Lower TSMC 5nm chip production isn't from low iPhone 12 demand, says Ming-Chi Kuo

Posted:
in AAPL Investors edited December 2020
The market shouldn't pay too much attention to how much of TSMC's 5nm production is utilized by Apple, TF Securities analyst Ming-Chi Kuo suggests, with changes in production likely to be more due to seasonality than unexpectedly low iPhone 12 demand.




Shifts in share prices of Apple's suppliers have taken place based on the suggestion that Apple's A14 SoC production will be utilizing approximately 80% of TSMC's 5-nanometer capacity in the first quarter of 2021, lower than the 100% utilization level for Q4 2020. It is thought that this utilization drop represents a reduction of demand for the iPhone 12 series, in turn forcing Apple to cut orders from the chip foundry.

In a note to investors from TF Securities seen by AppleInsider, Ming-Chi Kuo writes it would be "an overly optimistic erroneous expectation" to believe the utilization in Q1 2020 would be the same 100% as in the fourth quarter. "If the stock price correction was due to wrong expectations, it would likely benefit from the recent rebound," Kuo suggests.

It is reckoned the utilization for Q1 2020 "roughly reflects" end-product shipments for Q2 of 2021. A new survey by the analyst firm of the supply chain indicates forecasts for assembly and components in the first quarter will actually be up year-on-year by between 3% and 5%.

Even if the iPhone shipment forecast for Q2 2021 is cut from 51 million units to 45 million, this would still be "significant YoY growth" over 36 million units seen in Q2 2020.

For TSMC, the change in utilization of its 5nm production isn't likely to affect its revenue. In October, it was revealed in financial results only 8% of TSMC's total wafer revenue stemmed from 5-nanometer orders.

As well as being a seasonality issue, the reduced 5nm utilization can be explained by two other factors. An earlier mass production schedule for the "iPhone 13" over the iPhone 12 closer to normal seasonality in 2019 and earlier could force the processor production schedules to shift to match, bringing the "A15" production earlier and displacing the A14.

The other factor relates to the iPhone 12 Pro series, which is seeing more demand than anticipated, according to Kuo. As demand is high, the supply for some of the cameras being used in the Pro models is "tight", and since Sony is the sole supplier and has a lead time of between 12 and 14 weeks, this makes it difficult for Apple to improve the supply shortage in the near term.

Overall, TF Securities feels "overall demand for iPhones is still better than that for Android smartphones, and the demand for iPhones is not yet weakening."

While there could be a stock price rebound for Apple's suppliers, it is warned that not all will do so significantly. TF Securities recommends investors examine the stocks that are "riding the positive trends in 2021 or providing better-than-expected guidance."

For Chinese supplier stocks, it is suggested that investors "pay special attention" to elements such as orders gained from overseas competitors, market share increases, obtaining NPI, and improved international development progress.

Comments

  • Reply 1 of 5
    Some added context: normally TSMC is manufacturing flagship chips for both Apple and Qualcomm right now. However TSMC attempted to use the A14 and M1 business from Apple, Zen 4 business from AMD (all 5nm) as well as potential 7nm server CPU business from Intel to try to charge Qualcomm more money for delivering the Snapdragon 888 LATER. Samsung promptly stepped in and pitched Qualcomm on charging less for delivering them earlier. Qualcomm agreed to shift the 888 to Samsung's 5nm node and a midrange chip to their 7nm node. Now that it turns out that Intel may not have TSMC make their first batch of 7nm chips after all as their customers appear to be pleased with their new 10nm chips, TSMC may have overplayed their hand with Qualcomm, while in the process helping restore the reputation of their only real competitor in Samsung.

    Also, pointing out that Apple demand is higher than Android demand is trivial. The latest batch of Android phones launched weeks ago in 3Q. The only major Android brand that has end of the year launches is Huawei, and they have been hammered by the trade war. 
    gregoriusmmuthuk_vanalingamelijahgCloudTalkin
  • Reply 2 of 5
    lkrupplkrupp Posts: 10,557member
    Always on the lookout for Apple failure.
    williamlondon
  • Reply 3 of 5
    I'm currently to busy with work and enjoying my new device to worry about some slowing demand for apple products think my shares I own are doing OK given the recent split. Think we'll be OK lol
    williamlondon
  • Reply 4 of 5
    neilmneilm Posts: 1,000member
    As the Intel to ASi Mac conversion continues in 2021, it seems likely that TSMC may be selling all the 5nm chips they can make. 
  • Reply 5 of 5
    tmaytmay Posts: 6,455member
    cloudguy said:
    Some added context: normally TSMC is manufacturing flagship chips for both Apple and Qualcomm right now. However TSMC attempted to use the A14 and M1 business from Apple, Zen 4 business from AMD (all 5nm) as well as potential 7nm server CPU business from Intel to try to charge Qualcomm more money for delivering the Snapdragon 888 LATER. Samsung promptly stepped in and pitched Qualcomm on charging less for delivering them earlier. Qualcomm agreed to shift the 888 to Samsung's 5nm node and a midrange chip to their 7nm node. Now that it turns out that Intel may not have TSMC make their first batch of 7nm chips after all as their customers appear to be pleased with their new 10nm chips, TSMC may have overplayed their hand with Qualcomm, while in the process helping restore the reputation of their only real competitor in Samsung.

    Also, pointing out that Apple demand is higher than Android demand is trivial. The latest batch of Android phones launched weeks ago in 3Q. The only major Android brand that has end of the year launches is Huawei, and they have been hammered by the trade war. 
    Uhm, Apple utilizing 100% of available 5nm node capacity for 2020 Q4, 80% of demand for 2021 Q1, continuing demand of an unknown amount in Q2, while likely ramping demand for the A15 in Q3, and while also including production of M series SoC's, seems "notable", not "trivial",  to me. Makes me wonder if Apple is even using much of the 7nm node capacity anymore.

    The truth is, no one knows how the TMSC and Samsung 5nm nodes compare, so we'll have to wait, but given that Apple is always the lead for new production at TMSC, it doesn't say much about Qualcomm being a player. I will also note that the 888 is a large die, and will be expensive at up to $250 (with the complete cellular BOM), almost certainly limiting production volumes, and hampering margins for those OEM's that spec the 888.

    Life in the fast lane...
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