Hardware equipment industry

Intel out, TSMC Samsung dominates From The economist

The following is the Intel out, TSMC Samsung dominates From The economist recommended by recordtrend.com. And this article belongs to the classification: Hardware equipment industry.

On January 23, the economist published two articles on chips to discuss the development trend of the chip industry. This article is one of them, the original title is “new architecture – chip manufacturing is being reconstructed, far-reaching.”.

On January 13, Honda, the Japanese car maker, said it had to temporarily close its plant in Swindon, a small town in the south of the UK. It’s not because of brexit, it’s not because some employees are infected with the new coronavirus, it’s because of a lack of chips. Other car companies are struggling, too. Volkswagen, the company with the largest auto production volume, has said it will reduce production by 100000 vehicles this quarter due to the shortage of chips. Like everything else today – from banks to combine harvesters – cars need computers.

Chip manufacturing is booming. The global market value of listed semiconductor companies is now more than $4 trillion, four times that of five years ago (see Figure 1). Chip makers’ shares soared during the new crown pandemic as jobs moved online and consumers turned to live broadcasts and video games.

Figure 1 the market value of global semiconductor industry is expanding. The screenshot is from the economist, data sources: Bloomberg; McKinsey consulting; Economist (the same below)

This has driven a wave of trading. In September, NVIDIA, which designs chips for games and artificial intelligence, said it would pay $40bn for UK based arm, whose design can be seen in almost all smartphones. In October, AMD, which designs and makes graphics and general-purpose chips, announced another big deal for Xilinx, a maker of reprogrammable chips, for $35 billion.

Silicon “extravagant”

Capital spending is also increasing. South Korea’s Samsung Group plans to invest more than $100 billion in the chip business in the next decade (although some of it will not be used in microprocessors, but in memory chips in flash drives and other products). On January 14, TSMC, which transformed the design blueprint into physical chips for AMD, NVIDIA and other companies, shocked the market by increasing the planned capital expenditure in 2021 from US $17.2 billion to US $28 billion driven by strong expected demand. This is one of the highest budgets of any private company in the world.

All this happened in the trend of “shuffling” of chip manufacturing industry. On the one hand, the industry is full of competition and innovation. Old chip designers, including AMD, NVIDIA and Intel, the world’s top revenue chipmaker, are being challenged by newcomers. Amazon and Google used to be their big customers. Now Amazon and Google are building their own chip designs. A group of start-ups have joined Amazon and Google, and are eager to meet the needs of artificial intelligence, network or other special hardware.

If it wasn’t for what’s going on at the other end of the chain – chip factories that turn design into electronic circuits etched on silicon chips – that would be good news for everyone. The increasing cost caused by catching up with technological development means that although a hundred schools of thought contend for chip design, the number of chip manufacturing enterprises with actual production capacity is shrinking (see Figure 2). Only three companies in the world can make high-end processors: Intel, TSMC and Samsung. The semiconductor industry association of the United States estimates that at present, 80% of the global chip manufacturing capacity is in Asia.

Figure 2: the number of chip manufacturers sharply reduced

This vanguard echelon may soon be reduced to two members. For the past 30 years, Intel has been trying to advance its leading position in the industry, but now it is faltering. January 18 news reports show that Intel may begin to outsource some chip production to TSMC, which has already surpassed it.

The basic industries of the world economy seem to be further polarizing into larger design bubbles and more concentrated production. This new architecture has a profound impact on chip manufacturers and their customers – in today’s era, almost everyone is a chip customer.

The investment was decentralized at first. For years, technology companies have been buying ready-made chips. In its 44 year history, Apple has purchased microprocessors from MOS technology, Motorola, IBM and Intel for its desktop and notebook computers. However, shortly after the first iPhone was released in 2007, apple decided to go it alone. Later, iPhones used chips designed by themselves, which were first manufactured by Samsung and then by TSMC. This approach proved to be very successful, so Apple announced in 2020 that it would replace Intel products on its desktop Mac with apple customized products.

Two years ago, Amazon Web services, the cloud computing division of e-commerce giant Amazon, began to replace some Intel chips in Amazon’s data center with its own “graviton” design. Amazon claims its chips are 40% more cost-effective than Intel’s. At about the same time, Google began to provide its cloud clients with customized “tensor processing unit” (TPU) chips, which are designed to improve the computing power of artificial intelligence. Baidu, the Chinese search giant, claims that its “Kunlun” Ai chip outperforms NVIDIA’s products. Microsoft is also rumored to be developing its own chip design.

In this area, smart start-ups can get a steady valuation of $1 billion. Cerebras, an American company that designs artificial intelligence chips, has made $1.2 billion. Graphcore, a British artificial intelligence chip company that works with Microsoft, was valued at $2.8 billion last December. On January 13, Qualcomm, which is famous for designing smart phone chips, acquired nuvia, a start-up company composed of senior employees of Apple’s internal chip design team, for $1.4 billion.

Ten years ago, “customized silicon products” was still an uncertain proposition. Thanks to Moore’s Law (Gordon Moore, one of the founders of Intel, says that the number of transistors that can be accommodated on an integrated circuit doubles every 18 months), the performance of “general-purpose chips” (corresponding to “special-purpose chips”) has improved rapidly. Today, due to the limitation of basic physics, Moore’s law is broken. Linley gwennap, head of Linley group, a research firm, points out that it will take nearly three years for the number of transistors to double, and the benefits of the improvements are less than in the past.

This makes it more attractive to maintain performance growth by adjusting design, especially for large vertically integrated companies. No one knows better than apple how its chips interact with other iPhone hardware and software. Cloud computing giants have a lot of data about how their hardware is used and can adapt their designs to suit.

In the past, designing your own chips meant making your own, but now it’s different. Nowadays, most designers outsource their manufacturing processes to professional companies such as TSMC or global foundries, which eliminates the need to own factories and greatly reduces costs. A large number of automation tools make the chip design process smooth. “It’s not as easy as designing a Custom T-Shirt on Etsy.” Macolm Penn, head of future horizons, a chip industry analyst, said. However, it is not difficult to get out of this world.

While it’s easier than ever to design chips, it’s never been harder to make them. To keep up with Moore’s law, even if it slows down, a lot of money needs to be invested in the construction of chip factories – and the investment is still rising – equipped with ultra advanced equipment: plasma etchers, steam deposition machines, and 180 ton, double-layer bass size lithography machines. The capital expenditure of chip manufacturing as a proportion of total revenue has declined before it began to rise again (see Figure 3). It can be absolutely said that the cost of high-tech “wafer factory” (chip factory) has been increasing continuously, and there is no end in sight.

Figure 3 the capital expenditure of chip industry began to rise again after the decline. Screenshot from the economist source: future horizons

The most advanced technology today is the 5-nanometer chip (although “5-nanometer” no longer refers to the actual size of a transistor as it did in previous generations). Both Samsung and TSMC will start mass production of 5-nanometer chips in 2020, and their “successor” 3-nanometer chips will come out in 2022, while their “successor” 2-nanometer chips will come out in a few years.

Intel outside

Entering the millennium, a cutting-edge factory could cost $1 billion. According to a 2011 report by McKinsey, a management consulting firm, the typical cost of an advanced fab is $3-4 billion. Recently, TSMC’s 3-nanometer process plant in southern Taiwan will cost US $19.5 billion in 2020. TSMC is already considering 2-nanometer chips, which will definitely cost more investment. Intel’s faltering has left it isolated in the 10nm business, and its boss, Bob swan, has lost his job. His successor, pat Gelsinger, will need to decide whether the company will continue to make chips. Unlike TSMC, Intel also designs its own chips. Potential new entrants face a very high threshold. With every technological progress, the economic benefits of the Fab will push the entry threshold higher.

Not all chip manufacturing needs cutting-edge manufacturing technology. Most cars use “old-fashioned dull” semiconductor chips. In the data center with spacious space, miniaturization seems not necessary. But one thing is crucial: some operations can only be handled by the most powerful chips.

As silicon becomes more and more popular in the super connected “Internet of things”, the demand for the strongest chips, from thermostats to tractors, is likely to grow. Among them, the customers of TSMC and Samsung are already the “guests” of big technology companies – Apple, Amazon, Google, NVIDIA, and Qualcomm (if the news reports are true, Intel will soon join them). As cars and other products become more computerized and electric, the chips used in cars will also become more advanced. Tesla, the U.S. electric car maker, is already relying on TSMC’s 7Nm wafer plant to produce its own autonomous driving chips.

As Samsung and TSMC remain vigilant against each other, the “duopoly” competition in the nano field in Asia is still fierce. Since 2005, the operating profit margin of the Taiwan company has remained basically stable, with 15 companies in the leading position in this field. But the logical end of the relentless rise in manufacturing costs is that at some point, an enterprise – most likely TSMC – may become the last advanced fab to survive. According to a senior person in the industry, for many years, the bosses of technology companies ignored the problem and hoped that it would disappear automatically. But that didn’t happen.

And the industry’s growing political leverage has exacerbated that concern. As part of the economic war against China, the United States has been trying to prevent Chinese companies from developing the ability to build their own advanced chip factories. In order to achieve self-sufficiency in key technologies by 2025, China has placed semiconductors at the heart of its multibillion dollar plan – especially after US sanctions prevent China from importing chips from abroad.

The structural forces behind this situation will continue to exist. Worried about losing the most advanced chip factory, the United States gave TSMC a subsidy in exchange for building a wafer factory in Arizona. Samsung is likely to expand its Texas operations. Another set of subsidies and incentives is awaiting funding from Congress. The EU has a lot of high-tech equipment in Belgium and the Netherlands, and wants more. On December 17, EU Member States agreed to invest tens of billions of dollars in stimulus funds after the new crown pandemic to try to create advanced chip factories by 2020. The history of the chip industry shows that over time, these investments will only become more and more jaw dropping.

Semi: global chip manufacturing equipment revenue will drop by about 2% in 2013 IC insights: Samsung will surpass Intel as the largest chip manufacturer in 2017 Gartner: global semiconductor industry revenue will reach 419.7 billion US dollars in 2017 Gartner: global semiconductor market will reach 420.4 billion US dollars in 2017 IHS Markit: in 2018, the sales revenue of Q4 Intel semiconductor surpassed that of Samsung Intel, and TSMC was the king. Mercury research: in 2013, the market share of Q1 Intel CPU reached 85%. Intel: 3q20 revenue was US $18.3 billion, a year-on-year decline of 4%. Strategy Analytics: in 2014, the global market scale of Q1 cellular baseband chip reached US $4.7 billion. Intel: China’s server market scale is second only to the US IC Insight: Top 25 of global semiconductor suppliers in 2011 iSuppli: Intel’s semiconductor share was 15.9% in 2011 IC insights: Sales of top 20 semiconductor manufacturers in Q2 in 2015 was US $128.3 billion iSuppli: Q3 in 2010 Intel and AMD split equally in the third quarter mercury research: Q3 Intel accounted for 80.3% of global share in 2011 amd accounted for 18.8% of global share

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