Please ensure Javascript is enabled for purposes of website accessibility

Taiwan Semiconductor Mfg. Co. Ltd. Thinks It Can Outdo Intel Corp, Samsung

By Ashraf Eassa - Apr 18, 2017 at 11:46AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This contract chipmaker believes that its 5-nano tech, slated for production in 2020, will be more efficient than competitors' technologies available in a similar time frame.

On Taiwan Semiconductor Manufacturing Company's (TSM -5.81%) most recent earnings call, the company spent some time defending its competitive positioning relative to chipmaker Intel (INTC -2.86%) after the latter claimed at a recent event that its 10nm technology is a full generation ahead of competing 10nm technologies, including TSMC's.

In response to Intel's competitiveness claims, TSMC co-CEO C.C. Wei said that "the most important [thing] is that we are offering the best solution to our customers' product roadmap."

A wafer of Intel chips.

Image source: Intel.

What I thought was more interesting was the following question and answer pair from the call between analyst Michael Chou and Wei:

Chou: Just a follow-up question, sir. Can we say your power consumption efficiency in your 5-nanometer in 2020 will be ahead [of] all the competitors, including, for instance, IDM? Can we say that?

Wei: We have confidence to do that, yes.

Without context, this exchange might not mean too much. However, once it's put into context, you'll see that TSMC is making some pretty aggressive claims vis-a-vis its competitiveness relative to both Intel and rival Samsung (NASDAQOTH: SSNLF).

Providing context

When Chou refers to "IDM," he's talking about integrated device manufacturers. IDMs are companies that design and manufacture their own chips. This stands in contrast to TSMC, which is a pure-play contract chip manufacturer. Samsung is an IDM as well, as it designs and builds its own smartphone processors, but it also manufactures chips for others.

Intel is mainly an IDM, though it has been trying for years to build out its contract chip manufacturing business (with little commercial success).

At any rate, what TSMC is claiming here is that its 5-nanometer chip manufacturing technology, which it says will go into mass production in 2020, will offer better power efficiency than the technologies that both Intel and Samsung will bring to the market.

Business implications

If TSMC achieves what it claims it will, then that'll have some interesting implications vis-a-vis its competition with both Samsung and Intel.

Samsung is a direct contract chip manufacturing competitor. Both TSMC and Samsung compete for fabless chipmakers (that is, chip companies that design chips but rely on third parties to manufacture them), so if TSMC can offer better technology to customers, then it improves its odds of winning that business. It should be noted, however, that it takes more than good technology to win contract chip manufacturing business.

The comparison with Intel is more interesting. To some extent, having potentially superior technology to Intel will help TSMC defend itself from contract chip manufacturing customer/order losses to Intel. That's important, but TSMC hasn't really been losing serious share to Intel, anyway.

The more interesting thing here is that many of TSMC's customers are now looking to compete head-to-head with Intel in its core data-center processor and even personal computer processor markets. To the extent that TSMC can enable those challengers to Intel, those challengers (and TSMC) could benefit at Intel's expense, as better manufacturing technology could allow said challengers to build compelling enough products to help them capture share from Intel.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
TSM
$77.00 (-5.81%) $-4.75
Intel Corporation Stock Quote
Intel Corporation
INTC
$36.34 (-2.86%) $-1.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.