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For more than 30 years, Intel Corp has dominated chip manufacturing by producing the largest component of most computers in the world. This race is now threatened by a company that many Americans have never heard of.
Taiwan Semiconductor Manufacturing Co was established in 1987 to manufacture chips for businesses that do not have the money to build their own facilities. This approach was rejected at the time by the founder of Advanced Micro Devices Inc., Jerry Sanders. "Real men have tricks," he joked at a conference, using industry jargon for factories.
These days, the ridicule has given way to envy as TSMC 's factories have stood up to challenge Intel' s top – of – the – board industry of 400 billion US dollars. AMD recently chose TSMC to manufacture its most advanced processors, having created its own troubled factories years ago.
TSMC's Intel threat reflects a dramatic shift in chip manufacturing: One company after another has hired TSMC to manufacture the chips it designs. TSMC, based in Hsinchu, has many customers, including technology giants Apple Inc. and Qualcomm Inc., second-tier players such as AMD, and minnows such as Ampere Computing LLC. The explosion of the components thus built has allowed TSMC to acquire the technical know-how needed to manufacture the smallest, most efficient and most powerful chips in the highest volumes.
"It's a unique situation in the last 50 years," said Renee James, former Intel number 2, at the head of the Ampere startup. Her company is less than two years old and yet she is interested in Intel's mainstream server chip market. According to Ampere, competition is a stumbling block for Intel and TSMC's ability to take advantage of these errors.
It's been a decade since Intel faces a major competition and its 90% share of turnover in IT processing will again yield record results this year. But some Wall Streeters are worried and their rivals are emboldened because TSMC has a real chance to replace Intel as the best chip maker on the market. Last year, the Taiwanese company raised for the first time a market value superior to that of its American rival.
Production rights of semiconductors on production are judged by the width of the space between the lines on the tiny circuits that ensure the function of the chips. Reducing this gap, measured in nanometers or billions of meters, allows designers to build chips that are faster, more energy efficient, store more data, or simply cost less. In high-end processors, where Intel makes the most of its money, space is paramount. A Xeon server processor stuffs billions of transistors into an area the size of a postage stamp.
Intel was the first to use 14 nanometer technology on a scale in 2013, according to Goldman Sachs. It will not have a 10-nanometer ready for prime time before the end of 2019 – by far the longest wait in its history. TSMC has gone from 20 nanometers to 7 nanometers at the same time.
Intel's blocking revolves around yield, the number of good chips generated in each production run. In factories that cost about $ 7 billion (RMB 29.40) and run 24 hours a day, generating millions of chips a month, the slightest setback can be disastrous financially. Intel has not yet sufficiently ironed out these manufacturing issues, and the company will not switch to 10 nanometer production until everything works properly.
Sanders' current successor at AMD, General Manager Lisa Su, does not have to worry about this situation as the company sold its factories and let TSMC handle the complex production.
"This is one of the best decisions we've made," said Su. "It allows us to manage risks and focus on the elements that make the product great."
With the help of TSMC, Su is pursuing a goal that Sanders has never achieved: a credible and sustainable challenge for Intel's computer block. AMD is now telling investors and customers that its new chip models will surpass those of Intel. TSMC makes this competition possible, even though AMD has about a tenth of Intel's R & D staff and budget.
TSMC, however, did not catch Intel alone. The real break-up of the company took place ten years ago, when the smartphone began to fill the pockets of consumers. Intel has touched mobile chips, but the US company has never engaged its best production and design systems in the region, preferring to prioritize its current PC and cash cow server business.
When smartphone sales took off, phone manufacturers resorted to other processors from companies like Qualcomm. Or they have designed their own ARM technology, like Apple. And the TSMC factories rejected these components.
The volume of smartphones is now almost six times larger than that of the PC industry. This gives TSMC the benefit of a large volume manufacturing experience that previously belonged to Intel.
With billions of transistors on chips, a problem with a small number of these tiny switches can make the entire component useless. Production cycles can take up to six months and involve hundreds of steps requiring careful attention. Whenever an error is made, the factory plant has the opportunity to make adjustments and try a new approach. If the change works, this information is kept for the next challenge. The more production there is, the better. And TSMC has the most nowadays.
"TSMC simply continues to deliver the latest chips on schedule, without any errors," said Mark Li, an analyst at Sanford C. Bernstein. He believes that Intel's leadership in server and server chips, as well as its pricing power, is compromised by the fall of its smartphone and the consistency TSMC has gained.
Yet, this is far from the first challenge that Intel faces. The company is working on its production issues and, in the meantime, will provide new chips built with existing production technology that, she says, will keep the opposition at bay.
Navin Shenoy, head of Intel's server division, says nanometer-based production metrics have never been the only success factor (although the company has liked to talk more about it in the past). Intel's short-term solution is to design better chips using the old production technology.
"I am confident that we will offer customers what matters to them – the performance of the system," he said.
Historically, the company has crushed its rivals using a research budget that has wiped out everything that is happening in the industry. But TSMC's approach undermines this advantage.
While Intel still exceeds TSMC in capital expenditures on new installations and equipment, the numbers are reversed when you combine TSMC's customer search budgets such as Qualcomm, Apple, Nvidia Corp, and Huawei Technologies Co.
According to Goldman Sachs, TSMC's combined customer budgets are not only higher than Intel's, but the gap is widening. By 2020, they will spend nearly 20 billion US dollars, according to his estimate, at least 4 billion US dollars more than Intel.
"It's a self-fulfilling prophecy now," said Debora Shoquist, executive vice president of operations at Nvidia. "They are the best and the best are the best." – Bloomberg
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