Boeing, Intel Woes Are America's Too

"A generation ago, any list of America's most admired manufacturers would have had Intel and Boeing near the top.

Today, both are on the ropes. Intel has suspended its dividend, slashed jobs and capital spending, and is a takeover target. Boeing has been hobbled by investigations into crashes and a midair mishap, production delays and a strike. A breakup or bankruptcy are no longer unthinkable.

In the past five years the combined market value of the two has fallen by half. 

More than just an ordeal for shareholders, this is a potential disaster for the nation.

The U.S. is in a geopolitical contest with China defined not just by military power but economic and technological prowess. Leaders from both U.S. political parties say they're on the case, pushing for tariffs and subsidies.

Whatever their merits, these measures don't address the fundamental problem that Boeing and Intel represent. The U.S. still designs the world's most innovative products, but is losing the knack for making them.

At the end of 1999, four of the 10 most valuable U.S. companies were manufacturers. Today, none are. The lone rising star: Tesla, which ranked 11th.

Intel and Boeing were once the gold standard in manufacturing groundbreaking products to demanding specifications with consistently high quality. Not any longer.

Neither fell prey to cheap foreign competition, but their own mistakes. Their culture evolved to prioritize financial performance over engineering excellence.

Intel passed on making the chips for Apple's first iPhone, thinking it wouldn't be profitable enough. It was late to adopt the latest technology for etching the tiniest circuits, and it missed the boom in artificial intelligence.

Boeing thought it would be cheaper and faster to add more efficient engines to its bestselling 737 with the help of software rather than completely redesign or replace the plane. That contributed to two fatal crashes. Outsourcing of its supply chain and an exodus of experienced machinists during the pandemic contributed to quality problems and delays.

Since their problems are of their own making, it's tempting to leave them to their fates. Investors would likely shrug: Intel is worth less than $100 billion while Microsoft, Apple, and Nvidia are together worth $10 trillion.

The problem: those tech giants' software and devices are useless without the advanced semiconductors whose fabrication they contract out, especially to Taiwan Semiconductor Manufacturing. If China makes good on its threat to subjugate Taiwan in the coming years, the entire U.S. tech sector could be at Beijing's mercy.

TSMC is building fabrication plants in the U.S. with the help of $6.6 billion in subsidies from the Chips Act. But it will be years, if ever, before U.S. tech companies are no longer reliant on Taiwan. Intel is the only U.S.-based company capable of competing with TSMC, and it is struggling to do so.

While Elon Musk's SpaceX has outclassed Boeing when it comes to space transport, there are no homegrown alternative suppliers of large commercial airliners. Without Boeing, that business would go to Airbus and, eventually, China's state-owned Comac.

The loss of either company would have industrywide repercussions. Each supports a multilayered ecosystem of designers, workers, managers and suppliers. Once that ecosystem moves offshore, it is almost impossible to bring back.

Rob Atkinson, president of the Information Technology and Innovation Foundation, notes Boeing is the largest U.S. manufacturing exporter, and "is also one of the most engineering-intensive companies in the world, so it is a large R&D spender." Intel's failure would deal a body blow to U.S. efforts to shore up the semiconductor ecosystem and reclaim market share from East Asia.

So, much as national leaders would like to ignore these companies' woes, they can't. National security dictates the U.S. maintain some know-how in making aircraft and semiconductors.

Both political parties have bought into the idea that manufacturing is special and thus deserving of public support. That begs the question: which manufacturing, and what kind of support?

The goal of manufacturing strategy should not be just producing jobs but great, world-beating products. Washington can help by encouraging the world's best manufacturers to put down roots in the U.S. That forces American companies to raise their game and nurtures the workforce and supplier network that serves all companies.

The Chips Act, by encouraging TSMC and Samsung to build or expand fabs in the U.S., indirectly helps U.S.-based Intel, Global Foundries and Micron (all of which have received subsidies).

In the early 1980s, with domestic automakers reeling from Japanese imports, President Ronald Reagan negotiated export restraints on automakers like Toyota which went on to set up assembly plants in the U.S. The benefits went beyond the workers they hired and the consumers they served; Detroit was forced to adopt Toyota's lean manufacturing and continuous improvement system.

In the final analysis, manufacturing greatness is foremost a mission for the companies' leaders and shareholders. They could learn from Musk's willingness to sleep on factory floors and prioritize product development over earnings per share. When Boeing said last week it would sell new shares to shore up its finances, the stock rallied -- a sign that investors understand its future is at stake.

Labor has a role here, too. Boeing's union, whose leaders reached a new, enriched deal this past weekend, blamed the company's woes on management -- as did the auto workers who struck Detroit last year. But they are all in this together. Workers should weigh not just what Boeing pays in the next few years, but whether it will be around a generation from now." [1]

Western Europe knew how to manufacture things. The blowing up pipes of cheap Russian gas and American subsidies for manufacturers in America are killing Western Europe, the only allies who were able to function in this field and resist China. Soon, very soon we will be done with this Western Europe's ability. Thank you, Mr. Biden.

 

Globalization cannot be reversed. The West does not have the personnel required for production. Musk sleeping on the factory floor won't help here. If the West isolates itself with high tariffs from the rest of the world, the Western economy will degenerate. It will be time to sell shares of Western companies and buy houses.

1. U.S. News -- Capital Account: Boeing, Intel Woes Are America's Too. Ip, Greg.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Oct 2024: A.2.