Taiwan Semiconductor Manufacturing Company (NYSE:TSM), the largest pure-play contract chip manufacturer, reportedly said (per DigiTimes) that it intends to begin "risk production" of chips using its 5-nanometer technology in the "first half of 2019."
It usually takes about a year from risk-production start to mass-production start, so if TSMC achieves this timeline, it should begin volume production of chips using its 5-nanometer technology in the first half of 2020.
What does this mean for TSMC investors and customers? Let's take a closer look.
Staying true to Moore's Law
Chip manufacturers have historically tried to advance their respective manufacturing technologies at a regular pace prescribed by what is commonly referred to as Moore's Law.
According to this "law," the number of transistors (chips are made up of millions, if not billions, of transistors these days) that can be crammed into a given chip area doubles roughly every 24-months.
Since TSMC plans to begin mass production on its 7-nanometer technology in the first half of 2018, mass production of its 5-nanometer technology -- which should deliver a doubling of transistor density compared to its 7-nanometer technology -- the company is essentially following Moore's Law (something that's becoming much more difficult to do these days).
What does this mean for TSMC? Its customers?
TSMC needs to be able to deliver new manufacturing technologies at a rapid pace to satisfy the needs of its major customers. These newer technologies allow the company's customers to cram in more features and functionality all while improving power efficiency -- a clear win for performance/power sensitive applications like high-end smartphone and data center processors.
TSMC has said in the past that it aims to continue to grow its market share with each successive manufacturing technology; if the company can deliver on its stated timeline for 5-nanometer tech, then it should offer industry-leading chip density with this technology.
Investors must keep an eye on what TSMC's key rivals in the contract chip manufacturing business -- Samsung (NASDAQOTH:SSNLF) and GlobalFoundries -- ultimately manage to deliver, but it seems to me that TSMC is right on track to continue to have compelling enough technology to maintain or grow market share in advanced technologies.
It's all about execution
In the past, chipmakers have run into difficulties transitioning to newer manufacturing technologies -- this stuff is getting harder with each successive generation. As good as TSMC's recent track record has been vis-a-vis technology transitions, there's always going to be some level of execution risk here.
Fortunately, TSMC tends to be very transparent with its investors, offering regular technology development and manufacturing ramp updates on its quarterly earnings calls. So, if there are any issues/delays, then I would expect TSMC to disclose those to investors in a timely fashion.
For what it's worth, given the immense pressure that TSMC likely faces to keep Apple happy, I think that the odds are extremely good that we will see iPhone models launched in 2020 that will be powered by chips manufactured in TSMC's 5-nanometer technology.
Ashraf Eassa has no position in any stocks mentioned. 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 has a disclosure policy.