AMD Plays Leapfrog With NVIDIA, Intel

Every Intel (NASDAQ:INTC) investor knows that the company's latest and best manufacturing process is the 45-nanometer node. The chip giant got there months before rival Advanced Micro Devices (NYSE:AMD) could make the same jump, and should get to the 32-nanometer mark ahead of AMD, too.

This is a major competitive advantage in the chip-making business, because smaller chip traces allow designers to cram more functionality into smaller spaces. You get more chips out of every silicon wafer, and these processors run cooler and on less power than the old tech.

So, you might be surprised to hear that AMD is using a 40-nanometer process for its latest graphics chips, making a jump from the 55-nanometer processor employed in most other graphics processors. Taiwan Semiconductor Manufacturing (NYSE:TSM) has finished vetting its fanciest process, and the ATI Radeon HD 4770 is one of the first products to make use of it.

Intel doesn't care a whole lot about the discrete graphics products market. The company is doing just fine with the low-end graphics you'll find included on many Intel-based motherboards, leaving AMD and NVIDIA (NASDAQ:NVDA) to kill each other in the high-end market. And AMD's Athlon and Opteron chips weren't designed with the peculiarities of TSMC's 40-nanomter tech in mind, so this leapfrog move is strictly for the graphics chips.

Independent reviews of the 4770 are probably provoking cold sweats at NVIDIA, though. At $99 for a fully decked-out graphics card, this thing competes very well with far more expensive NVIDIA products -- with the added bonus of running on less of the electric juice. AMD "worked very closely with TSMC throughout the transition to the 40-nanometer process," giving the chip designer a leg up on the competition.

Decoupling manufacturing from chip design has given AMD the power of choice. If the brand-new Global Foundry operation can't get the next process node into gear on schedule, well, AMD might go to TSMC or United Microelectronics (NYSE:UMC) with its upcoming 12-core and 16-core designs. On the flipside, Global Foundries might end up making chips for NVIDIA, ARM Holdings (NASDAQ:ARMH), and other fab-less designers if everything goes according to plan. That way, AMD would make some money from the competition's sales, too.

That's delicious.

Further Foolishness:

• N-helpful NVIDIA
• You Can Do Well by Doing Good
• AMD Turns a Corner -- Cautiously