Moore’s Law is breaking down, and the physics of chips is becoming treacherous. Barron’s Graphics
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 INTC -0.49955921245959445% Intel Corp. U.S.: Nasdaq USD33.86 -0.17 -0.49955921245959445% /Date(1446238800408-0500)/ Volume (Delayed 15m) : 23934467 AFTER HOURS USD33.82 -0.04 -0.11813349084465447% Volume (Delayed 15m) : 759390 P/E Ratio 14.47008547008547 Market Cap 163796485679.626 Dividend Yield 2.835203780271707% Rev. per Employee 516982 More quote details and news » INTC in Your Value Your Change Short position 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 googl -1.001543935020474% Alphabet Inc. Cl A U.S.: Nasdaq USD737.39 -7.46 -1.001543935020474% /Date(1446238800359-0500)/ Volume (Delayed 15m) : 1953861 AFTER HOURS USD736.27 -1.12 -0.15188706112098074% Volume (Delayed 15m) : 45300 P/E Ratio 33.98972089700155 Market Cap 499061011511.097 Dividend Yield N/A Rev. per Employee 1330070 More quote details and news » googl in Your Value Your Change Short position (ticker: GOOGL), Facebook fb -2.774599542334096% Facebook Inc. Cl A U.S.: Nasdaq USD101.97 -2.91 -2.774599542334096% /Date(1446238800129-0500)/ Volume (Delayed 15m) : 32792946 AFTER HOURS USD101.95 -0.02 -0.019613611846621554% Volume (Delayed 15m) : 694158 P/E Ratio 104.05102040816327 Market Cap 293588287055.116 Dividend Yield N/A Rev. per Employee 1591370 More quote details and news » fb in
Your Value Your Change Short position (FB), Amazon.com amzn -0.10374271805921315% Amazon.com Inc. U.S.: Nasdaq USD625.9 -0.65 -0.10374271805921315% /Date(1446238800114-0500)/ Volume (Delayed 15m) : 3772922 AFTER HOURS USD624.12 -1.78 -0.2843904777120946% Volume (Delayed 15m) : 101441 P/E Ratio 907.1014492753624 Market Cap 289273014687.818 Dividend Yield N/A Rev. per Employee 652745 More quote details and news » amzn in
Your Value Your Change Short position (AMZN), and Microsoft msft -1.3493253373313343% Microsoft Corp. U.S.: Nasdaq USD52.64 -0.72 -1.3493253373313343% /Date(1446238800293-0500)/ Volume (Delayed 15m) : 45416540 AFTER HOURS USD52.71 0.07 0.13297872340425532% Volume (Delayed 15m) : 1203221 P/E Ratio 35.328859060402685 Market Cap 431187544722.33 Dividend Yield 2.735562310030395% Rev. per Employee 765890 More quote details and news » msft in
Your Value Your Change Short position (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.
The economic impact of the new direction in semiconductors—chips that think rather than simply compute—could lead to a renaissance in the industry. As a result, the coming decade may be one of the brightest for chip investors. The implications go far beyond Wall Street’s near-term view.
One major beneficiary could be Micron Technology mu 2.1591610117211597% Micron Technology Inc. U.S.: Nasdaq USD16.56 0.35 2.1591610117211597% /Date(1446238800339-0500)/ Volume (Delayed 15m) : 19076630 AFTER HOURS USD16.59 0.03 0.18115942028985507% Volume (Delayed 15m) : 171774 P/E Ratio 6.7317073170731705 Market Cap 18370958242.0161 Dividend Yield N/A Rev. per Employee 509182 More quote details and news » mu in Your Value Your Change Short position (MU). Its memory chips could play a key role in cloud chips, which will rely less on processing power than on vast amounts of memory. The only pure-play memory-chip maker, Micron traded last week at $16.90 a share, less than half its 52-week high, reflecting a drop in the price of commodity memory chips. In the next few years, the stock could rise by a multiple of that price, if the industry develops as we expect.
Broadcom brcm 0.7843137254901961% Broadcom Corp. U.S.: Nasdaq USD51.4 0.4 0.7843137254901961% /Date(1446238800081-0500)/ Volume (Delayed 15m) : 3552032 AFTER HOURS USD51.398 -0.002 -0.0038910505836575876% Volume (Delayed 15m) : 136232 P/E Ratio 22.347826086956523 Market Cap 32063850929.2603 Dividend Yield 1.0894941634241244% Rev. per Employee 796620 More quote details and news » brcm in Your Value Your Change Short position (BRCM), a maker of networking processors, could benefit with chips that search for information instead of just calculating. The same holds for makers of graphics chips, like Nvidia nvda 2.4927745664739884% NVIDIA Corp. U.S.: Nasdaq USD28.37 0.69 2.4927745664739884% /Date(1446238800249-0500)/ Volume (Delayed 15m) : 7426185 AFTER HOURS USD28.366 -0.004 -0.014099400775467043% Volume (Delayed 15m) : 102780 P/E Ratio 29.86315789473684 Market Cap 15453130041.1224 Dividend Yield 1.3746915756080367% Rev. per Employee 517977 More quote details and news » nvda in
Your Value Your Change Short position (NVDA), whose components make possible the mining of vast amounts of information.
Intel’s (INTC) dominant franchise in chips that power server computers is threatened by the new wave, but the company could still end up coming out all right by playing to its strengths in memory and programmable chips, and its deep relationships with providers of cloud computing. Qualcomm qcom -0.9666666666666667% Qualcomm Inc. U.S.: Nasdaq USD59.42 -0.58 -0.9666666666666667% /Date(1446238800038-0500)/ Volume (Delayed 15m) : 8416233 AFTER HOURS USD59.42 % Volume (Delayed 15m) : 214057 P/E Ratio 16.324175824175825 Market Cap 94688489160.033 Dividend Yield 3.2312352743184114% Rev. per Employee 847189 More quote details and news » qcom in Your Value Your Change Short position (QCOM), too, will need to adapt. Long the dominant maker of communications chips, it might need to bulk up on memory chips to stay relevant.
ALPHABET (FORMERLY GOOGLE) and its peers are solving some of the biggest computing challenges ever attempted, such as automatically translating words into different languages, and understanding human speech. The company aims to make image recognition more accurate, and has made dramatic progress in recent years in improving computers’ ability to understand English-language commands with fewer errors.
Facebook has a team devoted to refining machine translation of languages. English isn’t the native language of a large portion of Facebook’s 1.5 billion users. Providing them automatic translations of posts is a priority. Amazon’s AWS and Microsoft’s Azure cloud-computing services would like to offer more and increasingly sophisticated services, such as analysis of big data for clients.
All of these companies have hired away many of the leading lights in neural networks and related fields, and have assigned to machine-learning projects their most talented engineers, such as computer scientist Jeff Dean, who advises Alphabet’s research and machine-intelligence effort, which the media has dubbed Google Brain.
A Chip Remembers
One of many cutting-edge chips, Micron’s prototype “Automata” is striking for its rigid symmetry. Unlike most computer chips, its circuitry is made up of vast fields of memory, with lots of wires to connect them, and just a little bit of logic circuitry squeezed in between.
Courtesy of Micron Technology
Their work draws on traditions of artificial intelligence, but they don’t aim to crack the mysteries of the brain. Instead, they seek to create useful products and services loosely inspired by neuroscience. Their efforts depend on feeding a computer millions of data samples and training it to recognize patterns. That heavy lifting is already changing the nature of computer-chip usage.
The Internet’s server computers, which dish up search results, Facebook “likes,” and all the rest, traditionally have used microprocessor chips, a technology dominated by Intel. But the new machines performing A.I.-like tasks increasingly employ a different chip, called a graphics processing unit, or GPU, to boost performance.
Once the domain of videogames and scientific computing, GPUs excel at crunching clusters of data simultaneously. Alphabet and the rest are buying them like they’re going out of style. As a result, shares of the primary supplier of GPUs, Nvidia, are up 50% in the past 12 months, although shares of another supplier, Advanced Micro Devices AMD -0.4694835680751174% Advanced Micro Devices Inc. U.S.: Nasdaq USD2.12 -0.01 -0.4694835680751174% /Date(1446238800392-0500)/ Volume (Delayed 15m) : 4740332 AFTER HOURS USD2.1196 -0.0004 -0.018867924528301886% Volume (Delayed 15m) : 156784 P/E Ratio N/A Market Cap 1698608045.1798 Dividend Yield N/A Rev. per Employee 440412 More quote details and news » AMD in Your Value Your Change Short position (AMD), have fallen sharply due to company-specific problems. If demand plays out as we foresee, it could lift the fortunes of both. They might even become takeout targets of companies such as Qualcomm and Broadcom, or the cloud giants.
THE VERY NATURE of most chips is archaic and in need of rethinking. Most computers today—from smartphones to giant database computers—are based on a design laid down by famed mathematician John von Neumann in the 1940s. Von Neumann theorized that a computer should be a machine used mostly for calculating, and stuffed with circuits for doing math. These so-called logic circuits should have just enough memory circuitry to store the instructions created by humans.
The von Neumann Machine, as it is known, has become obsolete. Problems tackled by projects such as Google’s image-recognition system might require only simple math. What they really need are huge amounts of memory. The solution: Flip the equation. Make chips more about memory, less about logic.
One proponent of this approach is Jeff Hawkins, who founded Palm Computing, maker of the Palm Pilot, in the 1990s. Today, he runs a start-up called Numenta, whose mission is to reverse-engineer the brain’s neocortex, to find principles of the human mind that will inform the design of intelligent machines.
On a recent morning, Hawkins demonstrated an app created using his technology. Servers monitoring the flow of Twitter messages about Wal-Mart Stores wmt -1.2422360248447204% Wal-Mart Stores Inc. U.S.: NYSE USD57.24 -0.72 -1.2422360248447204% /Date(1446238871582-0500)/ Volume (Delayed 15m) : 15578305 AFTER HOURS USD57.29 0.05 0.08735150244584207% Volume (Delayed 15m) : 227146 P/E Ratio 11.517102615694165 Market Cap 184790488844.03 Dividend Yield 3.424178895877009% Rev. per Employee 220737 More quote details and news » wmt in Your Value Your Change Short position (WMT), as well as the stock price and trading volume, flashed a warning of an anomaly: a sudden spike in tweets preceding a sharp drop in Wal-Mart’s shares. That morning, Wal-Mart announced it would raise minimum hourly wages, sending its stock plunging. The tweets were the canary in the coal mine.
Using Numenta’s algorithms, models can be built tracking hundreds of thousands of data feeds simultaneously—for derivatives, currencies, and numerous other domains—as a kind of early-warning system for markets. But to do that, “we’ve got to have hardware,” says Hawkins, meaning specialized hardware that goes beyond Intel microprocessors and even GPUs.
“We’ve had 70 years of programmed computing,” says Hawkins, referring to the von Neumann Machine. “The next 100 years will be one of memory systems.”
IF THE FUTURE is full of memory, Micron might have some of the most valuable assets in the industry. Last summer Micron announced a new kind of memory chip, the 3D XPoint, in partnership with Intel. It’s a thousand times faster than the flash memory chips that store files in an iPhone, and holds 10 times as much data as DRAM chips that are the main memory in PCs.
XPoint might be a perfect combination of the speediness of DRAM and the storage capacity of flash, making it more economical than either one. But while XPoint’s announcement stunned the industry, experts are skeptical because Micron hasn’t revealed the special semiconductor materials it uses.
“To a certain extent, the value of the technology is purely related to the materials, so we’re intentionally being vague because we really don’t want our competitors to know exactly what it is we’re up to,” says Micron’s vice president of research and development, Scott DeBoer. What is profound about XPoint is less the chip itself and more the fact that Micron seemingly has perfected a way to combine memory with logic, a task that has been attempted over the years with little success.
The benefit for Micron is obvious. Its DRAM and flash memory today are commodities. Chips merging logic and memory in novel ways would be unique and carry higher profit margins.
Others are aware of this paradigm shift in memory, such as Broadcom, which specializes in communications chips. It is merging with Avago Technologies avgo 2.531434757265384% Avago Technologies Ltd. U.S.: Nasdaq USD123.13 3.04 2.531434757265384% /Date(1446238800160-0500)/ Volume (Delayed 15m) : 2489529 AFTER HOURS USD123.53 0.4 0.32485990416632826% Volume (Delayed 15m) : 62089 P/E Ratio 32.31758530183727 Market Cap 34995627519.7351 Dividend Yield 1.3644115974985787% Rev. per Employee 782619 More quote details and news » avgo in Your Value Your Change Short position </s
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