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Shares soar, Samsung fab ushered in a big moment?

In a major turnaround for Samsung Electronics, Samsung Electronics posted its biggest gain in nearly a decade as Intel Corp was said to be considering asking the South Korean giant and Taiwan’s TSMC to make some of the most advanced chips, according to Bloomberg. .

The Santa Clara, Calif.-based Intel has not announced plans to make a final decision two weeks ago, after successive delays in the chip-making process, people familiar with the matter said. Any components Intel may source from Taiwan will not be available until 2023 at the earliest and will be based on established manufacturing processes already used by other TSMC customers, the people said, speaking on condition of anonymity because the plans are private.

Intel still hopes to improve its own production capacity at the last minute. Intel’s talks with Samsung are ongoing, the people said. Representatives for TSMC and Samsung declined to comment. An Intel spokesman referred to previous comments by the company’s CEO, Bob Swan.

Swan has promised investors that he will develop outsourcing plans and get Intel’s production technology back on track when the company reports earnings on Jan. 21.

The world’s most famous chipmaker has historically led the industry in advanced manufacturing technology, which is critical to maintaining Intel’s lead. The pace of improvement in the performance of modern semiconductors. But the company has suffered years-long delays that have put it behind rivals that design their own chips and contract TSMC to manufacture them.

Intel shares fell 1% on Friday. Samsung surged more than 9 percent to a record high in Seoul on Monday, its biggest intraday gain since March. TSMC is already operating at full speed and may not have excess capacity in the short term, but prices in Taipei have remained largely unchanged after winning seven straight days.

Analyst Anand Srinivasan said Intel’s discussions with TSMC and Samsung cemented expectations for the company to outsource some of its production, a move we don’t think is easy as it is likely to dent Intel’s competitive gross margins. And since the company’s inception, Intel’s semiconductor manufacturing operations have been integrated into product design and delivery roadmaps.

From what we know so far, under Jim Keller’s previous leadership, Intel designers turned to a more modular approach to creating microprocessors. This provides greater flexibility to make chips in-house or outsource work. But Keller left Intel last year, and rivals like AMD and Apple have moved forward with their own design capabilities and TSMC’s more advanced production technology. That puts Intel under intense competitive pressure and forces it to make final changes to its product roadmap, complicating its decisions, the people said.

“In 2022, we’ll have another strong product lineup, and for 2023, the leadership that we’ll be delivering on Intel’s 7-nanometer process or external foundry process or a combination of the two, and I’m also on board with that. More and more confidence,” Swan said on a conference call last October. Semiconductor manufacturing processes are measured in nanometers, and with each new iteration, smaller and smaller microscopic transistors are squeezed onto a silicon wafer.

In a subsequent investor meeting, Swan explained that the timing of the decision was driven by the need to order chip-making equipment to ensure he had enough factory capacity or give his partners enough to prepare for similar preparations. The ability to deliver leading products to customers on time and at the right cost will determine how much outsourcing Intel uses, he said.

TSMC, the largest semiconductor maker among other companies, is preparing to offer Intel chips made on a 4-nanometer process, with initial testing using the older 5-nanometer process, the people said. The company said it will offer trial production of the 4-nanometer chips in the fourth quarter of 2021, with volume production the following year.

The Taiwanese company hopes to build a new factory in Baoshan by the end of this year, which can be converted to Intel production if needed, one of the people said. TSMC executives have previously said that the new Baoshan branch will have a research center with 8,000 engineers.

Activist investor Dan Loeb also voiced dissatisfaction with shareholders who see Intel’s technology stagnating and urged the company to make positive strategic changes.

Although Intel has previously outsourced the production of low-end chips, it has kept the manufacturing of its own best semiconductors in-house given its competitiveness. Its engineers have historically crafted its designs from the company’s manufacturing processes, transforming a flagship product outsourcing business that was unimaginable in the past.

As a provider of 80 percent of the world’s personal computer and server processors, Intel produces hundreds of millions of chips each year. This scale suggests that any potential supplier will have to create new capabilities to accommodate Intel.

The company said in July that its 7-nanometer production would be a year behind schedule. Before that, there was a three-year delay in bringing the previous generation of 10-nanometer products to market, and the technology is just now becoming mainstream. Those reservations are the first to claim better technology from TSMC and Samsung, which already mass-produces 5-nanometer chips for Apple and others. The timeline suggests that other customers may switch to better TSMC production sooner than Intel.

Intel’s strategic shift comes amid a surge in demand and technological change in the chip industry. The traditional approach of increasing performance by shrinking and packing more transistors into each package has been replaced by more sophisticated techniques, including stacking processor and memory components into a single chip, and introducing them for tasks such as artificial intelligence. A more tailored design.

AMD and other companies have partially mitigated the risk of manufacturing not progressing as quickly as expected by subdividing their designs, thereby assembling the various components of the processor in stages. Intel says it’s also moving toward a modular approach.

Who benefits the most from Intel’s transfer of orders?

Intel has promised investors this month an explanation of its plans to address manufacturing problems encountered in the production of its next-generation chips.

Citigroup analyst Christopher Danely was quick to make the announcement and published a research note on Monday discussing the implications for Intel and several other stocks. Danely predicts that Intel will announce some kind of deal with manufacturing giant Taiwan Semiconductor Manufacturing Co., Ltd., to expand an already important partnership with foundries.

In Monday’s trade, Taiwan Semiconductor’s American depositary receipts rose 3.5 percent to $122.88, while Intel shares rose 0.4 percent to $51.86. The S&P 500 fell 0.2%.

Rival CPU maker AMD appears to be the most obvious beneficiary, which has gained market share and transformed its business under CEO Lisa Su. The stock rose 3.8% to $98.20 in Monday’s trade, but it’s unclear whether AMD will gain the leadership.

While Intel’s advantage may shrink, Danely wrote, there are several examples of competitors already using the same chipmaker. Danely said there is still one company that could gain an edge with better designs, citing the example of Qualcomm over MediaTek and Nvidia over AMD.

However, shifting production to TSMC could hurt Intel’s bottom line. Danely estimates that this will result in a 10-percentage-point drop in the company’s gross margin and a 25-percentage-point drop in earnings per share.

For Taiwanese semiconductors, Intel will generate more revenue by shifting some production. For every $2 billion in processor business Intel transfers to TSMC, the latter will receive $560 million in sales, Danely wrote. Intel is likely to outsource its low-end Atom processors, Danely wrote. Currently, Danely estimates that Atom chips make up about 15% of the company’s revenue, or $9 billion, and by his calculations, TSMC could see as much as $2.5 billion in additional revenue.

Danely is confident that Intel may decide to outsource more products, and doesn’t think it will lead to the company eventually spinning off its entire manufacturing division.

He cites three main reasons: First, it takes about three years to bring a chip to market, and doing so for the first time carries certain risks. Second, Intel must share its intellectual property. Third, it will hurt Intel’s profit margins.

Denny also predicted that Intel’s outsourcing of production would have little impact on companies that make semiconductor manufacturing equipment.