> Cutting products that don't have 50 percent margins seems like a bad choice when their goal should be filling their advanced fabs.

It seems like a bad choice at all times. A product with a 45% margin -- or a 5% margin -- is profitable. It's only the products with negative (net) margins that should be cut.

And meanwhile products with lower margins are often critical to achieving economies of scale and network effects. It's essentially the thing that put Intel in its current straits -- they didn't want to sell low-margin chips for phones and embedded devices which gave that market to ARM and TSMC and funded the competition.

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panick21_ a day ago | parent [-]

Well, often you cut 5% margin product because you should focus your people and your capability on growing your 50% products. Sure if the 5% products are well established keep selling them, but usually in tech, you need to continue to invest in the 5% product to keep t up to date.

Intel did this for memory in the 80s. Memory was still profitable, and could be more so again (see Micron), but it required much investment.

But Intel might not be in this position, and filling the fabs by itself can defiantly be worth it.

But if you don't have the capacity in the new fab, maybe that isn't an issue, so its hard to say from the outside.

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AnthonyMouse a day ago | parent [-]

Most of this is in properly accounting for capital costs (i.e. interest on borrowed money) when calculating net margins. If you have to invest capital in something then the interest cost between when you make the investment and get the return goes into the formula, but the number that comes out at the end is still going to have a plus sign or a minus sign in front of it and that matters more than the magnitude.

It's usually not about the number of people. If you have two projects and both of them are profitable then you can hire more people and do both, even if one of them is more profitable than the other. The exception would be if that many qualified people don't exist in the world, but that's pretty rare and in those cases you should generally divert your focus to training more of them so you don't have such a small bus factor.

Another common mistake here is the sunk cost fallacy. If you have to invest ten billion dollars to be able to do both X and Y and call this five billion in cost for each, and at the end of that one of them has a 5% net margin and the other a 75% net margin, or even if the first one has a -5% net margin, you may not be right to cancel it if you still have to make the full ten billion dollar investment to do the other one. Because it's only -5% by including a five billion dollar cost that you can't actually avoid by canceling that product, and might be +20% if you only include costs that would actually be eliminated by canceling it.

	▲	panick21_ 10 hours ago \| parent [-]
		I agree, but the issue with hieing people is that your pipeline is also limited, along with other functions. So you need to heir more people to heir more people. You need more admin staff and so on. And the management needs to focus on that and build up the organization. I also don't think its not as rare as you suggest finding people. Depending on your location and industry. It takes time to add people. Good people existing somewhere on the world wasn't enough, specially before remote work. Also if you can grow your 50% margin business even a little bit faster by focusing on it, over the 5% margin business. It doesn't take that much focus for that to be the better choice. So if to achieve this 5% margin, lots of your best people work it, shifting those to the larger margin business might make sense. But I agree, if you are a mature company that has the needed infrastructure to keep that product alive then doing so makes sense. Specially because maybe in the future it could be a more important better business.