Friday marked the third straight losing week for the tech-heavy benchmark. Chipmaker Advanced Micro Devices (AMD) rose over 15%, bucking a mostly down day for tech stocks. Its primary rival, Intel, fell over 15% Intel’s stock fell after it said its latest-generation chips would be delayed, preventing so-called “7-nanometer” chips from appearing in computers until 2022 and servers until 2023.
The large stock moves come a day after Intel reported earnings. Although earnings beat expectations, Intel’s stock fell after it offered disappointing Q3 earnings guidance, and said its latest-generation chips would be delayed, preventing 7-nanometer chips from appearing in computers until 2022 and servers until 2023.
Meanwhile, AMD’s 7-nanometer chips are currently shipping inside laptops. These next-generation chips should offer significantly higher performance, which is critical in computer processors. 7-nanometer refers to the size of a single transistor and, in general, the closer a chipmaker can pack its transistors together, the more efficient a processor can be. Currently, Intel ships chips only with larger 10-nanometer transistors.
AMD was able to beat Intel to 7-nanometer chips because of a difference in the two companies’ business models. Intel famously controls its own manufacturing, with chip factories — called “fabs” — in the United States including in Arizona, Massachusetts, and New Mexico.
AMD used to control its own factories, but spun its fab department into its own company called GlobalFoundries in 2009. Now it contracts with outside firms actually manufacture its chips.
AMD contracts not only with its spin-off, GlobalFoundries, but also with Taiwan-based TSMC, which is the largest contract foundry in the world. (TSMC also makes chips for Apple and Nvidia, although like AMD, those companies design their own chips — TSMC just makes them. TSMC first started shipping 7-nanometer chips in 2018 for Apple’s iPhone XS.)
TSMC stock was up over 9% on Friday as Intel’s announcement suggested that TSMC would retain a manufacturing advantage for years to come. “The 7-nanometer push isn’t a positive announcement as many products were dependent on it,” Patrick Moorhead, analyst at Moor Insights commented.
Intel CEO Bob Swan said on Thursday that the company was open to outsourcing its manufacturing in order to keep up with the current generation of chip technology.
“To the extent that we need to use somebody else’s process technology and we call those contingency plans, we will be prepared to do that,” Swan said on a call with investors.
“We think we’ve dialed in a 7,” Swan said. “But, at the same time, what’s different is we’re going to be pretty pragmatic about if and when we should be making stuff inside or making outside and making sure that we have optionality to build internally, mix and match, inside and outside or go outside in its entirety, if we need to.”
