Ming-Chi Kuo says Apple's 'sweetheart deal' with TSMC is no such thing

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in iPhone

Analyst Ming-Chi Kuo claims that reports Apple has an exclusive arrangement where TSMC absorbs the cost of failed processors is not true.

Processors are made in wafers. (Source: TSMC)
Processors are made in wafers. (Source: TSMC)



The recent report of a so-called "sweetheart deal" between Apple and TSMC claimed that it was an exclusive arrangement concerning the pricing of processors. Where all other companies pay for a complete wafer, including some failed processors, Apple does not.

Instead, it was claimed that TSMC absorbed the cost of any such yield failures, and Apple only paid for functioning ones. Apple was said to benefit from this to the tune of many billion dollars per year, and TSMC benefited in turn from Apple being willing to back its development of new processors.

Now analyst Ming-Chi Kuo says that the idea this is an exclusive arrangement is not true.

Apple3nm

(finished goods buy) (wafer buy)

-- (Ming-Chi Kuo) (@mingchikuo)



"There are two ways that customers buy chips from TSMC: finished goods buy and wafer buy," he writes in the full X post. "The vast majority of deals are wafer-buy because TSMC's yields are good enough to ignore the cost of defective chips."

"But Apple is a special case," he continues. "Apple has always asked TSMC to provide the world's latest advanced node production services."

"Because the latest advanced node has many defective chips in the early stage of production, Apple has always purchased finished goods," says Kuo. "And TSMC allocates most of the cost of defective chips to the selling price of each finished chip."

"The best evidence is that the cost of the new processor used in new iPhones increases significantly every year," concludes Kuo, "and this year's A17 is no exception."

Alongside any increase in the cost to Apple of the A17 processor, the forthcoming iPhone 15 range is expected to include a price rise for at least the iPhone 15 Pro Max.

Read on AppleInsider

Comments

  • Reply 1 of 17
    9secondkox29secondkox2 Posts: 2,539member
    If it were true, someone is in serious legal trouble for leaking such favorable contract details. Competitors are fuming. 
    Alex1N
  • Reply 2 of 17
    chasmchasm Posts: 3,213member
    If it were true, someone is in serious legal trouble for leaking such favorable contract details. Competitors are fuming. 
    If the ORIGNIAL report was true, competitors should be fuming. As explained in the article above, however, everyone gets a choice of what they want to buy.

    Because Apple pushes TSMC for the cutting edge, they opt to buy only finished products, but pay more per chip. Others who don’t push the boundaries buy the entire wafer and write off the bad ones, which saves them money. Everyone gets what is best for them.
    FileMakerFeller9secondkox2Bart YAlex1Nwatto_cobra
  • Reply 3 of 17
    So what’s the big deal?
    libertyandfreedewmeAlex1Npscooter63watto_cobra
  • Reply 4 of 17
    jimh2jimh2 Posts: 576member
    The type of deal Apple has is none of our concern. They have a business model for their chip buying and we are purchasing phone, tablets and computers with chips. All we care about are performance, quality and price.

    I'd equate to the person buying a new car with a sticker price of $40K. The negotiate to $36K and get $10K for the trade. They also could have felt good about themselves if they paid $38K, but got $12K for the trade. The dealer does not care how the numbers work so long as they get what they need.
    edited August 2023 FileMakerFeller9secondkox2Bart YAlex1Npscooter63watto_cobra
  • Reply 5 of 17
    The only thing making this a big story is TSMC has said yields on on 3nm wafers are low.    What I've read in the past TSMC yields are around 90%, but the new 3nm the yields are just around 50%.    

    I rememberApple made the deal with TSMC after Intel had backed out of a 3nm deal with TSMC.   So what's going with yield could be why Intel backed out they could see this coming. Apple depended on the Intel TSMC deal because the Intel was the money needed by TSMC to ramp up on 3nm fabrication.  Intel backing out meant Apple wasn't going to get the 3nm chips they were planning on.   So Apple goes into negotiations with TSMC so TSMC would have funds to make 3nm chips.  Whole lot to the business side of the Apple TSMC deal.
    williamlondonAlex1Nwatto_cobra
  • Reply 6 of 17
    blastdoorblastdoor Posts: 3,207member
    I wonder if apple’s interest in 3nm is driven more by future products like Vision Pro than by iPhone. The iPhone could probably rest on its 5nm laurels for a couple of years. But without the volume of iPhone sales, 3nm couldn’t get off the ground. So iPhone sales fund 3nm development, but it will be Vision Pro that really benefits most
    tmayAlex1Nwatto_cobra
  • Reply 7 of 17
    This makes perfect sense. Apple has always been on the front edge of TSMC’s processes, from the A8 (iPhone 6, first-generation 20nm) on. There was an experiment with dual-sourcing for the A9 (iPhone 6S) using an established Samsung process alongside the TSMC first-generation 16nm process. But they haven’t done that since, for whatever reason. A12/A12Z (N7), A14/M1 (N5), and now A17/M3 (likely N3) all on the front edge of TSMC.
    edited August 2023 Alex1Nwatto_cobra
  • Reply 8 of 17
    doggonedoggone Posts: 372member
    Toortog said:
    The only thing making this a big story is TSMC has said yields on on 3nm wafers are low.    What I've read in the past TSMC yields are around 90%, but the new 3nm the yields are just around 50%.    

    I rememberApple made the deal with TSMC after Intel had backed out of a 3nm deal with TSMC.   So what's going with yield could be why Intel backed out they could see this coming. Apple depended on the Intel TSMC deal because the Intel was the money needed by TSMC to ramp up on 3nm fabrication.  Intel backing out meant Apple wasn't going to get the 3nm chips they were planning on.   So Apple goes into negotiations with TSMC so TSMC would have funds to make 3nm chips.  Whole lot to the business side of the Apple TSMC deal.
    Doesn't it always happen that way.  Yields are low in first production runs and then when the kinks are ironed out the yields improve.  That is true for all new product manufacturing but especially for chips using a new higher density process.
    If Apple Pay for the finished good price, that fee per working chip will likely be based on expected yields over the lifetime of the chip.  Cost will be initially high but then reduce as efficiency and pass rate improve.  TMSC margins will be lower initially but will improve over time.
    Intel nowadays tend to be the follower.  It seems to me that they have lost their edge in chip fab innovation.  It's been like that for years and they can't keep up with TMSC.
    muthuk_vanalingamBart YAlex1Nscatzwatto_cobra
  • Reply 9 of 17
    cpsrocpsro Posts: 3,181member
    Any fuming is imagined here, because there's no free lunch.
    williamlondonAlex1Npscooter63watto_cobra
  • Reply 10 of 17
    danoxdanox Posts: 2,671member
    The only one fuming is Intel, they scheduled time with TSMC, and had to cancel it because they didn’t have their designs ready for fab.

    https://www.electronicsweekly.com/news/business/intel-cancels-n3-orders-tsmc-pares-back-n3-expansion-2022-08/

    https://www.tomshardware.com/news/intel-15th-gen-arrow-lake-tsmc-delay
    williamlondonBart YAlex1Npscooter63watto_cobra
  • Reply 11 of 17
    blastdoor said:
    I wonder if apple’s interest in 3nm is driven more by future products like Vision Pro than by iPhone. The iPhone could probably rest on its 5nm laurels for a couple of years. But without the volume of iPhone sales, 3nm couldn’t get off the ground. So iPhone sales fund 3nm development, but it will be Vision Pro that really benefits most
    pro vision is only expected to move 130k in yr one and if u ask me pro vision is just waste of time and a distraction what they want to do already has existed for a long time but they want to do it in higher resolution which makes the headset bulky as hell and will give u neck pain. 

    williamlondonpscooter63
  • Reply 12 of 17
    anonymouseanonymouse Posts: 6,854member
    So, the first report was true, Apple pays only for good processors ... but incomplete ... because Apple only buys finished processors.
    watto_cobra
  • Reply 13 of 17
    Bart YBart Y Posts: 64unconfirmed, member
    blastdoor said:
    I wonder if apple’s interest in 3nm is driven more by future products like Vision Pro than by iPhone. The iPhone could probably rest on its 5nm laurels for a couple of years. But without the volume of iPhone sales, 3nm couldn’t get off the ground. So iPhone sales fund 3nm development, but it will be Vision Pro that really benefits most
    It’s not just Vision Pro.  iPhone A series processors retain performance and power efficiency leads over competing chips but will not unless Apple and TSMC keep pushing Process Node boundaries.  M3 and future M series chips will be / are being  built on TSMC 3nm processes.  If this process gives the performance boosts Apple wants, it’s not hard to see transitions for Watch S-chips, U UltraWideBand chips, H series for AirPods, Headphones and potentially hearing aids, and practically any future chips like modems, GPUs, and other chips Apple wants to create or produce.

    the Apple-TSMC development and production partnership is one huge advantage that Apple can effectively manage.
    Alex1Nwatto_cobra
  • Reply 14 of 17
    blastdoorblastdoor Posts: 3,207member
    Bart Y said:
    blastdoor said:
    I wonder if apple’s interest in 3nm is driven more by future products like Vision Pro than by iPhone. The iPhone could probably rest on its 5nm laurels for a couple of years. But without the volume of iPhone sales, 3nm couldn’t get off the ground. So iPhone sales fund 3nm development, but it will be Vision Pro that really benefits most
    It’s not just Vision Pro.  iPhone A series processors retain performance and power efficiency leads over competing chips but will not unless Apple and TSMC keep pushing Process Node boundaries.  M3 and future M series chips will be / are being  built on TSMC 3nm processes.  If this process gives the performance boosts Apple wants, it’s not hard to see transitions for Watch S-chips, U UltraWideBand chips, H series for AirPods, Headphones and potentially hearing aids, and practically any future chips like modems, GPUs, and other chips Apple wants to create or produce.

    the Apple-TSMC development and production partnership is one huge advantage that Apple can effectively manage.
    You mentioned the Watch -- the Watch has seen very little progress in the SOC over the last few iterations. So far as I can tell, Series 6-8 all use the same 7nm CPU cores. Technically, sure, they could have upgraded to 5nm and then 4NP and maybe that would have extended battery life a little bit. But the reality is, people aren't using the Watch in a way that pushes the CPU very hard. Display technology and sensors are more important of the Watch. 

    More generally, there are a ton of products being sold on planet Earth today that have CPUs fabbed on even older processes. That "new" $11 billion fab TSMC is building in Germany will be using 12/16 nm processes for industrial customers like automakers. Sure -- you could swap out the chip that controls your anti-lock brakes for something fabbed on 5nm and save a few watts of power over the life of your car, but there's no way that it's worth it. 

    The iPhone isn't to the point of the Watch or the microcontrollers in a car -- it does still benefit from process improvements, especially for processing related to the camera and on-device AI/ML. But the benefit isn't of the same magnitude as it used to be. Apple could (and for many models of the iPhone likely will) stick with 5/4nm for another year or two. But I suspect the existence of lower volume products that would benefit from 3nm is a part of their calculation in pushing the iPhone to 3nm this year. (just to be clear, this is in no way a criticism -- I think it's smart and good that Apple is doing this) 
    muthuk_vanalingampscooter63tenthousandthingswatto_cobra
  • Reply 15 of 17
    blastdoorblastdoor Posts: 3,207member
    btw, Apple does have a great deal with TSMC. It works like this -- Apple pays TSMC billions of dollars and in return TSMC lets Apple make chips using the most advanced manufacturing process while everyone who pays less money has to wait. 

    It's kind of like this sweetheart deal I have at a local restaurant -- I go there a lot, spend a lot of money, and they are nicer to me than they are to most other customers. 
    pscooter63williamlondonwatto_cobra
  • Reply 16 of 17
    mjtomlinmjtomlin Posts: 2,673member
    blastdoor said:
    I wonder if apple’s interest in 3nm is driven more by future products like Vision Pro than by iPhone. The iPhone could probably rest on its 5nm laurels for a couple of years. But without the volume of iPhone sales, 3nm couldn’t get off the ground. So iPhone sales fund 3nm development, but it will be Vision Pro that really benefits most

    You need volume to make anything cost effective. The iPhone is what gives Apple the scale needed to make designing their own silicon viable. Apple's main interest in any next generation node process is more about efficiency than it is about performance. Yes, the Vision Pro will benefit from the 3nm node, but so will all of Apple's products eventually.
    avon b7williamlondonwatto_cobra
  • Reply 17 of 17
    mjtomlinmjtomlin Posts: 2,673member
    Toortog said:
    The only thing making this a big story is TSMC has said yields on on 3nm wafers are low.    What I've read in the past TSMC yields are around 90%, but the new 3nm the yields are just around 50%.    

    I rememberApple made the deal with TSMC after Intel had backed out of a 3nm deal with TSMC.   So what's going with yield could be why Intel backed out they could see this coming. Apple depended on the Intel TSMC deal because the Intel was the money needed by TSMC to ramp up on 3nm fabrication.  Intel backing out meant Apple wasn't going to get the 3nm chips they were planning on.   So Apple goes into negotiations with TSMC so TSMC would have funds to make 3nm chips.  Whole lot to the business side of the Apple TSMC deal.

    Apple has also been known to front cash and equipment to suppliers to get priority.
    williamlondonwatto_cobra
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