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I think there are two parts to this answer: the fabless component (meaning designing chips), and the fab component (meaning manufacturing chips). Taking Apple a

by ykl 6y ago

I think there are two parts to this answer: the fabless component (meaning designing chips), and the fab component (meaning manufacturing chips). Taking Apple as an example: Apple is fully in the fabless part with Apple Silicon, but Apple has no in-house fab component (they outsource the chip manufacturing to TSMC). For the chip design part, Microsoft to some degree is already doing this. Microsoft has worked with AMD and Qualcomm to design custom chips for things like the XBox and Surface devices, and word on the street is that Microsoft is moving into designing their own ARM chips top-to-bottom similar to Apple [1]. I think moving into custom chip design is no brainer for all of the tech players with a market cap > $1 trillion, and as far as I'm aware, most of them are already doing it. The second part is the much trickier part. Actually getting into the fab business at a cutting edge process node is extremely difficult, because the fab business is both extremely capital intensive AND takes an enormous amount of time to build up. If Microsoft or any other tech player wanted to muscle their way into the cutting edge fab business, the requirement isn't a one-time $20 billion investment; it's $20 billion a year every year for at least a decade just to catch up. The catching up part is insanely difficult too; for starters, the EUV photolithography machines you need to even begin building a fab are made by only like two companies in the world, and both companies are backordered for years because of TSMC, Samsung, Intel, and others. Then, once you have caught up, you have to continue pouring money into the business forever in order to keep up. TSMC and Samsung and (up until recently) Intel are able to do this because of the sheer volume of manufacturing they do; smaller fabs that don't have the volume just aren't able to keep up because they don't have the revenue. The fab business is a business where economies of scale are really serious and really large, and I don't think Microsoft alone is at a scale large enough to for these economies of scale to start to take effect. Even established chip players like NVIDIA and AMD don't even consider themselves large enough for these economies of scale to apply today. So the question for Microsoft (and really any fabless chip company) really basically boils down to: do they commit to $20 billion a year every year indefinitely until the end of time to build and run their own in-house cutting edge fab business, or do they just pay TSMC each year to manufacture for them, and thereby offload the risk and cost of the fab business? The overwhelming answer in the industry is: just pay TSMC. That's what Apple, Google, Amazon, NVIDIA, AMD, Qualcomm, etc. all do. [1] https://www.theverge.com/2020/12/18/22189450/microsoft-arm-processors-chips-servers-surface-report https://www.theverge.com/2020/12/18/22189450/microsoft-arm-p...

allie1 6y ago
Even if they are to be successful in catching up, they will at best be where intel was before Pat - playing catchup in the chip industry and any time they slip, trying to maximize profit of the already spent r&d budget instead of innovating for the next step (7nm for intel in this case). That opens the risk of being left behind (if they have inferior chips, they’ll have to use them over their superior competitors) in cloud and their product lines (surface pro, book). Their only potential competitive advantage is if they close down Windows to MS-only chips, which I don’t see happening.
amelius 6y ago
> So the question for Microsoft (and really any fabless chip company) really basically boils down to: do they commit to $20 billion a year every year indefinitely until the end of time to build and run their own in-house cutting edge fab business, or do they just pay TSMC each year to manufacture for them There's another option for Microsoft: invest $20B once in Intel, in return for some exclusive rights.
- ykl 6y ago
  That's a loosing play for Intel. The potential market Intel wants to tap with foundry services is way WAY larger than $20 billion, and on the flipside Microsoft doesn't have a need for $20 billion worth of exclusive fab capacity. That's way too low of a price for Intel to give up the wider market and way too high of a price for Microsoft to get what they otherwise could already get by just contracting Intel or TSMC or anyone else normally. I think the entire point is that the fundamental thesis driving Intel's new strategy (and this is the same thesis behind TSMC, Samsung, etc) is that the cost of developing cutting edge process nodes has reached a point where it is beyond the ability of any single company to afford based on their own product volume. Therefore, if Intel wants to be able to keep up, it needs to expand volume by opening up foundry services to other companies, a-la TSMC. If this thesis is true (and over the past few years it definitely seems to be), then it explains why no individual tech player would want to get into building their own fabs, it also explains why TSMC's model is successful and why Intel is going after that same model now, and it also explains why no foundry would really want to sell exclusivity to any given single player.

by ykl 6y ago

allie1 6y ago

Even if they are to be successful in catching up, they will at best be where intel was before Pat - playing catchup in the chip industry and any time they slip, trying to maximize profit of the already spent r&d budget instead of innovating for the next step (7nm for intel in this case). That opens the risk of being left behind (if they have inferior chips, they’ll have to use them over their superior competitors) in cloud and their product lines (surface pro, book). Their only potential competitive advantage is if they close down Windows to MS-only chips, which I don’t see happening.

amelius 6y ago

> So the question for Microsoft (and really any fabless chip company) really basically boils down to: do they commit to $20 billion a year every year indefinitely until the end of time to build and run their own in-house cutting edge fab business, or do they just pay TSMC each year to manufacture for them There's another option for Microsoft: invest $20B once in Intel, in return for some exclusive rights.

ykl 6y ago
That's a loosing play for Intel. The potential market Intel wants to tap with foundry services is way WAY larger than $20 billion, and on the flipside Microsoft doesn't have a need for $20 billion worth of exclusive fab capacity. That's way too low of a price for Intel to give up the wider market and way too high of a price for Microsoft to get what they otherwise could already get by just contracting Intel or TSMC or anyone else normally. I think the entire point is that the fundamental thesis driving Intel's new strategy (and this is the same thesis behind TSMC, Samsung, etc) is that the cost of developing cutting edge process nodes has reached a point where it is beyond the ability of any single company to afford based on their own product volume. Therefore, if Intel wants to be able to keep up, it needs to expand volume by opening up foundry services to other companies, a-la TSMC. If this thesis is true (and over the past few years it definitely seems to be), then it explains why no individual tech player would want to get into building their own fabs, it also explains why TSMC's model is successful and why Intel is going after that same model now, and it also explains why no foundry would really want to sell exclusivity to any given single player.