Intel has announced its latest chip technology will face significant production delays, leaving the world’s biggest maker of PC and server microprocessors trailing its key Asian rival Taiwan Semiconductor Manufacturing Co. in the battle for semiconductor leadership.

After Intel announced the launch of its 7-nanometer chips could be delayed until as late as 2023, shares of TSMC rose nearly to the daily limit of 10% in the early trading session on Monday in Taipei. This jump helped the chip industry bellwether reach a record market cap of more than TWD 10 trillion (USD 340.1 billion) — more valuable than Tesla, P&G, Intel, and Samsung Electronics.

Already the world’s most valuable chip stock, TSMC is also Asia’s third-largest company by market cap, behind only e-commerce giant Alibaba Group Holding and Tencent Holdings. Samsung’s shares (KRX: 005930) rose around 1.5% in Monday morning trading.

Intel, the world’s largest semiconductor company by revenue, said last Thursday it is now forging a “contingency plan” to outsource production of some chip products to third-party manufacturers to alleviate the delays. Production yield of its 7-nanometer process technology is currently one year behind the original target, Intel said. Yield refers to the percentage of non-defective items out of all items produced.

The announcement draws a line under the US chip giant’s five decades of leadership in semiconductor manufacturing, a key battleground for tech supremacy in which China is working hard to catch up. It also opens up a new era for Intel’s Asian chip rivals.

Intel’s two key Asian chip rivals, TSMC and Samsung, are already working on more advanced 5-nanometer chip technology. TSMC is even mass producing 5-nanometer chips, which will be used in the upcoming 5G iPhones.

By contrast, Intel CEO Bob Swan said the launch of his company’s first in-house 7-nanometer process-related chip products will be delayed to late 2022, or even early 2023. He also said Intel will need to look for external manufacturing partners to reduce the impact of the delay. China’s top contract chipmaker Semiconductor Manufacturing International Co. is also racing ahead to close tech gaps, with its 14-nanometer chips scheduled to go into mass production by this year.

The nanometer size refers to the line width between transistors on a chip. The smaller the number, the more cutting-edge the chips are, and thus more challenging and expensive to develop. In what has since become known as Moore’s law, Intel co-founder Gordon Moore predicted in the 1960s that the number of transistors on a chip would double every year, but that pace of progress has slowed significantly over time, as it becomes increasingly challenging to squeeze more and more transistors onto a chip.

Currently, only TSMC, Intel, and Samsung, the world’s three biggest chip companies by sales, are able to invest heavily in capital expenditure and push nanotechnologies further. The big three have been locked in fierce competition to introduce the world’s most advanced process technologies and prove themselves as leaders of the semiconductor industry. TSMC has said its next generation of 3-nanometer technology will go into mass production by the second half of 2022.

Within TSMC, there is a long-held doctrine that the company should “never underestimate Intel,” as chipmakers have looked up to Intel’s technology leadership over years, sources with knowledge told the Nikkei Asian Review.

Last Friday, Intel’s shares plunged more than 16% on Nasdaq (INTC), while TSMC’s American depositary receipts (NYSE: TSM) surged more than 9%.

TSMC raised its capital expenditure plans for 2020 to up to USD 17 billion, while Samsung, the world’s biggest memory chipmaker, reaffirmed earlier this year that it will spend 133 trillion KRW (USD 107.7 billion) through 2030 in logic chips. Intel’s spending will be USD 15 billion for this year, the company said.

Intel has already taken a hit earlier this year when Apple, one of its key clients, announced it will start using processor chips of its own design for Mac computers, which would be manufactured by TSMC. The US chip giant also suffered a significant delay previously in rolling out 10-nanometer chips, which created a supply shortage for the overall PC industry from 2018 through 2019.

Advanced Micro Devices and Nvidia, Intel’s smaller rivals in CPUs and graphic processors, could expect to gain some market share if their bigger rival faces another lengthy delay in product launches. AMD and Nvidia design their own chips but outsource the manufacturing to TSMC, as neither company owns expensive in-house chip manufacturing facilities.

Intel, on the other hand, has long believed that designing and manufacturing chips completely in-house is the best way to ensure quality and generate the most profits.

But with Intel’s manufacturing roadmap facing major delays, “we believe the market would consequently expect a quicker [chip manufacturing] outsourcing from Intel,” said Gokul Hariharan, a tech analyst with JP Morgan.

“Intel is behind TSMC by one to two years from a purely technological perspective and by at least two years when the ability to improve yield and provide sufficient volume to compete effectively is also considered,” said Mark Li, a veteran tech analyst with Bernstein Research.

Li said that if Intel were to eventually outsource all its chip production, it would be a 20% gain of the total contract chip-making market. Market leaders TSMC and Samsung would both be beneficiaries, while smaller contract chipmakers United Microelectronics and GlobalFoundries could also take some periphery chip orders, he added.

Chang I-Chien, a tech analyst with Taishin Securities Investment Advisory, also said TSMC could benefit from Intel’s contingency plan of seeking manufacturing partners.

“It’s even likely that in the longer term Intel could gradually reduce its chip manufacturing footprints and continue to outsource if it later proves that would be a more cost-efficient way,” Chang said. “It would not be too surprising to the chip industry if Intel even sells some of its production plants in the longer term.”

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.