assets is a big shift. It was the second part, though, that jumped out me in the context of Stratechery and my analysis about the impact of technnology: “Full neutrality has become untenable given popular revulsion at the invasion.” This strikes me as a social media story in two respects: the first is the way in which social media makes it possible to broadcast searing imagery and pleas for support to the entire world; Ukraine has leveraged this capability extensively (while Russia doesn’t even seem to be trying). The second is the way in which the audience for those messages can rapidly coalesce around a particular point of view and exert pressure on their own leaders to act.

The idea of popular pressure around foreign affairs is hardly a new one: as an American one’s mind immediately goes to the World War I sinking of the Lusitania with American citizens on board, Pearl Harbor in World War II, the Gulf of Tonkin Incident in Vietnam, and 9/11 as events that shifted public opinion in a significant way. All of those incidents, though, entailed American deaths; what is so striking about the sentiment around Ukraine is that a similar level of outrage and demands for action are being mounted without the previously needed component of there being a specific national connection. This strikes me as a new phenomenon that is very much a downstream impact of social media making everyone a publisher; one suspects it has had an impact that Russia didn’t consider, but which future would-be aggressors surely will.

Gelsinger Follow-Up

One of the four “Core Beliefs” espoused by Intel CEO Pat Gelsinger at Intel’s Investor Day presentation was that “The world needs more balanced and resilient supply chains.” Here is the relevant section:

The world desperately needs more geographically resilient supply chains. Clearly the COVID experience, what we’ve gone through with the semiconductor shortage, has caused this rapid extraordinary disruption of every aspect of the economy, driving large portions of inflation today. And over the last 30 years we saw that we went form 80% of semiconductor manufacturing in the West — the U.S. and Europe — to 80% in Asia. And all of a sudden we realized that we had the drifting of our entire supply chains for something more important to humanity than where the oil reserves are, are now highly concentrated and not in any way resilient. My moonshot is that by the end of this decade the U.S. would have gone from 12% to 30%, Europe from 9% to 20%, that we’ll have gone from 80 to 20 to 50% by the end of this decade. We’re seeing extraordinary tailwinds to help to re-establish this geographically balanced, more resilient supply chains, for the future. A bet on Intel is a hedge against geopolitical instability in the world.

Parts of this argument are clearly opportunistic: the chip shortage didn’t have anything to do with geography, and the most acute shortages were on old nodes that Intel isn’t going to be investing in. At the same time, the events of this weekend are a stark reminder that Chips and Geopolitics are a pressing issue, given China’s views on Taiwan (the only thing I’m not sure about is what direction an Intel hedge would run, as I noted in this Daily Update last fall).

Three more points on the “old nodes” question:

• First, while I think Gelsinger gave a convincing (and welcomely transparent) answer as to why Intel bought Tower Semiconductor instead of GlobalFoundries, the reality is that Intel is just going to have to live with a huge hole at 28nm in particular. There are going to be chips made on that node for years and years; TSMC is even building a new 28nm fab in Japan.

• Second, I was not convinced by Gelsinger’s answer that Intel could have maintained its IDM-only model had it not hit the wall at 10 nanometer, because Intel’s IDM-only approach was a big reason Intel hit the wall in the first place! Whereas TSMC builds a fab and operates it for years and years, making money on a fully depreciated asset, Intel would quickly abandon old nodes and repurpose as much of its equipment as it could on the new process (for which it reaped huge margins); it could pull this off because its design teams worked hand-in-hand with its manufacturing teams in a fully integrated process.

  This is also why EUV presented such a conundrum: yes, using EUV for Intel’s 10 nanometer process would have been early — too early, Intel claims — but it also would have meant a nearly clean sheet design with all new equipment, which would have screwed up Intel’s up-front margins; with a foundry business Intel can now make that money up in the long run once that EUV equipment is depreciated.

• Third, my co-host John Gruber made an excellent point on Friday’s episode of Dithering: Intel’s approach made all kinds of sense when you remember that the company was always producing chips that were simultaneously the fastest in the world and also never fast enough. When the leap from a 486 to a Pentium is so huge, why would you even consider keeping old processes around, particularly when there was so much demand and money to be made sticking to the cutting edge of Moore’s Law?

  TSMC, on the other hand, started out so far behind that its business from the beginning was serving the long tail; the depreciation model always made sense with their business, long before the willingness to take on the cost of EUV (with assistance from Apple) was justified by the knowledge that the cost would be spread out over many years.

This also plays into why Intel didn’t split (but, if Gelsinger has his way, eventually will): Intel Foundry Services just doesn’t have the base of depreciated assets that make it viable to invest on the cutting edge — it needs the margins that Intel’s own chips can provide (even if some of those margins come from chips made by TSMC). Things might look different in a decade if Gelsinger pulls this transition off, but, well, that is the conditional that matters for all sorts of things.

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