Intel (NSDQ:INTC) has dominated the high-performance x86 segment over the past decade singlehandedly. It’s strategic focus on deploying technologically advanced fabrication processes, ahead of its peers, allowed the chipmaker to gain an upper hand over its competition in terms of raw performance and performance per watt metrics. However, Intel’s node advantage may not last for long.
Rival chip manufacturers namely Taiwan Semiconductor, GlobalFoundries and Samsung are upping the ante and are looking to advance their chip fabrication technologies at a rapid pace over the next two years. In fact, there is reason to believe that they might give Intel a run for its money. Let’s understand what’s happening here and how it could impact Intel’s business going forward.
What’s happening?
Let me start by saying that Intel has so far been operating on a tick-tock model. While every “tick” cycle represented a node shrink, a subsequent “tock” cycle brought a new architecture. The whole tick-tock cycle took 2 years to complete until very recently. Intel was deploying billions each year to maintain the timeliness of the aforementioned upgrade cycle which, in turn, allowed it to have smaller and more advanced nodes than its competitors. But things have recently changed at the Intel headquarters.
In a bid to reduce capital expenditure, Intel decided recently that it’s coming generations of CPUs would see a tick-tock cycle that would last for three years, up from the current two years. This looks like a smart financial move over the short term period as it would free up cash required for mergers and acquisition related activities, but that’s all the benefit there is. Intel won’t be investing as aggressively as it used to in furthering its technological prowess, which essentially means that competition can finally catchup.
To put things in perspective, Intel has historically enjoyed a 9-12 month long manufacturing lead over its competitors. What this means is: whenever Intel introduced new die shrinks in the past, it typically took 9 to 12 months for its competitors to introduce a similar fabrication node. But after the elongated tick-tock cycle, this lead will narrow and ultimately vanish going forward. If Intel slows down its pace of progression, its competitors are bound to ultimately overtake it over the next 2-3 years.
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