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Apple bid for exclusive TSMC chip supply access denied, report says

post #1 of 37
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In an attempt to diversify its mobile processor supply chain, Apple reportedly offered Taiwan Semiconductor Manufacturing Co. upwards of $1 billion for dedicated production, but was denied as the chip maker wants to remain agile in a booming smartphone market.

According to people familiar with the situation, TSMC denied separate investment bids from Apple and Qualcomm, both of which wanted the chip maker to dedicate a portion of its production line to making chips for them, reports Bloomberg.

Apple currently sources the A-series chips used in its mobile devices from Samsung, making the two companies strange bedfellows as the Korean electronics giant is one of Apple's biggest competitors in the smartphone industry. Samsung also supplies Apple with displays and other components used in iDevices and MacBooks.

Complicating matters is the outcome of the high-stakes Apple v. Samsung patent trial, which found Samsung to have violated six Apple design and utility patents. The Korean company was hit with over $1 billion in damages and is facing a permanent injunction against eight infringing devices, with a hearing regarding the sales ban scheduled for Dec. 6.

The somewhat rocky relationship may have prompted Apple to seek out an alternate chip maker, however it is likely the company merely wants options as its iPhone and iPad business skyrockets. During Apple's conference call for the third fiscal quarter of 2012, it was revealed that iPad sales grew to 17 million units for the three month period, a 28 percent jump year-to-year. iPhone sales were also strong at 26 million units, representing a 28 percent boost from the year-ago quarter.

Teardown 1
The Samsung-manufactured A5X processor as seen in Apple's third-generation iPad. | Source: iFixit


In a statement to investors last month, TSMC Chairman Morris Chang said he was willing to devote one or two factories to a single customer, however it appears the company is either not yet ready to take that step or feels Apple and Qualcomm's bids were too low.

As the world's largest custom chip maker, TSMC isn't in need of investments and doesn't want to sell part of itself, said CFO Lora Ho. Dedicating one fabrication facility to a single product or customer would be risky, as the plant could become a burden if the client or technology changes. Currently on the company's client list are industry heavyweights like Qualcomm, Broadcom and Nvidia.

?You have to be careful. Once that product migrates, what are going to do with that dedicated fab?? Ho said. ?We would like to keep the flexibility.?

It was reported in March that TSMC components would see a greater presence in future iDevices, as the Taiwan-based company was tapped to manufacture power management chips for Dialog Semiconductor to be used in future iPhones and iPads. TSMC already supplies Apple with iPhone and iPad ICs through foundry services for Broadcom, CSR, Cirrus Logic and Qualcomm.

Last September, Apple reportedly signed a foundry agreement to use TSMC's 28nm and 20nm processes to build upcoming A-series chips, following rumors that the company had produced a trial batch of the next-generation A6 processor.
post #2 of 37
I hope it is because they really want to diversify their client base and NOT because the bid is too low. Apple could buy the equipments etc. and lease it back to them if they too scared of the commitments.
post #3 of 37

And so Apple is stuck with Samsung.

 

rofl.

post #4 of 37

'Declined' might have been a better choice of words. Would $1B have funded a line?  Seems not.  Is the argument in favour of Taiwan against a plant in the US one of access to suitably qualified labour or other factors?

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post #5 of 37

How much would it cost Apple to make their OWN semiconductor fab?

post #6 of 37
Quote:
Originally Posted by marcusj0015 View Post

How much would it cost Apple to make their OWN semiconductor fab?

 

Samsung have just invested >4 billion to expand/renovate their Austin, Texas plant.


A new plant would be small change for apple, but probably not a wise investment.  As margins are low.

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post #7 of 37
Quote:
Originally Posted by marcusj0015 View Post

How much would it cost Apple to make their OWN semiconductor fab?

I believe that's largely determined by WHERE they would "make" it. There are way too many variables that come into play. Just for one instance here in the United States would be tax incentives and tax breaks. That is a large variable which right here at home widely differs depending on region, state and then local governing agencys. Taking this thought abroad brings in a wide array of further considerations.

Result: You can not arbitrarily put an exact price on an 'Apple' fab until you have all the variables relegated to constants.
post #8 of 37

I would think that this rumor (if true) means that the two sides haven't agreed on the terms... not that they can't work out an agreement with different terms. 

 

It's like the tightwad that was pulling up his pants in a public restroom and a nickel fell from his pocket and dropped into the stool. He looked down in the stool for a while and then pulled two quarters from his pocket and threw them into the stool with the nickel, and then announced, "For five cents, 'no', but for fifty-five cents, 'yes'"!!!

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post #9 of 37

To be honest, i think this is the right decision. While I am a huge fan of apple products they have a tendency to play suppliers off of one another. Look at the case of their touchscreen manufacturers: They ask one supplier to increase capacity for this years orders and give that company a huge capital injection, but stipulate that the new capacity can only be used for apple production. The next year they go to the competitor and do the same thing. This leaves both suppliers with massive over-capacity (due to the apple exclusivity rights). Apple then uses this as leverage to negotiate lower prices for future production. In terms of business, this idea is brilliant. But it is not sustainable. Eventually the suppliers will fold.

post #10 of 37

The threat of this supplier diversification alone will cause serious consideration in Samsung's board room. The cost to Samsung for Apple v Samsung is likely to be ultimately measured in many ways. Fortunately, Samsung has proven themselves a reliable manufacturer with quality products and they have proven (and invested) to scale to Apple's requirements. However, this "threat" will definitely get some attention from Samsung as Apple approves other companies as component suppliers.

post #11 of 37
Quote:
Originally Posted by audioobsessed View Post

They ask one supplier to increase capacity for this years orders and give that company a huge capital injection, but stipulate that the new capacity can only be used for apple production. The next year they go to the competitor and do the same thing. This leaves both suppliers with massive over-capacity (due to the apple exclusivity rights). Apple then uses this as leverage to negotiate lower prices for future production. In terms of business, this idea is brilliant. But it is not sustainable. Eventually the suppliers will fold.

I read a manual on 'purchasing' as a job title and due to what I read, at the least, I would have to disagree with your statement that it's a "brilliant" concept. Apparently this is how the commercial industry works. I should also note that it seems from my reading thus far, that vendors understand this tactic.
post #12 of 37
Quote:
Originally Posted by cycomiko View Post

Samsung have just invested >4 billion to expand/renovate their Austin, Texas plant.


A new plant would be small change for apple, but probably not a wise investment.  As margins are low.

Intel makes 60% margins and even lowly AMD makes margins in the 40s. Both of those are a lot better than the minuscule interest apple earns on its cash hoarde.

The real reason apple would not want to build a fab is that it would just take too much time to hire the management and technical staff who could pull it off, then build it, then test it, and finally actually make something with it. We are talking about a 5 to 10 year effort. Apple may have more money than everyone else, but time is limited for all.
post #13 of 37
It looks like they need a 'standby deal' until we also get Samsungs upcoming fabs. Is the Texas fab expansion now considered high risk or do Samsung have problems with any of their upcoming ones? If you do not mind the pun investment in America has the enhanced danger of a side swipe. Intel initially did extremely well with its Apple deals but history now shows this counts for nothing. Any deal with Apple can only ever be short term.
Edited by aBeliefSystem - 8/29/12 at 3:49am
post #14 of 37

1 Billion up front is next to nothing for Fabs. TSMC has forcasted $8.5B CAPEX for 28nm yield improvements and capacity increases. So far they have manage to double their wafers this quarter while only spending $3.6B. Q3 were already better then expected and Q4 could even meet or exceed market demands.

 

So yes all of a sudden TSMC has 5B to spend on next node. They dont need the big checks from Qualcomm and Apple.  

 

TSMC will need more fabs and convert those into new nodes. Building from scratch is time consuming and expansive. They could buy UMC which has been a recent target of acquisition. 

And i dont see the advantage ( in Apple's view ) to have the Fabs in US. Like many have speculate on Samsung Texas Fab. The chip produced would still have to be shipped to China for the final assembly. And Nvidia seems to have no problem for their enginerers to work closely on power / performance / yield improvement.   

post #15 of 37
Quote:
Originally Posted by Blastdoor View Post


Intel makes 60% margins and even lowly AMD makes margins in the 40s. Both of those are a lot better than the minuscule interest apple earns on its cash hoarde.
The real reason apple would not want to build a fab is that it would just take too much time to hire the management and technical staff who could pull it off, then build it, then test it, and finally actually make something with it. We are talking about a 5 to 10 year effort. Apple may have more money than everyone else, but time is limited for all.

Intel and AMD make those margins because they own the IP for the product they make. Apple owns the IP for the processors Samsung make for them. For a build-to-print job the margins are only a fraction of what the IP owner makes 

post #16 of 37
I wonder if apple would ever consider going back to IBM. I know apple wasn't happy with IBM at the end of the PowerPC era, but those problems were not all IBM's fault. IBM could not make the needed investments to keep PowerPC competitive in large part because apple was such a tiny customer. But i wonder if IBM could do a much better job for apple now that apple is buying 100 times as many CPUs today as they were back then, is doing the chip design work itself, and could easily pay for an entire fab.
post #17 of 37
Quote:
Originally Posted by Shidell View Post

And so Apple is stuck with Samsung.

rofl.

You wish. But that would be a false dilemma fallacy.

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post #18 of 37
Quote:
Originally Posted by Vadania View Post


I believe that's largely determined by WHERE they would "make" it. There are way too many variables that come into play. Just for one instance here in the United States would be tax incentives and tax breaks. That is a large variable which right here at home widely differs depending on region, state and then local governing agencys. Taking this thought abroad brings in a wide array of further considerations.
Result: You can not arbitrarily put an exact price on an 'Apple' fab until you have all the variables relegated to constants.

I wasn't asking for an exact price, I was asking about how much it would cost, Sorry if I didn't make that clear, I assumed everyone would just take a guesstimate. anywho, if that 4 billion figure is right, it would be widely expensive especially just to make iDevice processors.

post #19 of 37
Quote:
Originally Posted by Blastdoor View Post

I wonder if apple would ever consider going back to IBM. I know apple wasn't happy with IBM at the end of the PowerPC era, but those problems were not all IBM's fault. IBM could not make the needed investments to keep PowerPC competitive in large part because apple was such a tiny customer. But i wonder if IBM could do a much better job for apple now that apple is buying 100 times as many CPUs today as they were back then, is doing the chip design work itself, and could easily pay for an entire fab.

Even if Apple COULD go back to IBM, with their devolepers and growing user base, they simply couldn't afford another archeticture change.

post #20 of 37
Quote:
Originally Posted by IQatEdo View Post

'Declined' might have been a better choice of words. Would $1B have funded a line?  

We don't know what that money was for. It could have been on top of the actual chip costs. In which case $1 billion seems like a fair amount when you know they will buy whatever you output.

Personally I think we'll turn around and find out that this report is somewhat false. That they in fact will strike a deal they just didn't want it to get out and scare off other clients. Or they think Apple should be paying more simply because it's Apple

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post #21 of 37
Quote:
Originally Posted by Suddenly Newton View Post


You wish. But that would be a false dilemma fallacy.


You sound butt hurt. lol

 

 

Quote:
Originally Posted by Blastdoor View Post

I wonder if apple would ever consider going back to IBM. I know apple wasn't happy with IBM at the end of the PowerPC era, but those problems were not all IBM's fault. IBM could not make the needed investments to keep PowerPC competitive in large part because apple was such a tiny customer. But i wonder if IBM could do a much better job for apple now that apple is buying 100 times as many CPUs today as they were back then, is doing the chip design work itself, and could easily pay for an entire fab.

 

As a former accountant working for IBM, that isnt going to happen. Lets just leave it at that.

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post #22 of 37
Quote:
Originally Posted by marcusj0015 View Post

Even if Apple COULD go back to IBM, with their devolepers and growing user base, they simply couldn't afford another archeticture change.

I don't mean going back to PowerPC. I mean having IBM fab A chips.
post #23 of 37
Quote:
Originally Posted by Galbi View Post



As a former accountant working for IBM, that isnt going to happen. Lets just leave it at that.

Huh???
post #24 of 37

The problem is simple, Apple can afford to pay for the plant, but once the plant has run its course and technology moves to the next NM phase, Apple is stuck with everything while TSMC can use it on older products.  It is better for Apple not to get into this game and leave it to others more skilled at chip manufacturing. 
 

post #25 of 37

Not that Apple can't, it wouldn't be able to. China controls A LOT of raw materials and have been stockpiling them for years. Apple might build it's own lab in US, but wouldn't be able to import the rare metals it needs. China would hike the prices so high it would not be profitable at all. That's why US needs to really rethink it's relationship with China.

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post #26 of 37
Quote:
Originally Posted by Blastdoor View Post

I wonder if apple would ever consider going back to IBM. I know apple wasn't happy with IBM at the end of the PowerPC era, but those problems were not all IBM's fault. IBM could not make the needed investments to keep PowerPC competitive in large part because apple was such a tiny customer. But i wonder if IBM could do a much better job for apple now that apple is buying 100 times as many CPUs today as they were back then, is doing the chip design work itself, and could easily pay for an entire fab.

Why go with IBM? IT would be easier for apple to work with intel and get their processors up to apples specs for cell phones. I wouldnt be surprised if apple has  demo units at their offices of iphones with intels new x86 cell phone processors .

post #27 of 37

Rejection might be a reason to buy TSMC outright. Wouldn't hurt apple to have its own fab. Also how about R&D in glass. If they make tv's and iphones they might try that too. Good for TSMC if it was better business for them not to or they know apple is seriously looking to move away from Samesung so maybe they are playing hardball.  Whatever the scenario its good for apple to know money wont always be enough.

post #28 of 37
Quote:
Originally Posted by majortom1981 View Post

Why go with IBM? IT would be easier for apple to work with intel and get their processors up to apples specs for cell phones. I wouldnt be surprised if apple has  demo units at their offices of iphones with intels new x86 cell phone processors .

Intel is the best manufacturer of microprocessors in the world -- no doubt about it. But intel is used to very fat profit margins AND selling the same product to multiple customers. I think those things make intel an unlikely partner for apple outside of macs.

IBM, on the other hand, is the brains behind most non-intel chip fabbers. Samsung, global foundries, etc all depend on IBM to do a lot of the heavy lifting in terms of R&D for new fab tech. So indirectly, apple already is using IBM. If the two companies could get over hard feelings from the PowerPC days, they could form a very powerful alliance.

Note, btw, that Tim cook worked at IBM for 12 years.
post #29 of 37

Quote:
Originally Posted by cycomiko View Post

 

Samsung have just invested >4 billion to expand/renovate their Austin, Texas plant.


A new plant would be small change for apple, but probably not a wise investment.  As margins are low.

 


Quote:
Originally Posted by Blastdoor View Post


Intel makes 60% margins and even lowly AMD makes margins in the 40s. Both of those are a lot better than the minuscule interest apple earns on its cash hoarde.
The real reason apple would not want to build a fab is that it would just take too much time to hire the management and technical staff who could pull it off, then build it, then test it, and finally actually make something with it. We are talking about a 5 to 10 year effort. Apple may have more money than everyone else, but time is limited for all.

There's a lot more to the story and a bunch more that goes into the margin numbers. Cost of actual raw materials is the biggest, not to mention logistics. If Apple has their own plant they would have to compete against the rest of the 'big dogs' and probably end up paying a bunch more for materials due to economies of scale. As Apple continues to grow the return on such an investment is probably becoming attractive, but it's not there yet. My biggest guess is it's still much more beneficial to the bottom line to execute things as is.

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post #30 of 37
ARM own the IP for the processors Samsung and Apple both license. No ones stuck with anyone. It is pie in the sky whether Apple has skilled up to emulate that Samsung design licensed from ARM.
post #31 of 37

We all know that Apple drive a hard bargain so dedicated lines would be consistent but simply wouldn't be as profitable as shorter runs for other companies.

post #32 of 37

Looking at the photo of the chips I can't help but wonder if Steve Jobs lost his obsession late in his life over the design of parts not seen. I see badly printed and meaningless numbers on several pieces and one piece that looks to be stuck in a bit crooked. 

 

Is that what happens with patents--you get forced to use components provided by other companies and thus stuck with the lack of attention to visual detail? Or is it that Jobs and Apple eventually decided it was better to save money on components and concentrate on the visual appeal of the overall construction?

post #33 of 37
I am sure there is one, I wonder what Tim's plan B is?
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post #34 of 37
Quote:
Originally Posted by Shidell View Post

And so Apple is stuck with Samsung.

 

rofl.

Oh snap! you are right! I forgot that Samsung and TSMC are the only ones they could possibly go to.

 

I am happy that you are happy though, its like seeing a baby laugh the the bubbles when he farts in the bathtub.

post #35 of 37
Quote:
Originally Posted by Galbi View Post


You sound butt hurt. lol

 

 

Non sequitur. Try harder. lol

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post #36 of 37
Quote:
Originally Posted by Blastdoor View Post


I don't mean going back to PowerPC. I mean having IBM fab A chips.

Oh! Idk if IBM would fab non PowerPC chips, and if they did if they're lithography is what Apple currently uses.

post #37 of 37
Originally Posted by dorkus maximus View Post
I see badly printed and meaningless numbers on several pieces and one piece that looks to be stuck in a bit crooked. 

 

I'm gonna go ahead and guess that those numbers probably have meaning.

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