burn2learn, Re: "Do you think they are not smart enough,don't have the resources, what is the barrier for them to catch up?"
This is just my common sense guess, since I am not the expert like some others are, but I see the main "barrier" to competing in the CPU market is the simple tradeoff between performance and efficiency. If you look at the driving force behind foundries, it's to increase the amount of quality customers and ship record wafers at record margins. The margins come from the ASPs they get for promising top notch process technology and timely delivery, as well as cost cutting measures like larger 300mm wafers and further manufacturing efficiency improvements. Customers, on the other hand, can come from anywhere. A large customer like AMD is always good for a foundry like UMC, but they aren't going to sacrifice their margins to make AMD more competitive. If AMD can't afford to compete in performance with UMC's process, then other customers will be there to make use of the same weekly wafer starts. Instead of AMD, consider any CPU manufacturer, and the story should be the same. It's always much higher performance to run things in your own fab, where you control all the production and improvements in manufacturing. The foundry is just going to do what maximizes yield and wafer starts, and that probably won't coincide with optimizations that could make a CPU, say, run 300MHz faster to be more competitive.
It's a long winded explanation, and hard to make more concise. I think the sentiment from what I have heard is simply that foundries make bad competition vs Intel, since Intel has all the manufacturing power that they need to fine tune their process for performance. Increasing yield and wafer starts is the secondary motive - maintaining their competitive place in the market is their primary. It's simply a different set of values between a semiconductor giant who owns their own fabs, and a foundry who simply cares about selling off wafers to the highest bidder.
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