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In 1965, Intel (NASDAQ:INTC) co-founder Gordon Moore suggested that the number of transistors on an integrated circuit would double every two years. This effectively meant that performance would also double. And furthermore that costs would decrease as more circuit functions were crammed into the same amount of space.
Thus far, his prediction has been pretty accurate. So accurate, in fact, that most of us have at least heard of his prediction by its common name, Moore’s Law.
Intel has been weirdly capable of keeping up with Moore’s Law for nearly 50 years. But recently it fell short.
At last Thursday’s analyst meeting, Intel’s VP of Technology and Manufacturing, William Holt, explained why it fell off the pace of achieving Moore’s Law with its newest 14 nanometer (nm) process technology.
The challenge is simple: yield. As chips get smaller and smaller, manufacturing imperfections have a bigger and bigger impact. Intel’s problems arose because engineers couldn’t fix defect problems quickly enough. That meant fewer good chips came off the manufacturing line. Or in other words, the yield was very poor.
The yield chart below of Intel’s 22nm process (yellow line at the top) and 14nm process (white jagged line below) shows just how far behind Intel was. The older technology, 22nm, is charted based on 2011 dates, while the newer technology, 14nm, is based on 2013 dates.
These two lines are supposed to be directly on top of one another if Intel is keeping up with Moore’s Law (the number of transistors doubles every two years). But clearly the 14nm yield was way behind.
Source: Intel Analyst Day Presentation
The semiconductor industry is an unforgiving beast. Because Moore’s Law has persisted for so long, the basic rule of thumb is that every next generation of chips need to be faster, smaller, more energy efficient and more reliable. And they need to be produced more quickly, and at lower cost.
This creates immense challenges for chip designers and manufacturers, like Intel, Global Foundries and Taiwan Semiconductor (NYSE:TSM). Staying one step ahead of the competition, or at least keeping up, is essential.
We’re in the midst of a boom cycle right now. Demand for consumer electronics is rampant. And this is putting another pressure point on designers and manufacturers – shorter product life cycles.
Manufacturers used to be able to take their time developing and introducing new electronic devices. They would slowly ramp up production to meet demand, and then ramp it back down in advance of the next best thing.
Not so today. Manufacturers are introducing new products very quickly. Those that don’t get product to market quickly miss the boat.
Think about how, just a few years ago, Apple (NASDAQ:APPL) virtually owned the smartphone market with the iPhone. Then it invented, and subsequently owned, the tablet market with the iPad.
But today, Apple’s products are just one option. Samsung has come on strong. Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE), HP (NYSE:HPQ), Lenovo (OTC:LNVGY) … the list goes on … all have tablets and phones out there.
And it’s not just phones and tablets. The same proliferation of options has occurred with televisions, gaming consoles, laptops … virtually every consumer electronics category.
The combined pressures of keeping up with Moore’s Law while meeting shorter product life cycles presents an opportunity for certain semiconductor companies. More specifically, it’s an opportunity for those that can help increase yields while reducing manufacturing time.
I don’t have room to get into specific names today. However, yesterday, I released a report to 100% Letter subscribers detailing one potential big winner. You can gain access to this report here.
In coming weeks, I’ll talk more about the undercurrents in the semiconductor industry. Based on Intel’s comments, the company expects to be able to catch back up to Moore’s Law. The pressure is on. And that means Intel and its competitors are very focused on finding solutions to improve yield and manufacturing time.
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