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Taiwan Semiconductor Manufacturing Company Looks Set to Win IBM Chip Orders

By Ashraf Eassa – Nov 20, 2018 at 6:18PM

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After GlobalFoundries' exit from the leading edge, it looks like IBM's moving its orders to TSMC.

Historically, International Business Machines (IBM 0.10%) owned and operated its own chip manufacturing plants and invested heavily to develop the manufacturing recipes -- known as processes -- to build its POWER and Z-series chips that power its server and mainframe products, respectively. That changed, however, in 2015, when IBM inked a deal to sell its chip manufacturing plants and transfer its technology development staff to pure-play contract chip manufacturer GlobalFoundries. 

GlobalFoundries, at the time, had boasted that the acquisition of the IBM assets "solidifies its path to advanced process technologies at 10nm, 7nm, and beyond."

Inside an Intel chip manufacturing plant.

Inside an Intel chip manufacturing plant. Image source: Intel.

As part of the deal, GlobalFoundries said that it had agreed to an "exclusive commitment to supply IBM with some of the world's most advanced semiconductor processors solutions for the next 10 years." 

"[GlobalFoundries] also gets direct access to IBM's continued investment in world-class semiconductor research, solidifying its path to advanced process geometries at 10nm and beyond," GlobalFoundries said in a press release.

Unfortunately for IBM, GlobalFoundries -- for all of its boasting -- announced back in August that it had put its "7nm FinFET program on hold indefinitely" and is "restructuring its research and development teams to support its enhanced portfolio initiatives." 

The question that naturally followed is: "Where will IBM manufacture its chips now?" 

And the winners are...

According to Nikkei Asian ReviewTaiwan Semiconductor Manufacturing Company (TSM -0.29%) is "poised to secure a crucial order from IBM for premium server chips, validating the company as a serious challenger to global chipmaker Intel in the high-value data center market."

Citing Trendforce analyst Liu Chia-hao, Nikkei Asian Review says Intel "supplies 96% of the chips used in data center servers."

IBM's current POWER9 and Z14 processors -- chips that are used in IBM servers and mainframes, respectively -- are manufactured using a special technology known as 14HP. That technology, according to WikiChip, "combines IBM-developed SOI [silicon-on-insulator] front-end-of-line (FEOL) with [GlobalFoundries'] middle-of-line (MOL) and back-end-of-line (BEOL) borrowed from their 14nm bulk process." 

The successors to these chips, in light of the Nikkei Asian Review report, should be manufactured in the high-performance variant of TSMC's 7nm technology. TSMC has said that it offers "two 7nm FinFET tracks: one optimized for mobile applications, the other for high performance computing applications." 

If Nikkei Asian Review is correct, this arrangement should ultimately be win-win for both IBM and TSMC. IBM -- since GlobalFoundries is out of the game -- needs a capable new chip manufacturing partner to produce its chip designs, and TSMC fits that bill. TSMC would stand to benefit because scoring these orders would bring it revenue and profit that it didn't have before. 

According to a product road map published by IBM back in August (via HPCwire), the company plans to introduce an improved version of its POWER9 processors -- which will, again, be manufactured using 14nm technology -- in 2019. Then, in "2020+," the company intends to launch its POWER10 processors. So, assuming that IBM really is tapping TSMC to build its the next-generation chips, TSMC investors probably shouldn't expect revenue contribution from them for a while yet. 

Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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