Taiwan's Digitimes, which appears to have a source or two inside of TSMC, reports that lead times for orders involving the chip contract manufacturer's cutting-edge 7-nanometer (7nm) manufacturing process node have jumped from two months to nearly six months amid strong demand. The site also suggests that TSMC is expected to up its capital spending for advanced manufacturing processes in response.
The report arrives less than two weeks after one stating that TSMC expects 7nm chip demand to remain strong through the first half of 2020. And it comes about two months after TSMC issued stronger-than-expected Q3 guidance and forecast its 2019 capex will be at the high end of a prior guidance range of $10 billion to $11 billion.
Strong orders from Apple (AAPL - Get Report) might have something to do with TSMC's stretched 7nm lead times. Both the A12 Bionic system-on-chip (SoC) that powers Apple's 2018 iPhones and the A13 Bionic SoC that powers its just-launched 2019 models rely on TSMC's 7nm node, with the A13 believed to rely on a somewhat more advanced 7nm-plus process.
However, TSMC also has a slew of other noteworthy 7nm clients. These include:
- AMD (AMD - Get Report) , which has launched 7nm desktop and server CPUs relying on its Zen 2 CPU core microarchitecture -- both appear to be seeing strong early interest -- as well as 7nm GPUs based on its Navi and Vega architectures.
- Qualcomm (QCOM - Get Report) , whose flagship, 7nm, Snapdragon 855 SoC is made by TSMC. The 855 is used within many of the high-end Android phones that have launched this year.
- Xilinx (XLNX - Get Report) , whose 7nm Versal programmable chips (they rely on a new architecture known as ACAP) are made by TSMC.
- Huawei, which has announced multiple 7nm mobile processors (including one with an integrated 5G modem) as well as a 7nm AI training accelerator.
- Taiwan's MediaTek, which unveiled a 7nm SoC with an integrated 5G modem in May. The chip will be available in 2020.
Needless to say, strong 7nm orders are a design activity are a positive for TSMC, whose shares are now up 22% on the year and once more close to a 52-week high (set in April) of $45.64. And to the extent that TSMC needs to hike its capex to keep up with 7nm demand, it's also a positive for chip equipment makers such as Applied Materials (AMAT - Get Report) , Lam Research (LRCX - Get Report) and KLA-Tencor (KLAC - Get Report) -- a group that has been stung this year by tumbling orders from memory makers amid an industry downturn.
It's worth noting that TSMC will be facing a measure of 7nm competition from Samsung (SSNLF) going forward. Outside of the U.S., Samsung's Galaxy Note 10 phone often relies on a Samsung processor (the Exynos 9825) that was made using the company's own 7nm process. In addition, Nvidia (NVDA - Get Report) , a TSMC client that hasn't announced 7nm products yet, has indicated that it will at least partly rely on Samsung for its 7nm needs. Likewise, Qualcomm has said it plans to use Samsung's 7nm process.
But as Samsung ramps its 7nm production, TSMC is getting set to start volume production in the first half of 2020 for the first process to rely on its next-gen 5nm node. Relative to its original 7nm process, TSMC claims its first 5nm process will deliver an 80% improvement in transistor density, along with a 15% improvement in performance and a 20% improvement in power consumption -- there's a good chance that the processors going inside of Apple's 2020 iPhones rely on it. A somewhat-improved 5nm+ process could arrive in 2021.
Separately, TSMC is working on a 6nm process that's promised to feature the same chip design rules as its 7nm process, thus making it easy for existing 7nm clients to adopt it. The 6nm process is expected to enter risk production during Q1 2020, with volume production arriving later.
In addition to keeping it very competitive with Samsung, which is also working to commercialize 5nm and 6nm processes, TSMC's strong manufacturing tech execution is a problem for Intel (INTC - Get Report) , both given that Intel rivals such as AMD and Xilinx are TSMC clients and that Intel has witnessed major delays for a 10nm process node that's seen as competitive with TSMC's 7nm node.
Intel just recently began shipping 10nm notebook processors and programmable chips (FPGAs) in volume, and isn't expected to ship 10nm server CPUs in volume until the second half of 2020. In addition, there still isn't much clarity on when Intel's first 10nm desktop CPUs will arrive.
Intel has said it plans to launch a data center GPU relying on a 7nm node that (from the looks of things) appears competitive with TSMC's 5nm node in 2021. However, the company has suggested its first 7nm CPUs won't arrive until 2022, with server CPUs arriving before PC CPUs.As a result, while Intel's long-term roadmap gives it a chance to eventually catch up to TSMC (provided the company executes well), TSMC looks well-positioned to hold onto its manufacturing tech lead for at least the next couple of years.