[Apple Shockwave](16) "Positive" One Word from Nvidia Boosts 'Chip Made in America'

Jensen Huang "Positive Intel Chip Production Tests"
Signal for Chip Production in the US Moving Away from TSMC
Intel Emphasizes Moore's Law and Courts Apple
Apple Highlights Use of US-Made Chips

Editor's Note[Apple Shockwave] is a content series that examines the upheaval caused by Apple entering the semiconductor market. You might wonder why Apple is involved in semiconductors. Apple is no longer just a company that makes smartphones and computers. After long efforts starting from the late founder Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the leader in the PC era, Apple has become the top predator in the mobile era semiconductor ecosystem. Amid the global semiconductor supply chain crisis and massive investments in semiconductor production facilities, we will carefully examine the upheaval and prospects in the semiconductor market brought about by Apple Silicon to broaden our readers' insights. Apple Shockwave will visit readers every Saturday. After more than 40 installments, it will be published as a book.

"Be completely humble and gentle; be patient, bearing with one another in love."

Pat Gelsinger, Intel's Chief Executive Officer (CEO), posted Ephesians 4:2 from the Bible on his Twitter in early May. Gelsinger is one of the most devout Christian believers in Silicon Valley. Although he comes from an Amish village centered on Christianity, he became a more devout believer after meeting his wife at church shortly after arriving in Silicon Valley. He frequently shares Bible verses on Twitter.

Jensen Huang, CEO of NVIDIA, is delivering an in-person speech for the first time in four years at the Computex event held in Taiwan on the 30th of last month.
[Photo by EPA Yonhap News]

"Intel's next-generation process test results look promising."

On May 30, at the 2023 Computex event held in Taipei, Taiwan, Jensen Huang, CEO of NVIDIA, made this statement. It was big news?long-awaited news. Could it be an answer to Gelsinger's prayers? For Intel, which has led the revival of the U.S. semiconductor industry and the resurgence of the fallen Rust Belt through a massive investment of 400 trillion won, this was like rain in a drought.

Intel and NVIDIA once had an incomparable relationship. Intel was absolutely the 'boss.' Intel's CPUs were superior to NVIDIA's GPUs. NVIDIA grew steadily, learning from failures while facing the giant mountain that was Intel. NVIDIA gained a rocket boost from the cryptocurrency boom and artificial intelligence (AI). Meanwhile, Intel and NVIDIA turned from friends to rivals. Such a relationship cannot continue. A breakthrough is needed. The Bible verse urging to forget conflicts and love and care for each other fits perfectly here.

As of 2023, NVIDIA is the dominant player in the relationship with Intel. Gelsinger, who declared 'post-CPU' and is responsible for reviving U.S. semiconductor production through the foundry business, desperately needs the support of Huang, the 'leather jacket man.'

On the day Huang's remarks were reported, the major U.S. media outlet The Wall Street Journal (WSJ) reported that Intel's foundry business failed to secure customers such as Qualcomm and Tesla. How did the market judge these two completely different pieces of news? Intel's stock price rose more than 3% that day. The market weighed the relationship between NVIDIA and Intel.

Semiconductor and computer specialized media also unanimously reported Huang's comments, saying that a ray of hope is beginning to shine on Intel.

Let's look at the review from the IT specialized blog Tom's Hardware. Tom's Hardware analyzed that Huang's mention was the first sign that NVIDIA could become a customer of Intel's foundry business, which Gelsinger is promoting. Intel has already announced plans to push the 1.8-nanometer process, but there are many hurdles to gain the trust of fabless companies. The fact that NVIDIA could break through that barrier is quite significant. Earlier this year, Intel revealed that it was testing the 3-nanometer process with important customers. At that time, Gelsinger said, "We are pleased that cloud, edge, and data center solution providers have become customers of Intel's 3-nanometer process," but did not disclose who those customers were.

As interest in Intel-related remarks grew in the U.S., Huang did not forget to show consideration for Taiwan. He said that next-generation products would be produced at TSMC and that he was not worried about Taiwan's geopolitical risks. This view differs from Warren Buffett, who halted investments due to geopolitical instability at TSMC. During his visit to Taiwan, Huang also made efforts to maintain relations by meeting with Morris Chang, founder of TSMC.

Apple and NVIDIA Chips Begin Transition to U.S. Production

The fabless companies currently leading the semiconductor market are Apple and NVIDIA. Apple is undoubtedly unrivaled. Its order volume is so large that it practically monopolizes TSMC's latest processes. Samsung Electronics and others, competing with Android phones, have a strong desire for chips using the latest fine processes. There is no room for other companies to break in.

TSMC has succeeded in dominating the foundry ecosystem through cooperation with Apple. Morris Chang, TSMC's founder, made a shrewd investment strategy to take over Apple's chip production from Samsung, but without the lawsuits between Apple and Samsung, the current Apple-TSMC relationship would have been impossible from the start.

Although TSMC is called Taiwan's 'patriotic mountain' protecting the island, is it the same from the perspective of companies placing orders? TSMC's monopoly is a serious problem for fabless companies commissioning semiconductor production.

From the perspective of those commissioning semiconductor production, the conditions are unfavorable. They inevitably lose in price negotiations with TSMC. They have to pay higher costs per wafer. If appropriate yields are not secured, they may have to pay even more to produce semiconductors. Even if TSMC produces semiconductors in the U.S. to stabilize the supply chain, the situation does not change.

Naturally, fabless companies must find alternatives to TSMC. A representative from a large fabless company that moved from Samsung to TSMC said, "We also do not want to produce with only one company."

Fabless companies do not want to be dependent on a single foundry company. There are roughly two reasons. First, bargaining power over production costs. Second, and possibly more important, to avoid risks, it is better to produce with multiple companies. That also improves negotiation power.

In the past, Intel and Qualcomm wielded absolute dominance in the IT industry by leveraging their monopolistic positions, but now TSMC holds that position. As Intel fell behind in fine processes and issues arose with chips produced by Samsung Electronics' foundry, a shift toward TSMC occurred. Competition among fabless companies to produce the latest chips at TSMC intensified. Naturally, TSMC's share grew.

Even if TSMC produces semiconductors in the U.S., relying solely on TSMC for long-term production is inevitably burdensome. Ultimately, alternatives must be found. Those alternatives are Intel and Samsung Electronics.

Gelsinger is well aware of this fact. His comment on Apple CEO Tim Cook's post mourning the death of Gordon Moore, Intel's founder who proposed 'Moore's Law,' appears to be a 'love letter' to Apple.

Cook called Moore the father of Silicon Valley and a true pioneer. In response, Gelsinger mentioned both Moore and Steve Jobs, Apple's founder, expressing gratitude for the technological pioneers and their dedication. Recently, Gelsinger and Intel have repeatedly emphasized their determination to continue Moore's Law. Moore's Law, which states that semiconductor integration doubles every two years, has become difficult to achieve as fine processes advance. Intel is signaling that it will continue Moore's Law through its IDM 2.0 strategy and asking to entrust them with chip production.

Apple has also recently expressed its commitment to using American-made semiconductors. Last month, Apple announced it would use FBAR filters produced by Broadcom in the U.S. Although it is a multi-billion-dollar contract, the most notable aspect is that it is 'Made in America.' Cook also declared that Apple would use chips produced at TSMC's Arizona plant. In any case, there are only three companies capable of advanced fine processes in the U.S.: TSMC, Intel, and Samsung Electronics.

NVIDIA's case is somewhat special. Founded by a Taiwanese, NVIDIA designs AI chips but mainly produces them in Taiwan. From the U.S. perspective, it is uncomfortable to see AI chips, which are game changers capable of changing the flow of global industry and economy, produced right next door in China. Although the U.S. has banned AI chip exports to China, it is highly likely that AI chips will eventually be produced in the U.S.

From the U.S. government's standpoint, the A-series chips for Apple's iPhones, which Americans primarily use, and AI chips must bear the label 'Made in America.'

Compared to other chips, domestic production of AI and Apple semiconductors is a top priority for both the U.S. industry and political circles. Meanwhile, TSMC's moves are also unstable. TSMC plans to apply the latest fine processes to its Taiwan factories rather than its U.S. semiconductor plants.

Since the 1990s, the semiconductor market has been a continuous cycle of conflict and reconciliation. Fierce competition between companies turns today's friends into tomorrow's enemies. Yesterday's enemies can quickly become friends.