The ATI Conundrum

Posted on September 26, 2005 , filed under Business Gossip, Stocks | Print This Post

I’ve come up with some speculation about ATI’s recent manufacturing difficulties. For those of you who don’t know, TSM, Taiwan Semiconductor is the manufacturer for both ATI and Nvidia. This presents quite a difficult situation for both companies since they are both in bed with the same manufacturer. It’s seems that in the last generation battle between the two graphics card makers, Nvidia had manufacturing delays with their top of the line 6800 cards, resulting in little more than a paper launch, while ATI enjoyed robust availability of its X800 line of cards. In a cat and mouse battle between the two companies, the current generation graphics card battle has panned out just the opposite. Nvidia is enjoying robust availability of it’s 7800 line of cards while ATI is falling behind due to manufacturing delays with its X1800 line. It is speculated that TSM devoted more of it’s QA, Quality Assurance, to Nvidia this round due to complaints made by Nvidia over the manufacturing of its 6800 line. Other financial analysts and websites have speculated that the delay in ATI’s current X1800 cards came from the company’s choice to use a 90nm manufacturing process down from its previous use of 120nm. The smaller you get the more difficult it is to fabricate these GPU’s.

The thing that strikes me as odd though is TSM’s open announcement of excellent yields on the XBOX 360 GPU also designed by ATI and also using the same 90nm manufacturing process. TSM is notoriously stringent on its QA process and ATI must have found it strange that the same 90nm process resulted in excellent yield’s for the XBOX 360 GPU. I believe neither company likes the idea of being tied to the same manufacturer. If I was in ATI’s shoes what would I do? Incase any of you missed it, ATI made a quiet announcement that UMC, the worlds number 2 outsourced fabricator, will be manufacturing its lowest end line of X1800 GPU’s also based on a 90nm process. I believe this is in part of a longer term strategy by ATI to move away from using TSM as their sole manufacturer or at the very least to put additional pressure on TSM to devote additional resources to ATI. The theory seems to be reflected in TSM’s and ATI’s stock price which have both taken an unusually high price drop. Greedy short sellers have pushed the stock price of TSM and ATYT further down. For now ATI is faced with the issue of manufacturing with the same foundry partner as Nvidia.

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