💻 Intel Outsourcing a Core Competency?

Intel is signing up with chip manufacturer Taiwan Semiconductor to manufacture chips.

Hey Global Investor, here’s what you need to know before the US markets open.

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Outsourcing A Core Competency?

In a departure from its strategy of both designing and manufacturing chips in-house, Intel is signing up with chip manufacturer Taiwan Semiconductor to manufacture chips.

Background: You can divide the chip-making industry into two segments. The one that designs the chips – the likes of Qualcomm and Nvidia – and the other that manufactures those chips – like Taiwan Semiconductor Manufacturing Co. (TSMC). TSMC, Taiwan’s largest company, has spent billions – $17B in 2020 alone – to maintain absolute state-of-the-art in chip-making technology.

The move paid off spectacularly as the outbreak of the Covid-19 pandemic sent the entire world online and spiked demands for computers and smartphones. TSMC has become the preferred chipmaker for both tech and auto giants and is able to manufacture chips needed for everything from cars to Xboxes to iPhones.

What is Happening? Intel has struggled to keep itself on the right side of the growing demand for new-age microchip technology. Its 10nm server chips are two years behind schedule due to manufacturing issues. Its newest technology is at least six months behind schedule. The next-gen 7nm chip rollout is delayed at least until 2022-23. The company is finally admitting it can’t handle it all.

Intel’s engineers have historically tailored their designs to the company’s manufacturing processes. A shift to outsourcing flagship products is unthinkable! Still, Intel is left with few, if any, options. TSMC has offered to manufacture Intel chips using a 4-nm process, with preliminary testing using an older 5-nm process. Any components that Intel might source from Taiwan wouldn’t come to market until 2023 at the earliest.

Experts estimate Intel to outsource around 10% to 30% of its CPU production to TSMC. For every $2B in processor business that Intel shifts to Taiwan Semiconductor, the latter will gain $560M in sales. Intel expects to also outsource its Atom chips, which account for ~$9B in revenues annually. That alone would generate $2.5B in revenue for TSMC. It seems Intel is finally acknowledging its shortcomings and TSMC is set to flourish as a result.

Market Reaction: On Monday, Intel closed at $51.54, down 0.21%, whereas TSMC closed at $122.60, up 3.29%

Company Snapshot 📈

INT $51.54 -0.11 (-0.21%)

TSM $122.60 +3.91 (+3.29%)

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Later Today 🕒

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Fun Fact of The Day 🌞

The word atom comes from the Greek word atomos, which means “undivided” or “uncut.”

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