Applied Micro Circuits (NASDAQ:AMCC), a company that made it onto the radars of tech investors as one of the first vendors of ARM (NASDAQ:ARMH) server chips, put out a press release today announcing that it will adopt Taiwan Semiconductor Manufacturing Co.'s (NYSE:TSM) 7-nanometer chip technology for future products.
Additionally, the company also provided an update on its upcoming third-generation X-Gene family of products. Let's take a closer look at these announcements and what they might mean to investors.
Nothing surprising about 7-nanometer adoption
TSMC is currently in mass production on its 16-nanometer manufacturing technology, the technology that Applied Micro's third-generation X-Gene is built on. The chip manufacturer is expected to transition to its next-generation manufacturing technology -- 10-nanometer -- early in 2017.
The 10-nanometer node, however, is expected to be short-lived for TSMC. The node will likely be adopted for 2017 smartphones by the likes of MediaTek, HiSilicon, and Apple (NASDAQ:AAPL), but it is generally believed that many fabless companies will skip 10-nanometer and go to TSMC's 7-nanometer technology.
It's no surprise, then, that Applied Micro will skip the 10-nanometer technology node altogether and land its fourth-generation X-Gene processor family on TSMC's 7-nanometer process.
Update on third-generation X-Gene
In the press release, Applied Micro said that its third-generation X-Gene processor family is expected to "sample to customers by early 2017." Generally speaking, one can count on at least a yearlong gap between when a processor family samples and when it starts shipping to customers in significant volume. In other words, I believe that X-Gene 3 won't start contributing materially to the company's revenue until 2018.
Indeed, in light of this timeline, it's not hard to see why Applied isn't bothering to move to 10-nanometer. TSMC says that its 7-nanometer technology will go into mass production in the first half of 2018, so by the time that the fourth-generation X-Gene chips are ready to go into production, so too will TSMC's 7-nanometer process.
What this means for the company
Applied Micro has long compared its products to those of server-processor market leader Intel (NASDAQ:INTC). Although X-Gene 1 and X-Gene 2 do not appear to have been particularly successful in the marketplace, Applied aims to take server-processor share from the chip giant with the X-Gene processor family.
Although the success or failure of a product in the marketplace depends on more than the manufacturing technology that it's built on, manufacturing technology is certainly a factor that drives performance and power efficiency.
Intel released server processors aimed at servers based on its 14-nanometer technology in March of 2016, and is expected to transition to a second generation of chips using its 14-nanometer technology in the first half of 2017.
If Intel keeps to an annual server-product release cadence, then we should expect to see the first parts based on its 10-nanometer technology available in volume during the first half of 2018. In that case, Intel would still have a substantial manufacturing edge over Applied, which could make it difficult for the latter to gain share with X-Gene 3.
Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.