Intel (NASDAQ:INTC), which manufactures its own CPUs at its in-house foundry, struggled to produce enough 14-nanometer chips over the past year as it pivoted toward newer 10-nanometer chips. The chip shortage frustrated PC makers, many of which turned to rival AMD (NASDAQ:AMD) to fulfill their CPU needs.
AMD, which outsources its CPU production to GlobalFoundries and Taiwan Semiconductor Manufacturing (NYSE:TSM), didn't struggle with any shortages of 14-nanometer chips. As a result, AMD's market share rose from 22.9% to 30.3% between the fourth quarters of 2018 and 2019, according to PassMark software, as Intel's share dropped from 77.1% to 69.7%.
AMD's first-generation Ryzen CPU was a 14-nanometer chip. The second-generation Ryzen, which was released last year, is a 12-nanometer chip. The third-generation Ryzen (Zen 2), which was launched earlier this year, merges 7-nanometer cores with 12- and 14-nanometer dies. These hybrid chips could give AMD an edge against Intel, which doesn't expect to launch its first 7-nanometer chips until 2021.
However, several recent reports suggest that AMD should actually worry more about Apple (NASDAQ:AAPL) than Intel since chips for the new iPhone 11 could cause a shortage of 7-nanometer chips. Let's see how Apple could cause trouble for AMD, and whether it could give Intel a chance to catch up.
How could Apple cause a chip shortage for AMD?
Apple recently told its suppliers to boost the production of its iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max by 10%, according to Nikkei Asian Review. All three phones use Apple's new A13 Bionic chip, a 7-nanometer chip manufactured by TSMC.
The 7-nanometer cores in AMD's Zen 2 CPUs are manufactured by TSMC. The 14- and 12-nanometer dies are manufactured by GlobalFoundries. Last month, DIGITIMES reported that TSMC tripled its lead time for 7-nanometer chips from two months to six months, and TSMC advised customers to get in their orders for all of 2020 to avoid delays.
That's why it wasn't surprising when The Inquirer, citing DIGITIMES' data, recently claimed that AMD was "scrambling for production capacity" at TSMC. Apple's latest request will likely exacerbate the pain and cause delays for AMD and other top TSMC customers like NVIDIA (NASDAQ:NVDA).
In addition to 7-nanometer CPUs, AMD's latest graphics cards -- which compete against NVIDIA's -- are powered by 7-nanometer GPUs. Those two business segments are the core engines of AMD's computing and graphics unit, which generated 61% of its sales last quarter.
But Apple's iPhone isn't AMD's only problem. GlobalFoundries and TSMC recently filed multiple lawsuits against each other in the U.S., Germany, and Singapore, with both foundries alleging that the other infringed on their patents. It's too early to tell where these lawsuits will lead, but it can't be good news for AMD's Zen 2, which merges components from GlobalFoundries and TSMC.
Is this an opportunity for Intel?
Intel hasn't resolved its 14-nanometer shortages yet, but it recently launched its 10-nanometer Ice Lake CPUs. These CPUs, which only target the notebook market, could help Intel finally regain some market share from AMD and appease frustrated PC makers.
However, AMD's 7-nanometer Zen 2 CPUs still consistently beat Intel's highest-end 14-nanometer Coffee Lake chips in various industry benchmarks. Intel claims that its 10-nanometer CPUs will be ready for the data center market by the second half of 2020, but it hasn't offered any clear plans for the desktop market.
It seems like Intel plans to tread water in 2020, hope that its new 10-nanometer chips give it some breathing room against AMD, and formally strike back with new 7-nanometer chips in 2021. That plan doesn't inspire much confidence and indicates that AMD could still remain ahead of the curve as it squeezes through TSMC's production bottleneck and legal clashes with GlobalFoundries.
The key takeaways
AMD hasn't disclosed any production issues so far, so the impact of higher iPhone orders on TSMC and its top customers is all speculation. However, investors in this tech company should pay attention to TSMC's third-quarter report on Oct. 17 for more details about its 7-nanometer production capabilities.
Production delays would certainly be disappointing for AMD, but it isn't a good reason to sell the tech company stock. AMD might struggle with production issues, but it probably won't drop the ball as Intel did this year, and it should continue gaining ground against its bigger rival in the desktop and server markets.