Taiwan’s TSMC now has a chip that is more powerful than those of U.S. rival Intel, potentially tipping the balance in the semiconductor industry.
In June of this year TSMC (Taiwan Semiconductor Manufacturing Company), the island’s biggest company, will ship its new generation of semiconductors. This will mark the first time that TSMC, rather than Intel, has the world’s most powerful chips. TSMC also surpassed Intel in market capitalisation for the first time in 2017. Both companies, along with Samsung, are ramping up chip production for AI technology.
While they are rivals in the semiconductor manufacturing industry, TSMC and Intel are fundamentally different. Intel is an integrated device manufacturer (IDM), meaning that it both designs and manufactures chips. TSMC is a “foundry”, which manufactures chips for designers that do not have their own factories or “fabs.” The Taiwanese company pioneered this model, and according to Trendforce, had 56% of the foundry market in 2017.
Intel’s decades-long leadership in semiconductor technology has stemmed from the superior computing power of its chips. On an elemental level, this is determined by the width of the chip’s nodes. The narrower the nodes, the more powerful the chip. Intel has been able to stay ahead by shrinking its nodes, which many others have tried and failed to do. Intel’s current chips use a 10-nanometre node, while TSMC’s are now made with a seven-nanometre node. This leap may be the result of TSMC’s investments in research and development, which came close to $3 billion by 2017.
Apart from its semiconductor technology, TSMC’s high valuation might also be owed to its business model. As The Economist explains, “Intel is renowned for making computer processors and Samsung for smartphone chips. TSMC serves both customers. It is ready to provide chips for new technologies as they arise.” The company benefits from the fact that, due to its greater complexity, chip-making now requires a close partnership between designers and manufacturers. Given the customers’ R&D investment in TSMC’s technology, switching comes with a high price. These conditions have set TSMC up with steady revenues from the likes of Apple.
The launch of TSMC’s new chips in June will coincide with the retirement of the company’s founder, Morris Chang. Current Co-CEOs C.C. Wei and Mark Liu will assume the roles of CEO and Chairman, respectively, when he steps down. Whether the company’s winning streak will continue will depend on the abilities of Liu and Wei to lead the next leap in computing power.
