AMD (Market Cap: $157B), Broadcom ($242B), Intel ($191B), Nvidia ($552B), Qualcomm ($159B), Micron ($81B), NXP ($45B) along with ARM, TSMC ($524B), UMC ($21B), Samsung, Global Foundries ($30B) are some of the key players in semiconductor space and their valuations have experienced massive upheaval.
Changing Industry Dynamics
It wasn’t too long ago that Intel was the unquestioned king of U.S. chip makers and the largest semiconductor company by market capitalization since most computing was done with a PC. Five years ago, Intel was worth as much as Nvidia and AMD combined. Since then, a host of changes have occurred in how people interact with technology, and other companies have specialized in taking advantage of those changes, causing Intel to fall behind. Now, Nvidia is worth as much as the other two as Taiwan Semiconductor also surges, reflecting a massive change in the semiconductor industry in the past decade.
Qualcomm rose to prominence with the rise of cellphones and then later with Blackberries, Apple’s iPhones, and mobile devices such as tablets and AR headsets in general. AMD took Intel head-on in the mid-2000s and gained a quarter of the market for central processing units, or CPUs - Intel’s bread and butter, only to retreat and then make a similar move in Data Center servers in recent years. Nvidia’s graphics-processing units, or GPUs, once known for just making video games prettier, have taken to powering cloud-computing data centers after their utility in AI and machine learning was discovered. Intel has learned the hard way that with all these competitors in an evolving landscape, it too needs to evolve.
Nvidia – King of the New Landscape
One way to see how the chip industry reached this point is to look at the current heavyweight, the most valuable semiconductor company Nvidia. Nvidia has succeeded in two related areas of the fastest-growing chip segment: the Data Center, where the growth of cloud-computing from the likes of Amazon, Microsoft and Alphabet have required ever more performance using less electricity, and Artificial Intelligence services. Nvidia proved that GPUs could help to increase the ability of Data Centers, which have long been run with CPUs. While CPUs work quickly through tasks that require user or system interaction, GPUs can break complex problems into millions of separate tasks to work them out at once, in so-called parallel processing. Next, Nvidia tried to corner the market on ARM based processors. ARM uses an architecture that is different from the once-standard X86 one built by Intel in the early days of computing.
The Mutating Complexity
The aspect to appreciate about Intel is the huge breadth of products that Intel must build to be successful again. It needs the recognition that if you want to compete in the larger landscape, Intel must make acquisitions. There’s another area where Intel has a long way to go to catch up to Nvidia and that is SW. Nvidia over the years has developed an entrenched SW ecosystem in which to run their GPUs. Nvidia is far ahead of Intel and others in software, but Intel is trying to catch up. Intel recently announced it was acquiring Israel-based Granulate Cloud Solutions that develops cloud-optimization SW that helps boost performance in existing HW. It’s not just Intel. Recently, both AMD and Qualcomm announced moves that will broaden their reach into SW. AMD said it was acquiring the widely used data-center services platform Pensando for nearly $2B. Qualcomm, on the other hand, said it closed on its deal to acquire a full stake in Arriver, the driving-automation SW company it helped build with Veoneer. Qualcomm plans to use Arriver to build out a fully automated driving SW stack for its Snapdragon Ride platform. Broadcom was comparatively early in broadening its SW DNA through acquisitions such as Symantec’s enterprise security business, CA back in 2018, and Brocade for $5.5B in late 2017. Broadcom derived about one quarter of its $7.7B in quarterly revenue from SW sales.
AMD is seeking to dethrone Intel from the No. 5 position, which passed Intel in market cap at times in recent weeks. For years, AMD has lived in the shadow of Intel, referred to as the “smaller” rival in the Data Center and PC chip market with respect to market capitalization, but that’s no longer the case as the two companies jockey for position. The gap between the companies narrowed considerably after AMD closed its $35B deal to acquire chip maker Xilinx.
The Fab Rainmaker
While chip makers seek to diversify to compete, there’s one factor in the background where a virtual monopoly exists, and that’s in where the silicon transistors are made. No matter how diversified an individual chip maker is, that diversification matters little if you don’t have the manufacturing capacity for the silicon, and that makes the industry beholden to TSMC. Fabs are a huge capital investment, often taking two to three years to build because of their complexity. TSMC owns fabrication facilities, or fabs, where the actual silicon wafers are made, for chip makers. There is virtually no piece of electronics that doesn’t have substantial content from TSMC.
Even though Samsung and Global Foundries offer third-party foundry services, Samsung, while it has leading-edge capacity, is smaller in the foundry space than TSMC and Global Foundries caters to those chip makers who produce lagging-edge, but still necessary, technology. Intel, which is seeking to move into TSMC’s market by offering third-party fab services, also relies on TSMC for some of its cutting-edge products that require a greater transistor density. It’s more of an industry wide problem, which is if something happens to TSMC’s ability to produce inside, then pretty much the whole semiconductor industry, and the whole electronics industry, and frankly, the whole world economy will have some big issues.
The notion of being a fab for lots of people has been very successful. This is one of the reasons you see the shift in Intel’s strategy. It keeps you at full capacity all the time as a fab. Nvidia and TSMC combined currently have come to account for more than a third — $1.1 trillion — of the $3 trillion market cap of the 30 companies that make up the PHLX Semiconductor Index. By comparison, the combined caps of Intel and AMD make up about 12% of the index.
/Service Ventures Team
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