Taiwan Semiconductor Manufacturing (TSM +6.30%), popularly known as TSMC, laid out an ambitious capital spending plan for 2022 in a bid to shore up its manufacturing capacity and meet the booming demand for chips.
TSMC has a capital expenditure (capex) budget of $40 billion to $44 billion for this year, which points toward a huge increase over its 2021 capital spending of $30 billion. What's more, TSMC's 2022 capital expenses are way higher than Intel's (INTC +4.49%) estimated outlay of $25 billion to $28 billion for this year. This doesn't look like good news for Intel, as there was a massive spending gap between the two companies in 2021 as well, given Chipzilla's capital spending budget of $19 billion to $20 billion last year.
Let's look at the reasons why TSMC's aggressive 2022 plan could hurt Intel and throw a spanner in the latter's turnaround efforts.
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TSMC is expected to spend big on advanced process nodes
TSMC pointed out in its fourth-quarter 2021 results that semiconductor wafers based on the 5-nanometer (nm) and 7nm processes accounted for half of its revenue. The 7nm wafers produced 27% of total wafer revenue, while the 5nm chips accounted for 23%. TSMC also added that wafers manufactured using advanced technologies (which include process nodes sized at 7nm and below) accounted for more than 50% of the company's total wafer revenue.
Not surprisingly, TSMC is expected to spend a huge chunk of its capex on these advanced processes this year. Tom's Hardware estimates that 70% to 80% of TSMC's planned 2022 capex will go toward the development of advanced processes, especially on 2nm and 3nm nodes following the company's heavy spending on developing the 5nm process last year.
This could accelerate TSMC's development of chips based on smaller process nodes, making it more difficult for Intel to fulfill its aim of regaining its technology lead from rivals by 2025. Intel CEO Pat Gelsinger said in July last year that:
Building on Intel's unquestioned leadership in advanced packaging, we are accelerating our innovation roadmap to ensure we are on a clear path to process performance leadership by 2025.
However, TSMC's ambitious 2022 spending plan indicates that achieving process leadership will be easier said than done for Intel.
Intel's comeback may have become more difficult
Chipzilla has recently started gaining ground against the likes of Advanced Micro Devices (AMD +18.37%) thanks to its Intel 7 process, which is based on an enhanced version of the 10nm node. Intel 7 powers its Alder Lake client CPUs (central processing unit) and Sapphire Rapids data center CPUs. The Intel 7 process has helped the company close the gap with AMD's latest generation of Ryzen processors, which are based on a 7nm process from TSMC.
Intel's enhanced 10nm process reportedly has a slightly higher transistor density compared to TSMC's 7nm process, according to third-party reports. The higher density means that transistors on Intel's chips are packed more tightly compared to TSMC's offering, so they have more computing power and are more power-efficient.
That's because electrons need to travel a smaller distance in semiconductors manufactured using a smaller process node, which allows the chip to perform more calculations while generating less heat. So a chip based on a smaller process node can perform better, and that explains why Intel's latest Alder Lake processors have helped it snatch the gaming crown back from AMD. Furthermore, the smaller footprint saves manufacturing costs and consumes less silicon wafer material per chip.
Intel was expected to widen the technology gap with AMD next year with the launch of its Meteor Lake client CPUs and Granite Rapids data center chips in 2023. These chips will be based on the chip giant's Intel 4 process, which is a densely packed 7nm manufacturing node. Intel's 7nm manufacturing node is reportedly denser than TSMC's 5nm process, which means that the former packs more transistors.
But now that TSMC could scale up the deployment of its 3nm chips, which are expected to go into production late this year, Intel faces a tougher challenge. That's because TSMC customers such as AMD could reduce the time to market of more competitive chips that could scupper Intel's resurgence. With Intel's revenue expected to remain flat in 2022 over last year at an estimated $73.3 billion while earnings are expected to decline 30% to $3.69 per share, the chip giant cannot afford to slip up.
So there's a chance that TSMC's massive 2022 spending plan could have a negative impact on Intel and take the wind out of the semiconductor giant's sails at a crucial time, just as Chipzilla's turnaround was gaining momentum.
