Chip giant Intel (NASDAQ:INTC) reported second-quarter results last week, and the release included the bombshell announcement that the company's 7-nanometer processors would be delayed by approximately six months. Those chips were initially scheduled to launch in late 2021, so the delay will push that debut back to 2022. At least Intel is finally starting to ramp up 10-nanometer production -- which was also delayed by years.
The ongoing stumbles with transitioning to new generations of manufacturing technology completely validate Apple's (NASDAQ:AAPL) decision to ditch the company in favor of its own silicon.
Relying on Intel has been a liability in more ways than one
Following many years of speculation, Apple last month officially announced that it would spend the next two years transitioning Macs to its proprietary chips. The first such Macs will ship later this year, but it will also take time for developers to revamp their software to take advantage of a new chip architecture.
Beyond an estimated $2 billion in cost savings that the company could realize, the strategic implications around product timelines are far more important for the $25 billion Mac segment. You might recall that in early 2019 Apple blamed Intel for disappointing Mac sales.
"For our Mac business overall, we faced some processor constraints in the March quarter, leading to a 5% revenue decline compared to last year," CEO Tim Cook said last year. "But we believe that our Mac revenue would have been up compared to last year without those constraints and don't believe this challenge will have a significant impact on our Q3 results."
Relying too much on Intel has become a liability in more ways than one. Apple was banking on Intel's ability to launch a 5G modem that could be competitive with Qualcomm (NASDAQ:QCOM). Considering the Mac maker's epic two-year legal war with the mobile chip giant, it's clear that Apple utterly disdains doing business with Qualcomm. But Intel's failure to develop a viable 5G modem for iPhones forced Apple to settle with Qualcomm, and Apple subsequently bought the remnants of Intel's modem business to take development into its own hands.
Taking the lead
At the same time, Apple has progressively taken its chipmaking prowess to unprecedented levels of scale and technological ambition in recent years, designing everything from the primary applications processor to wireless chips to security chips that house sensitive biometric data, among others.
Apple doesn't manufacture these chips itself, though, instead tapping Taiwan Semiconductor (NYSE:TSM) to fabricate the silicon that Apple designs. TSMC is currently a generation ahead of Intel in terms of comparable manufacturing technologies, and that lead will likely remain intact in the foreseeable future.
Apple could conceivably ship the first notebooks on 5nm process technology.— Ben Bajarin (@BenBajarin) July 24, 2020
That's not to say that TSMC is immune from holdups: The leading chip foundry company recently said it would delay trial production of its 3-nanometer process due to the COVID-19 pandemic. But TSMC is already ahead and is prioritizing its 5-nanometer and 7-nanometer processes. Relative to Intel, TSMC has executed far more consistently overall and Apple wants greater control over its road map.