Chip Customers Chipping Away Shares From Incumbents
- HJ Kim
- Dec 21, 2020
- 2 min read
Updated: Aug 19, 2022
Semiconductor businesses have long been dominated by chip makers including Intel, Advanced Micro Devices, and NVidia. As the customers such as Amazon and Google have increased in size, however, the manufacturing and design power has shifted inwards. Deep-pocketed customers now not only have the financial ability to produce the chips in-house, but also prefer to have in-house manufacturing as more specialized applications (e.g. cloud computing) require further customization and adjustment.
In fact, the customers do not need their own factories to manufacture chips - they can now outsource the actual manufacturing process to contract chip makers such as Taiwan Semiconductor Manufacturing. There are also smaller players who specializes in design element, such as Arm Holdings whose biggest customer includes Apple that buys their circuit design after paying a license fee.
Amazon also recently mentioned that the decision to build their own processors was a natural move, given how the performance of chips can easily be improved when designed in-house if they give up the compatibility with older software and other features that big data center operators do not need.
Market penetration of customer-made chips is still low and most of the CPU's used in data centers are still provisioned by Intel. The incumbents are also proactively seeking ways to wear off the competitive forces. Nvidia recently acquired Arm Holdings for one of the biggest acquisition in the chip-making space, while Intel has added Israeli-based Habana Labs for the development of its AI training chips, which will be used for AWS data centers.
Semiconductor industry will likely evolve into a very competitive market with more customers, growing in size and scale larger than their suppliers, climbing up the supply chain. We shall see whether the dominant players today will survive through such pressure in and out.
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