{"text":[[{"start":8.280000000000001,"text":"Twenty-five years ago, Intel made history by becoming one of the first two tech companies to be included in the Dow Jones Industrial Average. "},{"start":15.822,"text":"Now, Nvidia — also a chip company — has replaced Intel in the blue-chip index following a seven-fold gain in its share price over the past two years. "},{"start":24.377000000000002,"text":"This is just the beginning of the shake-up facing the chip sector. "}],[{"start":28.66,"text":"Demand for artificial intelligence chips that power generative AI technologies remains strong, with high-end AI chips still in short supply. "},{"start":36.614000000000004,"text":"Meanwhile, there are only a handful of chipmakers operating in this lucrative market — which would seem to guarantee earnings growth and share price gains for the sector. "}],[{"start":45.68,"text":"Yet investing in chip stocks has been an extraordinarily risky bet this year. "},{"start":49.997,"text":"Shares of Intel are down nearly 50 per cent while Nvidia has tripled, now the best performing stock in the benchmark. "},{"start":56.464,"text":"What is behind this extreme divergence in fortunes between chip stocks? "}],[{"start":60.67,"text":"The industry faces three big issues. "},{"start":63.312000000000005,"text":"The first is that most chipmakers are currently lagging behind in the field of designing and manufacturing high-performance AI chips. "},{"start":69.929,"text":"Nvidia’s advanced designs mean chipmakers are now being held to higher standards than when most global chip demand came from smartphones and carmakers. "},{"start":77.897,"text":"Increasingly stringent quality standards means long lead times for the few chipmakers that have the skills and cash to make advanced chips. "}],[{"start":85.25,"text":"Second, two of the world’s biggest chipmakers able to make high-end AI chips are currently struggling to recover from previous mis-steps. "},{"start":92.667,"text":"For Intel, it took just one delay in making changes to its factories that would have made its chips faster in 2015, for its global chipmaking lead to start unravelling. "}],[{"start":102.23,"text":"The delay, compounded by under-investment, meant it took Taiwanese rival TSMC just two years to close the technology gap with Intel, when it started making 10-nanometre chips in 2017. "},{"start":113.60900000000001,"text":"The gap has widened further since and Intel has ceded its manufacturing edge to TSMC. "}],[{"start":119.63,"text":"Intel has a negligible presence in the contract chip manufacturing business — an especially lucrative segment as Nvidia outsources the manufacturing of its physical chips — compared with TSMC’s 62 per cent market share. "},{"start":131.98399999999998,"text":"The same goes for Samsung, which has fallen behind SK Hynix in making high-bandwidth memory chips — a critical part of all Nvidia AI chips. "},{"start":140.164,"text":"SK is expected to account for a market share of over 52 per cent this year, according to TrendForce data, overtaking Samsung. "}],[{"start":null,"text":"
"}],[{"start":148.87,"text":"Third, as with real estate and cars, the premium segment of chips has been dramatically outperforming the rest of the market. "},{"start":155.612,"text":"The profitability gap between high-end chips and general-purpose memory chips, or legacy chips which are used in traditional electronics, has widened in recent years. "},{"start":164.392,"text":"That is in part because of slowing demand for devices such as smartphones and PCs. "},{"start":169.122,"text":"But the biggest factor is that the average selling price of high-performance chips for AI use is about five times higher than that of conventional memory chips. "}],[{"start":177.94,"text":"That has accelerated a winner-takes-all trend in the chip sector. "},{"start":181.707,"text":"It is no coincidence that the two best performing chipmakers in the world this year are Nvidia’s two main suppliers: TSMC posted a record net profit for the latest quarter and lifted its revenue forecast for the year, while SK Hynix reported a record operating profit for its latest quarter. "},{"start":196.699,"text":"Both reported operating margins of more than 40 per cent in the third quarter, more than double that of its peers. "},{"start":202.71699999999998,"text":"Shares of TSMC are up 80 per cent this year, and SK a third. "}],[{"start":208.07,"text":"That means the stakes of falling behind are now higher than ever. "},{"start":211.637,"text":"Samsung missed profit estimates for its chip business in the latest quarter, while Intel posted its biggest ever quarterly loss of $16.6bn, despite making its own AI chip to take on Nvidia’s. "},{"start":222.904,"text":"Intel also scrapped its Gaudi AI chip sales forecast of $500mn for 2024. "},{"start":228.772,"text":"To put that in context, sales at Nvidia’s data centre business, which makes AI chips, hit $26.3bn in the quarter to July. "}],[{"start":238.25,"text":"A growing glut of traditional memory chips is expected to further pressure prices and margins of these products in the coming quarters. "},{"start":244.992,"text":"High-margin AI chips are increasingly becoming the only way to offset that weakness. "},{"start":249.347,"text":"In an AI world led by Nvidia, the message to global chipmakers is clear: if you can’t beat it, join its supply chain. "}],[{"start":256.24,"text":""}]],"url":"https://creatives.ftmailbox.cn/album/180490-1731556609.mp3"}