Microchips

Microchips

The digital revolution would not have been possible without microchip technology.

Why?

A microchip is a critical component in the computer hardware Central Processing Unit CPU that facilitates computational processing

Computers existed before the microchip, but microchip technology made it possible to miniaturize computing, increasing the computational power and reducing the energy needed to power computers.

The first programmable general-purpose electronic computer was called ENIAC, which was unveiled to the public in 1946. Eniac weighed about 27 tons, was 1 meter long, and had less computational power than a 5G smartphone, which by comparison weighs less than 200grams with pocket-size dimensions.

So it is microchip technology that has revolutionized CPU design in computer architecture and, in so doing, has made the digital revolution possible.

The first CPUs designed in the early 50s consisted of vacuum tube modules from early 700 series IBM computers which filled a room.

Then came computing portability in the late 50s as computer hardware engineers built factory-constructed, truck-deliverable computers. These early computers used drum memory onto which programs were loaded using either paper, punched tape, or punched cards. 

But it was not until 1958 when Jack Kilby, an electrical engineer working at Texas Instruments, invented the integrated circuit, which we know today as the microchip. His invention would revolutionize the electronic world making mass computing possible. 

Today’s advancements in microchip technology have made the Internet phone a reality

Microchips are so necessary to a modern economy that the governments, in advanced economies have classified microchips as strategic industries. Today microchips are in almost everything from washing machines, microwaves, fridges, alarm security systems, and automobiles.

A typical internal combustion engine automobile has approximately 50 microcontrollers, and luxury vehicles have hundreds of microcontrollers.

The average Electric Vehicle has about 2,000 microchips.

Demand for microchips is likely to grow exponentially

The recent chip shortage, which led to the supply chain bottleneck in the auto industry last year, is expected to continue in 2022. 

US Washington passed a $52 billion, earmarked for investments into the semiconductor industry. The goal is to establish the US as a world-leading chip manufacturer.

Moreover, the European Union and Japan have cited security risks due to a lack of locally manufactured microchips aimed at bringing chip production onshore.

Microchip size matters as it influences computational performance and energy consumption

A Microchip is measured in a nanometers NM, a tiny measurement, which is one-billionth of a meter in size.

In general, the more transistors a microchip maker can fit into a given space, the greater the number of calculations a processor can do, and the more powerful the computer. So smaller microchips can perform faster computer processing with lower power consumption. In short, the more transistors built into the microchip, the more efficient is the computer CPU.

For example, microchips with 3-nm technology can increase computing performance by 10% to 15% compared with 5-nm, while reducing power consumption by 25% to 30%.

High-end phones and Pads use 3-nm microchip technology which provides better user performance and longer battery life cycles.

Apple’s iPad will likely be the first device powered by processors made using 3-nm technology, sources said. The next generation of iPhones, which are to roll out in 2022, is likely to operate with intermediate 4-nm tech for scheduling reasons.

Who are the top 10 microchip makers trading on the NASDAQ?

Intel, Nvidia, Texas Instruments, Micron, Analog Devices, Microchip, Skyworks, Maxim Integrated,Xilinx, and AMD.

Intel is the largest microchip, but it has fallen behind other rivals as to date it only ships microchips with10-nm transistors.

Washington has also said Intel’s delay in rolling out its 7-nanometer chip production technology presents a security risk, and the Department of Energy switched from Intel-made chips to those produced by TSMC for its supercomputer, although the latter is not made in the US.

Intel is trading near its 52 week low and pays a dividend of 2.82% but has underperformed most of its rivals, particularly Nvidia which is trading near its all-time high.

News that Apple has dropped its partnership with Intel also hit the stock last year.

Apple’s new laptops and desktop use their chips, instead of processors from Intel as part of

Apple’s strategy of owning core technologies.

Intel has also fallen behind on manufacturing, and Apple’s chip manufacturing partner is more advanced, analysts say. 

Could Intel reclaim its territory as it claims that 5nm processors are coming too

Apple and Intel are testing their chip designs using TSMC’s 3-nanometer production technology, according to several sources briefed on the matter. Commercial sales of those chips are expected to start in the second half of 2022.

Intel’s delays in developing microchips with more transistors have led to a string of relatively uninspiring hold consensus from Wall Street analysts with a 9.24% upside on the current stock price. Institutional short interest in the stock remains high, bearing in mind 3.73 billion US dollars being shorted November 30, according to Market Beat.

But in October an insider, company director, bought approximately half a million dollars of stocks. The stock fell close to 10 percent that month and the stock price has not fully recovered from that low as the price hovers around the low 50 USD.

We think microchip companies should be in a stock portfolio, bearing in mind they are part of a strategic industry and will likely ride the long technology wave.

Demand for microchips is likely to increase, particularly as the transition to Evs is policy-driven and will accelerate in the next few years.

The digitalization of everything, including central bank digital currency, will make mobile internet phones necessary to function in modern society.

All these factors are likely to increase the demand for microchips in the future as they ride the waves of innovation.