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That's right, you read this video's title correctly. AMD actually doesn't make chips.

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And for that matter, neither does NVIDIA. So why the heck do people call them chip makers?

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AMD and NVIDIA are examples of what we call fabless companies.

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No, no, no, not fabulous. The Jensen sure knows how to rock a leather jacket.

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Fabless, meaning the company doesn't own fabrication plants

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or chip factories, commonly just called fabs.

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But these companies are huge. Why don't they own any fabs?

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At the time we wrote this video, Team Red and Team Green were worth

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over a combined $610 billion.

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But despite their massive resources, they outsource all of their actual manufacturing.

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It turns out this isn't unusual throughout the tech industry.

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Qualcomm, Broadcom, and even Apple all use fabulous business models.

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But it wasn't always this way. It used to be common for the same company

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to both design and manufacture its own chips.

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But as is the case with many industries, being responsible for every step

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of the chip manufacturing process is difficult and costly.

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I mean, you don't expect Arby's to slaughter its own cows out back, do you?

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Although that would help my anxiety about mystery meat. The fabulous business model got its start in the 1980s.

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Back when, in stark contrast to today's chip shortages,

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semiconductor manufacturers had excess fab capacity

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and started accepting contracts to make chips designed by smaller firms.

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It was a win-win situation. The big boys made more money

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while the little guys got a chance to actually bring their products to market

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as it cost around 10 times as much to start a chip company with fabs than without them.

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But naturally, it wasn't long before people realized there was a real opportunity

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to bring even more of that sweet, sweet paper

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by doing nothing but making other people's chips.

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With that in mind, TSMC was founded in 1987,

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becoming the world's first company to focus exclusively on contract manufacturing.

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Since TSMC wasn't designing their own processors, they put all their effort into figuring out

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how to build chips inexpensively, quickly, and at scale.

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Not only that, they could be a heck of a lot more flexible than other companies, manufacturing products

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designed by someone else. Now, if you were a smaller, fabulous firm

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paying a huge company like Intel or Texas Instruments

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to make your product for you, you would have to play by their rules.

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You could only order as many chips as they had excess capacity to make,

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and you'd have to adapt your design to whatever equipment and processes they used.

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By contrast, TSMC focused on using more standardized methods

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that gave customers greater control over what they wanted made,

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and companies that did chip design didn't have to worry about TSMC competing with them.

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This idea proved to be extremely popular, and around the mid-90s,

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fabulous manufacturing really took off, especially as it allowed companies like NVIDIA to grow.

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They'd been fabulous all the way back to the days of their first ever product, the NV1,

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which was released in 1995. But some companies ended up learning the hard way

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that going fabulous had its advantages. Although AMD is now fabulous,

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they actually got their start as a second source chip manufacturer for none other

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than their now rival, Intel. But in the mid to late 2000s,

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AMD fell on some seriously hard times. Their expensive acquisition of ATI,

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along with years of poor CPU performance next to Intel,

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meant that they were finding it more and more difficult to keep their pricey fabs running.

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By this time, contract manufacturing had become so popular

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that it was seen as a commodity, meaning AMD's fabs were not only expensive,

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they weren't even really necessary anymore. So they were spun off into the business now known

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as Global Foundries in 2009. But the world isn't divided

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into fabulous designers and contract chip makers.

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Intel still owns its own manufacturing as they became absolutely massive

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thanks to developing the x86 CPU before it became incredibly expensive to build fabs.

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After x86 became the processor of choice for PCs,

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Intel focused more on leadership and selling their products on a large scale

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rather than being at the absolute cutting edge of innovation.

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And they succeeded, leaving them as one of the few companies big enough

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to afford both chip design and manufacturing.

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But despite Intel's success at and recent focus on

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remaining vertically integrated, the future may become increasingly fabulous

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as we try to make chips with tinier and tinier transistors.

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A single machine capable of making chips on the two nanometer process costs over $300 million.

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TSMC is getting one, but I don't see a whole lot of chip designers

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lining up to fork over that kind of cash. Elon Musk was absolutely right, as he occasionally is,

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when he said that the real challenge wasn't the machine,

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but the machine that builds the machine.

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Just like a waffle iron. Or maybe more appropriately, a waffle iron making machine.

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And thanks for watching the output of this tech-quickie producing machine.

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Like the video if you like it, dislike it if you're disliked it, check out our other videos,

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