Intel Goes All In On 18A In A Showdown With TSMC
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Summary:
- Intel is focusing all resources on its 18A node, skipping the 20A node, to compete with TSMC’s latest offerings.
- Success or failure of the 18A node is critical for Intel’s future, potentially determining the company’s ability to compete and regain investor confidence.
- Despite rumors of yield issues, Intel maintains that 18A will be ready for high volume production by early 2025.
- Investing in Intel stock now is a high-risk, higher-reward play.
FinkAvenue
Intel (NASDAQ:INTC) has been in the news cycle a lot lately, and not for the reasons investors have hoped. First, the company announced a major restructuring last month in an effort to turn around its lagging foundry business, then there were rumors of a spin-off of the manufacturing division, and now this past week, Intel has announced it is skipping its 20A manufacturing node and is focusing all available resources on the roll-out of its 18A node. While this might initially seem like a sign that Intel’s manufacturing is still in trouble, I think it’s more likely an indication that Intel is going all in on 18A as a challenger to TSMC’s (TSM) latest offering. Because of Intel’s financial struggles and the resources the company has invested into 18A, the success or failure of this node will likely chart the stock’s course for the foreseeable future.
Intel Goes All In On 18A
I have been writing more articles on Intel than I expected to over the last few weeks, but the news just keeps on coming! The most recent of these nuggets came last week when Intel announced it would be manufacturing Arrow Lake, originally planned to use the 20A node, through external partners, specifically TSMC, instead and focusing those resources on 18A:
One of the benefits of our early success on Intel 18A is that it enables us to shift engineering resources from Intel 20A earlier than expected as we near completion of our five-nodes-in-four-years plan. With this decision, the Arrow Lake processor family will be built primarily using external partners and packaged by Intel Foundry.
The spin from Intel here is that they’re moving on to 18A because early results have been encouraging and 20A was always meant to mostly be an internal “bridge” node to 18A anyway, so skipping it makes financial and technical sense. While this initially sounds sort of suspect, I think the decision to move on from 20A is the correct one for a few reasons:
1) If everything goes as planned, 18A will beat TSMC’s roughly equivalent N2 node to market. This has been the ultimate goal of the “five nodes in four years” plan.
2) Scaling out a manufacturing process that would only be used for a single line of processors would be a costly use of resources Intel can no longer afford.
3) 18A is an external node as well, so its success or failure will determine whether Intel can broaden its customer base and repair reputational harm from the failure of the company’s 10nm (Intel 7) process.
All this to say, Intel didn’t mothball 20A because it couldn’t be executed successfully, but because of the company’s current financial situation, going all in on 18A is the optimal path forward. Intel had unused capacity at TSMC’s fab anyway, so manufacturing Arrow Lake there is also just a smart move. The question now becomes: can 18A succeed against TSMC?
18A To The Rescue?
From a purely technical standpoint, Intel’s 18A node has the juice to compete in the same ballpark as TSMC. The latter’s N2 node will likely be better across the board than 18A (performance, power efficiency) once it releases, but just by having a competitive node and open fab capacity, Intel will be able to pull customers away from TSMC’s monopoly. And by being first to market, Intel can get ahead of the long development cycles these chips require and secure design wins for chips expected in 2025 and 2026 before the N2 can scale up.
This is all well and good in theory, but Intel has had yield issues in the past. In fact, yields and chip defects were the chief downfall of the company’s much maligned 10nm process. For its part, early last month Intel said that 18A is “yielding and performing well”, but what else are they gonna say.
There was a piece by Reuters this week where three anonymous sources with apparent knowledge claimed that Intel’s 18A test with Broadcom (AVGO) was disappointing and proved the node is not yet ready for high volume production. Essentially, Intel ran some wafers through their machines and provided them to Broadcom engineers for a review of the resulting chips, which supposedly were not satisfactory. Broadcom denied the reporting and said they were still evaluating, while Intel reiterated that they will be ready to scale by late 2024 and enter high volume production by early 2025.
While this is certainly not an encouraging sign, there might be more smoke here than fire. Intel itself has said in the past, and reiterated following the Reuters article, that 18A will not enter volume production until 2025 and beyond the supposed indication from Broadcom sources that this test was a “disappointment” there is no further detail on what exactly constitutes a failure. So as far as we know, this isn’t new information or cause for concern. Now, if Broadcom comes out and states that it will not be going with 18A for its chips even in 2025, that would be a cause for concern. And concern is one thing Intel cannot afford right now.
Because of the resources invested and the amount of cash Intel’s fab division is bleeding, 18A is the biggest inflection point in the company’s recent history, if not ever. As I’ve written in previous articles, I think Intel’s best chance at a turnaround is to ignore calls for a spin-off, invest heavily into its foundries, and get back to reaping the benefits of being vertically integrated. In my opinion, 18A will determine whether this is a realistic possibility.
With its success, Intel will be able to achieve its goal of break-even for the foundry by 2027 or earlier, invest in competing with TSMC on the following node, get the albatross out from around the design division’s neck, quiet calls for a break-up, and re-instill confidence in investors. However, if it were to fail, foundry losses would mount, the stock would crater even further, and panic might push Intel into a foundry spin-off which would, in my opinion, negatively impact the resulting entities.
Investor Takeaway
The main takeaway here is that, if you’re going to invest in Intel right now, your eyes should be firmly locked on the successes and failures of 18A. From a valuation perspective, I think there is more potential upside in INTC than downside, a classic high-risk, higher-reward play.
One market advantage that Intel does have right now is that fab capacity is extremely valuable and limited. Mega companies like Apple (AAPL) and Nvidia (NVDA) will get first dibs on TSMC’s new manufacturing nodes and fab capacity. This means other companies will have to wait for those coveted spots while the major players roll out their products. This leaves room for Intel to provide a competitive, cost-effective alternative to companies that can make do with a good chip instead of a great one.
If this sounds familiar, it’s because this was the same language used to predict AMD’s success in the data center. I view this opportunity for Intel in the same way: all it has to do is execute decently, and there will be plenty of pie to go around.
Thanks for reading!
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