[kjs3]

Just because those nations aren't considered "rich", it doesn't mean they're penniless. Russia has a long history of profitable trade to that list of countries. They sold US$1.1 billion in goods to the Syrians alone in 2010. So the idea that they couldn't build an industry selling a good that those countries can't or won't buy from the West doesn't hold water.

[JoeAltmaier]

Its a question of opportunity cost. Make a CPU to sell to Syria - you might make a few bucks (though I doubt it); could you have done better? Surely.

As for trade stats: the US SHOE industry is an order of magnitude larger than that - $20 billion annually {http://statisticbrain.com/footwear-industry-statistics/}. 1.1 billion seems like a big number until you consider: a chip manufacturing plant costs more than that.

[kjs3]

Took Econ 101 and got a B-. Got it. This isn't a simplistic, classical microeconomic analysis.

First, just because a multi-billion dollar market exists for a product, that doesn't mean that there aren't highly profitable, multi-million dollar markets that exist in the same industry. This is especially true when the "market" is impacted by things things like trade policy asymmetry, sanctions, embargoes and national policy.

Second, there's no reason to think this "market" is motivated solely or even primarily by revenue/profit in the classic sense. If you add the "benefit" of poking the West in the eye, and the national pride angle, the alternative market decision isn't "I could make money doing other things with this money". The whole history of the Cold War proves this out.

There's a reason MiGs and AKs are common as cockroaches.

Third, it doesn't matter what a fab costs to build, unless you want to build one. This is an arbitrage issue; there's plenty of non-Western places that have first-world fab capacity that would be more than happy to crank out Russian IP all day long. More importantly, they have local, non-Western talent to do the heavy lifting associated with tailoring Russian IP to fine geometry fabrication.

Ultimately, this is a political, not economic decision. And it doesn't matter if Intel has a bigger/faster/stronger processor (I agree with you that it will). It matters that the Russians (just like the Chinese have done for a decade with Loongson) can legitimately say "we have a locally produced alternative to the Western hegemony". And let's not forget that the Chinese have taken what amounts to a licensed MIPS derivative with a fraction of Intels R&D budget and produced top-10 TFLOP supercomputers. Also see: ARM.

And I want to point out something that I don't see mentioned that much. If you read the proceedings of HotChips or one of the other conferences, not all, or even most, of those papers are being submitted by Westerners. While they work mostly for Western companies now, it's not like we're the only source of innovation in the world. You only have to look to ARM to see how a modest investment by wildly talented engineers can toss the market on it's ear over time.