Apple-TSMC Partnership: 3nm Process & Cost Savings

In recent news, reports reveal that Apple and TSMC (Taiwan Semiconductor Manufacturing Company) have formed a significant partnership. TSMC has agreed to absorb the costs associated with defects in Apple's cutting-edge 3nm manufacturing process. This collaboration is anticipated to result in substantial cost savings amounting to billions of dollars for Apple.

Insiders familiar with the strong alliance between these industry giants disclose that TSMC's willingness to cover these high costs is due to Apple's substantial order volume. TSMC's 3nm process exhibits a yield rate ranging from 70% to 80%, indicating that around 20% of the produced chips might possess defects. Apple's strategic decision to be the first to adopt TSMC's latest manufacturing process not only aids TSMC in recouping its research and development investments but also supports the construction of dedicated manufacturing facilities. As chip yields improve over time, it is expected that the demand from numerous customers will rise, allowing TSMC to adjust prices and mitigate any associated losses.

Additionally, Apple is currently focused on optimizing costs, particularly in light of the ongoing challenges in the global smartphone market. The launch of the iPhone 15 may also face hurdles in terms of sales, yet Apple's premium product line is anticipated to demonstrate more resilience.

However, Guo Minghao, an analyst at TF International Securities, suggests that Apple's relationship with TSMC has always prioritized "cost procurement" rather than "wafer procurement." TSMC allocates the cost of defective units to the overall product pricing structure. This approach is expected to continue with the A17 chip in the iPhone 15 this year.

TSMC offers two primary avenues for chip procurement: final product procurement and wafer procurement. The latter is more commonly employed due to TSMC's impressive yield rates, effectively minimizing the financial impact of defective units.

Apple consistently demands TSMC's cutting-edge manufacturing services, which translate to higher initial yield rates for new processes. Consequently, Apple prefers final product procurement. Guo Minghao emphasizes that TSMC is likely to allocate a significant share of defective unit costs to each final product's price. This trend is substantiated by the consistent cost increase observed in the new processors used in annual iPhone releases, including this year's A17 chip.