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AMD relies too heavily on TSMC and is losing CPU share

AMD’s annual revenue grew 45% during 2020, and the company is now in a strong market position that it has not enjoyed since Lisa Su came to the helm of the company. However, their heavy reliance on TSMC for chip manufacturing is hampering their growth, and market analysts say this could cost them a lot if not remedied soon.

Does AMD depend so much on TSMC?

AMD’s Zen 3 architecture has placed the company in a strong market position within the desktop processor, mobile device and data center niches, but its inability to access TSMC’s additional 7-nanometer manufacturing space has impeded let AMD capitalize on its latest innovations.

Right now, AMD is unable to supply enough high-end products to meet demand. The latest Ryzen 9 5000 Series processors are still out of stock in most regions, and retail stocks of their Radeon RX 6000 series GPUs are practically non-existent. AMD console partners Sony and Microsoft are also struggling to keep up with market demand for their latest consoles, which as you know also share TSMC’s 7nm node.

All of AMD’s manufacturing capabilities are based on TSMC’s 7nm lithography process, leaving its growth potential in the hands of the Taiwanese company and its fabulous 7nm capacity. Right now, AMD’s dependence on TSMC is complete and absolute.

In 2020, demand for computer products and games soared, with national quarantines around the world. These factors forced many families to buy new electronic devices, upgrade their PCs, and invest in new home entertainment products. In addition to this, many companies needed to adapt to the new work-from-home schemes, which required an even greater investment in PCs and laptops. Although AMD could have taken advantage of this to sell even more processors, they were not able to make enough chips to meet market demands.

Intel, AMD’s main rival in the processor market, controls its manufacturing facilities and this enabled them to better react to the pandemic and the situation it has caused, resulting in their having been regaining market share for the first time in recent years. three and a half years.

Intel AMD market share

Still, AMD is forecasting revenue growth of 37% in 2021, less growth than everyone expected from a company that literally can’t keep its products on store shelves because they sell out as soon as they arrive. AMD will also see its revenue from semi-custom processors increase with the sale of the new Xbox and PlayStation consoles, and the company has returned to competitiveness in the high-end GPU market for the first time in the last decade.

AMD cannot supply enough chips to keep any of its high-end products in stock, and that will result in lost sales. If AMD had access to more space in TSMC’s factories, the company could produce more chips and generate more sales. AMD’s total reliance on TSMC’s 7nm node is hurting them, and a lot, but what else can they do? Let’s try to figure it out.

What can AMD do in this situation?

In the short term, AMD can do absolutely nothing to improve its manufacturability. AMD designed its products with the TSMC 7nm node in mind, and moving those products to a competing foundry would be quite difficult.

amd-ryzen-7nm-tsmc-chiplet

Moving forward, AMD should consider diversifying its product stack, using competing nodes like Samsung to make some of its products. This would give AMD two places where it can increase its chip supply if needed, giving the company more room to grow. In other words, AMD could for example manufacture its next generation of GPUs in Samsung factories and continue with TSMC for processors, so that in case of shortages not all of its products are affected.

When AMD moves to 5nm with the next-gen Zen 4 architecture, it will no longer rely on 7nm for all of its products. This will allow the company to continue producing low and mid-range products on this TSMC node while it could focus on high-end products on a different node, putting less pressure on AMD’s manufacturing as instead of using a single node for everything, they would have two.

TSMC has already invested in increasing their fabrication space for future lithography nodes, as they would limit their own growth if they allow this situation to be repeated at 5nm.