There's been a lot of fear, uncertainty, and doubt going around lately with respect to the progress that the third-party semiconductor foundries have been making on next-generation process technologies. While Taiwan Semiconductor (NYSE:TSM), Samsung (NASDAQOTH:SSNLF), and others have been claiming that everything is going swimmingly for production during 2014, the reality from the semiconductor equipment vendors' point of view is a different one that should allow Intel (NASDAQ:INTC) investors to breathe a sigh of relief.
KLA-Tencor and ASML spill the beans
While TSMC, Samsung, and others interested in promoting the foundries claim that TSMC and Samsung are seeing "great" yields for their FinFET devices, KLA-Tencor (NASDAQ:KLAC) made the following remarks on its most recent earnings call when explaining why its logic customers are pushing out FinFET equipment purchases (emphasis mine):
Now in logic and foundry with the introduction of the new 3-D gate architectures, the yield issues our customers are grappling with today are proving to be the most challenging that the industry has ever faced and even the smallest variation in process margin can cause significant yield losses for these devices.
So, according to a leading equipment vendor, the foundries are facing the most challenging yield issues that the industry has ever faced, yet according to TSMC, everything is going swimmingly with its 16-nanometer FinFET process. Now, KLA-Tencor isn't the only one to claim significant uncertainty surrounding FinFET production at the foundry; leading lithography vendor ASML (NASDAQ:ASML) chimed in on its most recent earnings call echoing similar thoughts (emphasis mine):
With that, I would like to turn to our expectation for Q2 and Q3. Let me start with a view at the markets we serve. We are experiencing solid demand in memory with some uncertainty on the ramp of 3-D versus planar NAND, which is changing our product mix slightly. IDM is experiencing strong year-over-year growth as expected. And in foundry, we see strong demand for the 28-nanometer node, but expect some adjustments to shipments for the continued ramp to volume production for both 20-nanometer planar transistor and 16-namometer plus 14-nanometer FinFET nodes. These adjustments are impacting our revenue forecast for Q2 and Q3.
In short, while TSMC and Samsung talk a big game with respect to their FinFET nodes, the truth is that the foundries are having a difficult time getting the yields to be passable and seem to be quite a way from production. The question, then, is how far from volume production are the foundries?
Expect production to begin in mid-2015
On ASML's most recent call, CEO Peter Wennink had the following to say with respect to the lead times in equipment orders and ramp to production:
Now, if they have some breakthroughs, they will pull things in, because they know on my earlier question ... what's the time that they need? They need about nine months to six months of our production time and then about one quarter of installation and ramp-up time.
So, once the yields on the manufacturing process are ready to go, the equipment vendors will need about six months to actually build the equipment and then an additional quarter (about three months) to get that equipment up, running, and ramped. If ASML believes that both Q2 (current quarter) and Q3 will be weak (implying orders coming in during Q4), this would imply the beginning of the ramp in Q2 2015.
Given the time it takes to actually produce product -- and assuming that the designs from TSMC's and Samsung's customers are ready -- this would imply product in the market in late 2015 or early 2016 if everything goes as planned. This is roughly in line with TSMC's claims that 16 FinFET would be in volume production roughly one year from the beginning of volume production of 20-nanometer.
Circling back to Intel
On Intel's most recent earnings call, CEO Brian Krzanich confirmed that Broadwell -- Intel's first 14-nanometer product -- began production in Q1 2014. If TSMC and Samsung hit their goals, then on a named node-to-named node basis (that is, Intel 14-nanometer relative to TSMC/Samsung 16/14-nanometer), Intel is about one and a quarter to one and a half years ahead of TSMC. However, there is some subtlety required here.
TSMC and Samsung are essentially grafting their first-generation FinFET transistors onto the same metal stack (which is a key determinant of process density) as their 20-nanometer processes, implying that there will be a minimal density improvement in going from 20-nanometer to 14/16-FinFET. Intel, on the other hand, plans to do a "true" 14-nanometer process. In particular, Intel should have tighter gate and minimum metal pitches than TSMC/Samsung so its 14-nanometer will be "ahead" of its competition.
Foolish bottom line
While you will see some screaming about Intel's losing its manufacturing lead, the bottom line is that Intel will have a denser and probably higher-performing 14-nanometer process, probably with high yields (thanks to learnings from the 22-nanometer FinFET generation) and with multiple flavors of products on the shelves, before TSMC and Samsung ship their first-generation FinFET products.
Now all Intel needs to do is release mobile chips that people actually want, something that maybe will happen during the course of 2015.
Ashraf Eassa owns shares of Intel. The Motley Fool recommends and owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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