GlobalFoundries recently announced early availability for its 7 nanometer (nm) leading-performance (LP) process technology. The first customer products will launch during the first half of 2018; mass production will follow in the second half of the same year.
As one of GlobalFoundries' partners, Advanced Micro Devices Inc. (AMD, Financial) is the primary beneficiary of this development as early availability of the 7nm node will give the company a process technology lead over Intel Corp. (INTC, Financial). The company has been making strides with its Ryzen and EPYC ventures, and having the leading node will put the company in the driver's seat. The 7nm process could be a critical success factor for the company as it looks to take market share away from Intel. Before going into the benefits for Advanced Micro Devices, let’s see what GlobalFoundries’ 7nm process brings to the table.
Impressive performance and power combination
GlobalFoundries’ 7nm FinFET process is expected to boost performance by 40%, which is above expectations. Further, area scaling will be two times compared to the previous generation. Early 7nm mass production will use an optical lithography approach, which is relatively expensive. GlobalFoundries, however, is investing to move to EUV lithography later, which will result in cost savings for customers.
The 7nm process technology will support a 30% reduction in die costs, along with a power reduction of more than 60%. It is interesting to note that simultaneous performance and power benefits are being projected. This is unprecedented in the semiconductor industry. If GlobalFoundries’ claims hold true, the next generation of processors from Advanced Micro Devices will have some serious competitive advantages over Intel.
Node lead is the decisive factor
First, the company will have a node advantage over Intel for the first time in a very long time. Note Intel is planning to roll out 10nm parts soon. Given the fact AMD is already creating problems for Intel with a process node that is supposedly below par compared to its 14nm process, a move to 7nm will bring material gains for AMD in terms of market share. To add to Intel’s problems, the company has delayed its 10nm launch until the end of 2017. This gives Intel a mere six-month lead over Advanced Micro Devices. Not to mention, the 10nm server ramp is not expected until the second half of 2018. It all boils down to the fact node lead matters for premium pricing. Once Intel loses that, it will be a downhill journey for the company.
Intel’s process superiority is neutralized
It is widely believed Intel’s process is more mature than the technology of other foundries as its process supports a higher transistor density at a given node. This is true, but Advanced Micro Devices will be moving to 7nm.
Despite Intel’s superior node, the transistor density, at 7nm, is higher for GlobalFoundries’ process technology.
It is not double the density of Intel’s 10nm but it is still higher, which will result in performance and power advantages for Advanced Micro Devices. Global Foundries’ estimated transistor density is around 127 megatransistors per millimeter squared (MTr/mm2), in contrast to Intel’s 100.8 MTr/mm2 for 10nm process. The point is AMD will manage to outclass Intel in terms of performance and power, beginning in the second half of 2018.
Further, GlobalFoundries is also working on a 5nm process in collaboration with IBM (IBM, Financial). This gives AMD visibility for devising its node strategy. If GlobalFoundries delivers on its promise, it will be difficult for Intel to maintain market leadership.
AMD has the luxury to focus on design
Since it is able to outsource, Advanced Micro Devices can focus on its design that is reflected in Ryzen and EPYC. The only problem was lagging node technology. GlobalFoundries’ roadmap looks promising, which will benefit Advanced Micro Devices in the long run. Intel, on the other hand, has a problem as it has to focus on process technology and design. All in all, AMD seems better positioned with its efficient design and expected process lead going forward.
Bottom line
I was skeptic about Advanced Micro Devices’ valuation when the stock surpassed $12. The key concern was the lack of visibility on process technology going forward. Ryzen's promises would have been short-lived amid Intel’s move to 10nm. Being in the lead, Intel would have been able control the premium market. This concern, however, was alleviated once GlobalFoundries announced early availability of 7nm and ambitious 5nm plans.
The only shot Intel has at protecting its market share is to challenge Advance Micro Devices on price in order to drive the company out of the market before it releases the 7nm. Otherwise, Advanced Micro Devices will take market share and we will witness the rise of the second major player in the market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
