One thing that Intel (NASDAQ:INTC) executives cite as a key competitive advantage time and again is the company's lead in chip manufacturing technology relative to the rest of the industry. As it stands today, it is clear that Intel has such a lead. However, based on public statements from the company's main chip manufacturing rival, TSMC (NYSE:TSM), Intel's lead may be in jeopardy.
Let's take a closer look at what's going on here.
Intel's publicly stated timeline
Intel has said that it plans to launch its first 10-nanometer product family known as Cannonlake at some point in the second half of 2017. The company has also suggested that products based on its 7-nanometer manufacturing technology will launch either two years or two-and-a-half years following its first 10-nanometer products.
In other words, investors realistically shouldn't expect the first 7-nanometer products from Intel to launch until the second half of 2019 or the first half of 2020.
TSMC's publicly stated timeline
TSMC has said that it plans to go into volume production on its 10-nanometer technology in the fourth quarter of 2016 and that it expects to see first revenue in early 2017.
From a "named node" perspective, it looks as though TSMC and Intel will both be in production on their respective "10-nanometer" technologies at roughly the same time.
At this point, I would argue that Intel will still have a manufacturing "lead" because its 10-nanometer technology should offer significantly better density than TSMC's 10-nanometer technology. This follows from the fact that both Intel and TSMC are claiming roughly a doubling in chip density in moving from their respective 14/16-nanometer technologies down to their 10-nanometer technologies.
Intel had a lead at 14/16-nanometer in this metric, and I don't think this will change at the 10-nanometer node.
However, where things get interesting is that TSMC is claiming that it will go into "risk production" on its 7-nanometer process in early 2017. The implication here is that TSMC will go into volume production on its 7-nanometer technology at some point in the first half of 2018. TSMC claims that its 7-nanometer technology will deliver 40-45% smaller area and a 10-15% performance enhancement over its 10-nanometer technology.
If TSMC can execute to this aggressive timeline, its 7-nanometer technology should be able to capture the lead from Intel's 10-nanometer technology in terms of density and potentially performance/power.
If Intel loses its manufacturing lead, the bull thesis may be broken
If TSMC really does wind up surpassing Intel in terms of chip manufacturing technology, then I believe that this would represent a major blow to the Intel bull case.
For one thing, it would mean that Intel's chances in the mobile chip market would be more-or-less shot as Intel would have essentially nothing in the way of a competitive advantage here. It would also destroy any chance that Intel may have had in obtaining foundry business from clients such as Apple (NASDAQ:AAPL).
Even worse, though, is that if Intel falls behind in chip manufacturing technology relative to the foundries, this might give companies like Qualcomm (NASDAQ:QCOM), which have signaled their intent to go after Intel's bread-and-butter server chip market, a performance/power edge in server chips -- potentially leading to material market segment share loss.
Intel, you need to prove yourself
Intel will be hosting its annual investor meeting on Nov. 19 this year. This event will surely have a presentation dedicated to Intel's chip manufacturing technology. I believe that the burden is now on Intel to convince investors that it really has a sustainable "manufacturing lead."
If Intel can demonstrate this, then I will feel comfortable continuing to hold the stock. However, if Intel can't prove this in a convincing fashion, then I will very seriously consider selling most, if not all, of my position in the stock.