The Disintermediation of Intel by TSMC

The Disintermediation of Intel by TSMC

Intel is a fascinating company and a global innovator. But the news now is that Intel is no more the king as Nvidia has eclipsed it as the U.S. largest chip maker by market cap.  Blame TSMC, a Taiwan-based semiconductor contract manufacturer, for that. Despite the brilliance of Nvidia in making chips for gaming, AI and datacenters, the biggest factor remains that TSMC has created a new domain that could enable disintermediation of Intel.

In a surprising development in the US semiconductor industry, Nvidia has beaten Intel to become the most valuable chipmaker in the United States for the first time.

The company’s shares rose 2.3% on Wednesday to a record $404, to push its market capitalization to $248 billion, $2 billion above Intel’s $246 billion value, according to Reuters.

US chipmakers have suffered a hit following the emergence of COVID-19 that resulted in the S&P low on March 23. But Intel was coming out of it coldly while Nvidia has enjoyed a relative growth that has put it ahead.

Intel’s stock has lost almost 3% in 2020; Nvidia’s witnessed a 68% growth. The growth has been attributed to the evolution of remote work by investors who believe that the coronavirus pandemic will continue to spur Nvidia’s datacenter business to fast growth

Yes, Intel used to run the most advanced chip factories in the world, and companies depended on it for the most advanced chip designs. But with the advancement of TSMC and Samsung Electronics, companies can practically do the other thing Intel does: chip design. That means, they design and ask TSMC to manufacture. The ability to do that via TSMC without investing in foundries is a new level of disruption for Intel.

An Nvidia chip

Apple had taken its Mac chips from Intel, and would design and fabricate with possibly TSMC or Samsung since other players like GlobalFoundries remain weak. Other companies will do just that. As that happens, the largely closed system of Intel will begin to make way for the ARM business model. Provided there is TSMC to make the chips after circuit designs, most companies will go all the way to designing internally and sending to TMSC to fab.This was not possible in the past as TSMC was weak, but over the last few years, TSMC has evolved to be as good as Intel, if not better.

Simply, TSMC produces advanced chips that can match, if not surpass, Intel’s foundry capabilities. With that, Apple thinks it can design the Mac chips, and get the outside contractor to manufacture them. That saves it a lot of money in a business known for relatively low margins when compared with Apple mobile business.

More so, having Apple mobile business and Mac within the same chip architecture opens a better interoperability where your Mac becomes an extension of your iPad and iPhone, and vice versa. It un-bundles the mobility business, and opens a new age in what Apple can do at homes, on the go and offices. This is the grand unification of Apple business and the beginning of a new dawn of fandom.

Simply, Intel has to solve TSMC flank attacks even as it looks for ways to defend its castle from AMD and Nvidia. If not, the Apple Mac effect will become more common.

The Apple’s GRAND Unification And New Age of Fandom

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2 thoughts on “The Disintermediation of Intel by TSMC

  1. Nvidia has more of products of the future than Intel, and savvy investors are more obsessed with future than present. It’s not different from what is playing out between Tesla and auto behemoths; it’s not about who is selling more now but rather who could sell more in another decade from now.

    It’s Intel that needs some sort of reinvention in its business model, because the seemingly small players may gradually and systemically take it out of business; we have seen this sort of thing happen over and over.

    Interswitch used to charge setup fee to clients, until Paystack and Fluttrwave came to town. What made Intel great before is now becoming moribund, and even with ‘Intel Inside’, more people are holding smartphones, investing in Cloud and AI, so it’s left for Intel to demonstrate that it has awareness and can compete again.

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