Sept. 21, 2020 (Courtesy of the Jacksonville Business Journal)
A stunning slip in Intel’s manufacturing development reverberated through Wall Street on Friday, as the chip industry contemplated a decisive shift in leadership in the world’s most advanced manufacturing technology.
The US chipmaker warned the day before that it had fallen a full year behind in the process technology required for its next generation of chips, though design changes in the chips themselves would limit the delay in the launch of new products to six months.
Following a rare lapse in moving to the previous generation of chipmaking technology, the latest slip marked a clear end to Intel’s long-running lead in global chip manufacturing, while handing Taiwanese chipmaker TSMC a significant edge.
Intel’s chip fabrication plants had long represented the high point for US advanced manufacturing, and were a sign of the country’s dominance in a key technology, said Ambrish Srivastava, an analyst at BMO. “It’s not the case any more,” he added.
The shock sent Intel’s shares down 16 per cent on Friday morning, wiping $40bn from its market value. TSMC’s market value leapt by $45bn, or 13.5 per cent. Samsung is the only other company to have come close to matching the Taiwanese producer’s technology pace, though it serves a much smaller slice of the industry with its own chipmaking fabs.
Others affected by the fallout from Intel’s slip included AMD, long an also-ran in Intel’s core chipmaking market, based on the x86 architecture for PCs and data centres. AMD chips are manufactured by TSMC, and its shares leapt 10 per cent on expectations that it will now have a durable advantage.
Mobile chip company Qualcomm and graphics processor maker Nvidia, which design chips and mainly rely on TSMC for manufacturing, will also benefit in the long run, analysts said. Apple announced last month it was dropping Intel’s chips in favour of in-house designs for its Macs — a decision that means it is now less at risk of falling behind in future.
Until recently, the US chipmaker was almost synonymous with Moore’s Law, which described the regular shrinkage of feature sizes that packed more transistors into the same space on a chip, boosting computing power. Intel’s mastery of highly complex process technology meant it was able to stay a step ahead of the rest of the industry for decades.The gap between each generation of technology, known as a “node”, has typically been 24-30 months. With its latest slip, Intel could now be a full node behind TSMC, having squandered a lead of the same magnitude — which is equivalent to a four- to five-year shift in leadership, said Mr Srivastava.
To make up for the delay, Intel said it was considering turning to outside manufacturers from 2023 onwards for some its production — a plan that appeared to leave little option but to subcontract its most advanced manufacturing to TSMC. The shift raised the prospect of a change in Intel’s business model, according to some analysts, forcing it to consider abandoning more of its manufacturing to focus on design.
Speaking to analysts the day before, chief financial officer George Davis said that Intel had been looking at contracting out more manufacturing for some time and that such a shift would increase its return on capital. That amounted to a complete reversal from the strategy outlined by Brian Krzanich, Intel’s chief executive officer until two years ago, who wanted to use the company’s manufacturing edge to produce chips for many other companies, making it a competitor in the “foundry” business pioneered by TSMC.
Contracting out key manufacturing was a strategy that “many longtime Intel followers previously viewed as unthinkable”, given the advantage the company has had for years from riding the curve of Moore’s Law ahead of competitors, said Matt Ramsay, an analyst at Cowen.
Bob Swan, Intel’s chief executive officer, claimed the company could keep an edge in its products, even if it lost its manufacturing lead, thanks to design changes and the use of some outside manufacturing. Many of the new markets that Intel has targeted as it moves away from its traditional business of making microprocessors for PCs and servers also rely less on being able to control the most advanced manufacturing processes.