Should Investors Worry about Intel’s 10 nm Node?



Moore’s law

In the previous part of this series, we saw that AI (artificial intelligence) could lead to manufacturing innovations since AI chips require a larger architecture. However, that doesn’t mean that Moore’s law is dead. Moore’s law states that the size of the chip will shrink every two years and the number of transistors will double, thereby increasing performance and power efficiency and reducing cost.

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Is Intel losing its manufacturing technology advantage?

Intel (INTC) is a leader in manufacturing technology with the most advanced manufacturing process nodes. However, the increasing complexity of every node shrink has slowed down Moore’s law. The last time Intel transitioned to a lower node was in 2014 when it launched its 14 nm (nanometer) process node. It has been using that node for the last three years with slight alterations every year.

According to Intel’s original plan, it was supposed to transition to the 10 nm node in 2017, but it postponed the transition to the end of 2018, according to media reports. The delay gave way to foundries such as Taiwan Semiconductor Manufacturing (or TSMC) (TSM) and Samsung (SSNLF) closing the technology gap and competing with Intel. TSMC has moved to a 12 nm node, whereas Samsung has moved to a 10 nm node.

The two foundries have also produced chips on these nodes. Nvidia’s (NVDA) Volta GPU (graphics processing unit) is built on TSMC’s 12 nm node, and Qualcomm’s Snapdragon 835 processor is built on Samsung’s 10 nm node. However, Intel claims that TSMC’s and Samsung’s 10 nm nodes are equivalent to its 14 nm node.

It could be an important year for Intel in 2018 since the transition to 10 nm could put it back in the leading position. However, foundries could transition to a 7 nm node by then, so the technology gap wouldn’t be much.

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Why is 10 nm important for Intel?

Intel manufactures processors and memory chips on its manufacturing node. The company is a leader in the PC (personal computer) and server processor markets because its chips are the most advanced. That also helps Intel command a premium price for its products. In the declining PC and server market, it’s these ASPs (average selling prices) that have maintained Intel’s revenue growth in the single digits.

The slowdown in Intel’s manufacturing technology transition brought Advanced Micro Devices (AMD) in direct competition with Intel through its 14 nm Ryzen PC and EPYC server processors. AMD gained some market share from Intel in the PC space. Now, companies such as Qualcomm (QCOM) are coming to the server processor market to get some share from Intel.

If Intel fails to launch its advanced node in 2018, it could fall behind foundries and rival chip companies and lose its power to command higher prices, thus impacting its 2018 earnings. We may want to keep a close watch on advancement toward the 10 nm node.

Next, let’s look at the IoT (Internet of Things) revolution.


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