TSMC Will Make More Chips -- for Intel

Intel Corp. (NASDAQ: INTC) had a miserable Friday. Shares tumbled more than 16% for the day following an announcement that the company would consider outsourcing chip manufacturing. The announcement boosted shares at both Advanced Micro Devices Inc. (NASDAQ: AMD) and Taiwan Semiconductor Manufacturing Co. Ltd. (NASDAQ: TSM), the former an Intel competitor in the market and the latter a manufacturing technology rival.

A report in Monday’s edition of Taiwan’s China Times says that Intel has ordered 180,000 wafers from TSMC, nearly as many as the 200,000 that AMD has ordered for next year. Intel has been unable to work out the kinks in its 7-nanometer (nm) production process and announced last week that it does not expect to have the issues resolved until late next year. The company won’t be producing the 7nm CPUs until late in 2022 or early 2023.

In a press release, Intel said that 7nm CPU products have been pushed out by six more months due to problems with yield that is now about 12 months behind schedule. That’s where TSMC comes in.

The Taiwanese giant also likely will get the contract to produce wafers for Intel’s first graphics processor, a 7nm chip codenamed Ponte Vecchio. The GPU is due late next year or early in 2022, and Intel said some parts will be outsourced.

By the time Intel is shipping 7nm chips in quantity, TSMC plans to be producing 3nm wafers. The company will be producing 5nm wafers this year for Apple Inc.’s (NASDAQ: AAPL) A14 Arm-based processor and early next year for Qualcomm Inc.’s (NASDAQ: QCOM) latest Snapdragon processor. The 5nm processors are expected to yield a 15% boost to performance while delivering a 30% efficiency gain. Apple’s Arm-based chips will soon replace Intel chips in Apple’s Mac computers too.

Intel stock has clawed back at 1% of Friday’s loss in the opening half-hour of trading Monday. The shares traded at around $51.03, in a 52-week range of $43.63 to $69.29. The consensus 12-month price target on the stock is $58.61.

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