That's right, you read this video's title correctly. AMD actually doesn't make chips.
And for that matter, neither does NVIDIA. So why the heck do people call them chip makers?
AMD and NVIDIA are examples of what we call fabless companies.
No, no, no, not fabulous. The Jensen sure knows how to rock a leather jacket.
Fabless, meaning the company doesn't own fabrication plants
or chip factories, commonly just called fabs.
But these companies are huge. Why don't they own any fabs?
At the time we wrote this video, Team Red and Team Green were worth
over a combined $610 billion.
But despite their massive resources, they outsource all of their actual manufacturing.
It turns out this isn't unusual throughout the tech industry.
Qualcomm, Broadcom, and even Apple all use fabulous business models.
But it wasn't always this way. It used to be common for the same company
to both design and manufacture its own chips.
But as is the case with many industries, being responsible for every step
of the chip manufacturing process is difficult and costly.
I mean, you don't expect Arby's to slaughter its own cows out back, do you?
Although that would help my anxiety about mystery meat. The fabulous business model got its start in the 1980s.
Back when, in stark contrast to today's chip shortages,
semiconductor manufacturers had excess fab capacity
and started accepting contracts to make chips designed by smaller firms.
It was a win-win situation. The big boys made more money
while the little guys got a chance to actually bring their products to market
as it cost around 10 times as much to start a chip company with fabs than without them.
But naturally, it wasn't long before people realized there was a real opportunity
to bring even more of that sweet, sweet paper
by doing nothing but making other people's chips.
With that in mind, TSMC was founded in 1987,
becoming the world's first company to focus exclusively on contract manufacturing.
Since TSMC wasn't designing their own processors, they put all their effort into figuring out
how to build chips inexpensively, quickly, and at scale.
Not only that, they could be a heck of a lot more flexible than other companies, manufacturing products
designed by someone else. Now, if you were a smaller, fabulous firm
paying a huge company like Intel or Texas Instruments
to make your product for you, you would have to play by their rules.
You could only order as many chips as they had excess capacity to make,
and you'd have to adapt your design to whatever equipment and processes they used.
By contrast, TSMC focused on using more standardized methods
that gave customers greater control over what they wanted made,
and companies that did chip design didn't have to worry about TSMC competing with them.
This idea proved to be extremely popular, and around the mid-90s,
fabulous manufacturing really took off, especially as it allowed companies like NVIDIA to grow.
They'd been fabulous all the way back to the days of their first ever product, the NV1,
which was released in 1995. But some companies ended up learning the hard way
that going fabulous had its advantages. Although AMD is now fabulous,
they actually got their start as a second source chip manufacturer for none other
than their now rival, Intel. But in the mid to late 2000s,
AMD fell on some seriously hard times. Their expensive acquisition of ATI,
along with years of poor CPU performance next to Intel,
meant that they were finding it more and more difficult to keep their pricey fabs running.
By this time, contract manufacturing had become so popular
that it was seen as a commodity, meaning AMD's fabs were not only expensive,
they weren't even really necessary anymore. So they were spun off into the business now known
as Global Foundries in 2009. But the world isn't divided
into fabulous designers and contract chip makers.
Intel still owns its own manufacturing as they became absolutely massive
thanks to developing the x86 CPU before it became incredibly expensive to build fabs.
After x86 became the processor of choice for PCs,
Intel focused more on leadership and selling their products on a large scale
rather than being at the absolute cutting edge of innovation.
And they succeeded, leaving them as one of the few companies big enough
to afford both chip design and manufacturing.
But despite Intel's success at and recent focus on
remaining vertically integrated, the future may become increasingly fabulous
as we try to make chips with tinier and tinier transistors.
A single machine capable of making chips on the two nanometer process costs over $300 million.
TSMC is getting one, but I don't see a whole lot of chip designers
lining up to fork over that kind of cash. Elon Musk was absolutely right, as he occasionally is,
when he said that the real challenge wasn't the machine,
but the machine that builds the machine.
Just like a waffle iron. Or maybe more appropriately, a waffle iron making machine.
And thanks for watching the output of this tech-quickie producing machine.
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