Note: Although dated October, 2015, this article by Barron’s Tiernan Ray provides an excellent introduction to trends within the semiconductor industry and companies that are leading those trends.
Watch Out Intel, Here Comes Facebook
Big Web operators like Facebook and Google are demanding radically different chip designs. One big beneficiary in the development of a “cloud chip” could be Micron Technology.
For 50 years, the computer-chip industry has ridden a road of economic miracles, but now it’s reaching an end, and a potential crisis is unfolding for some of the industry’s biggest names.
The phenomenon known as Moore’s Law, which held that the number of transistors on a chip doubled every two years while the cost fell by half, led to vibrant markets such as the personal computer, with ever-rising performance and falling prices. But Moore’s Law is now breaking down, and the physics of chips is becoming treacherous. Approaching the atomic level in size, transistors have started performing less reliably, making them less efficient. Intel and other semiconductor makers have had to add extra manufacturing steps, increasing costs.
“The semiconductor industry is up against an economic problem,” says Linley Gwennap, a longtime chip-industry analyst. “Now that you can’t automatically reduce the cost to get the same performance, Intel and the rest are stuck trying to justify the investment.”
The industry’s response has been to circle the wagons. This year, there has been more than $136 billion worth of announced semiconductor mergers and acquisitions, according to Bloomberg, an unprecedented volume. Companies are busily streamlining costs and merging portfolios to eke out profit, rather than investing in new innovation.
At the same time, another even more important challenge is brewing for traditional chip makers: the cloud, or Internet-based computing. Driven by the need to analyze massive amounts of data, the Goliaths of the Internet— Alphabet (ticker: GOOGL), Facebook (FB), Amazon.com (AMZN), and Microsoft (MSFT)—are altering the very nature of computing. In the process, they are pressing at the boundaries of chip technology and forcing a major change.
barrons.com
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