Apple Has Reportedly Rejected TSMC's Chip Price Hike of 6%
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I mean it isn't just a "we'll lower this" I bet there's lots of juicy confidential future roadmap stuff, things like "Ok we'll help you invest in this _____ tech and machinery but you have to knock off half a cent" or who knows what!
They both want this to get worked out.
No, but they can use their massive war chest and expertise to ramp up a competitor or become one themselves over the next decade or two. With massive corporate ships like TSMC and Apple it takes a long time to change course but they work on longer timelines so a big negative shift over a long time scale is an alarming signal.
Remember when there was no way that Apple would ever be able to move away from Moto?
Remember when there was no way that Apple would ever be able to move away from IBM/Power?
Remember when there was no way that Apple would ever be able to move away from Intel?
If you think Apple can just buy their way into fab success, you don't understand the complexities of semiconductor manufacturing.
Eh. Might know a thing or two, but I'm sure you know what you're talking about.
Have a great day!
No one is saying they can "just" buy their way into fab success. However, I think they do have the cash and clout to make it happen on a decade long timeline, possibly in league with Intel/Samsung or the US Government, or all three, etc. Obviously that would be enormously costly and risky, but any move to eventually do so is a threat to TSMC, so even if they don't do it they have a negotiating position with TSMC right now because the relationship is enormously valuable.
Sure, but how are they going to produce iPads and iPhones before then? They can't have more than a year's worth of CPUs stockpiled.
From TSMC chips. Basically if TSMC insists on raising prices to levels above what Apple is prepared to pay they can threaten to move away from TSMC eventually. If TSMC refuses to budge then Apple will have to pay the higher prices in the short to medium term and then expend capital to not be beholden to TSMC over the long term. So then the question is does TSMC value the relationship over the long term or do they value the higher prices in the short to medium term? That could be Apple's negotiating position.
I suspect if Apple really wanted to they would probably start to produce their products in two lines like Nvidia did, with cheaper phones produced on something like Samsungs 4nm and the higher end phones on TSMCS 3nm.
This has the added benefit of diversifying their supply chain (to a degree), giving TSMC less leverage over Apple and potentially reducing the production cost of the lower end phones.
Wouldn't be the first time Apple has used multiple vendors for their SOC. The 6s for example had SOCs made by both Samsung (14nm) and TMSC (16nm).
I wonder how they would react if they were offered 25% of Apple's 3nm capacity at the higher price.
This could be a good lesson for everybody.
Sounds like they're playing a game of chicken.
Apple could with some pain replace TSMC but TSMC can't really replace Apple. While Apple is a demanding partner they pay their bills on time and can and do front R&D money. Once Apple's deliveries are made TSMC now has a money printer on the new process node Apple paid for.
If TMSC rejects Apple, what is Apple going to do? Use Intel chips in iPhones?
They announced they would do that in March 2021 (https://www.techpowerup.com/280085/intel-to-enter-third-part...) and have customers:
- QualComm and Amazon AWS: https://www.theverge.com/2021/7/26/22595002/intel-qualcomm-c...
- MediaTek (https://www.tomshardware.com/news/intels-foundry-services-la...)
Intel page: https://www.intel.com/content/www/us/en/foundry/intel-foundr...
2) There is only one TSMC. If you could just buy one for 500bn the EU would have bought 3 already. Building your own TSMC from scratch takes a decade, if not longer.
I bet if you try the US and EU quietly tell you to stop, because Taiwan without a TSMC monopoly would be very scared.
> China throws billions for decades
PRC's first pseudo-serious semi push was 2014 big funds, so far they've spent about 50B, over 8 years. That's less than annual R&D of western semi sector. And basically for first 5 years it wasn't a very serious effort until Trump's Huawei sanctions. PRC semi poached about ~3000 semi engineers from TW, a few hundred top talent from TSMC, and that was enough to realize the recent 7nm breakthrough on DUV in the last couple years once PRC semi started to get serious. US companies wouldn't have any issue accessing western equipment and US could absolutely pressure TSMC / TW into further semi capitulation. So maybe dropping cash and add political sticks to brain drain TSMC. The secret isn't to recreate TSMC, but to paperclip all their people and get to to build US-SMC state side.
> lost chip war
That remains to be seen, so far there hasn't been any sector PRC couldn't successfully indigenize in relatively short order once central gov started turning the screws. It might not be leading edge, or even commercially competitive, but it will likely be enough. They could also destroy critical East Asian semi supply chain before US can reshore in next few years and be the only country with the most comprehensive indigenous semi supply chain even if on older nodes. Still lots of ways chip war can play out.
This sounds like the same neoliberal fantasy that trapped Europe into an energy crisis.
They are not desktop or laptop chips though. Targeted at miners. If you are willing you could probably reverse engineer them and do some fun stuff. But they are definitely not general purpose.
Apple is probably weaker because it’s likely someone else can fund the newest node for TSMC, just might take more work.
Most likely middle managers/directors emailing each other.
Pretty much like sovereign nations negotiating treaties.
Which is an apt metaphor, because neither Apple nor TSMC has the ability to force the other to do anything.
So, negotiations become a crawl to find a mutually-acceptable local optimum. Which ends up with both getting things they see as strategic priorities, while compromising on things they care about less.
Most of the dance is around figuring out what the other's strategic priorities actually are, and which concerns are secondary.
Or they have mutually-exclusove strategic priorities, in which case there is no deal.
TSMC is in a stronger position than most suppliers, because they have really strong demand for their product and don't need the prestige that an Apple deal offers.
There’s so seller like TSMC and no buyer like Apple.
https://www.vanityfair.com/news/business/2014/04/apple-googl...
The way Jobs closes it is quite unusual however because in this case NewsCorp were late movers. Apple had already reached terms with all their competitors and could put on the table a take it or leave it offer which Murdoch couldn’t refuse.
I was part of the team in charge on negotiating the termination of an on-going contract involving a potential settlement in the low teens millions of dollars between two huge industrial companies once. Obviously it’s nothing as big as a deal between Apple and TSMC but still not an insignificant sum.
I was surprised by how straightforward the whole thing went. Basically we had prepared our arguments: we knew the minimum payment we could justify, the maximum we thought the contract allowed them to ask, what we were aiming for and how much we estimated going to court would cost us and them. They had done the same. There were a couple of back and forth where one party made an offer, the other countered with another one explaining why what was asked didn’t apply and why it should rather be like so and so. At some point, we said that’s our last offer we won’t move anymore. They decided to agree and that was it.
Executives value their own time over anything else, and as such - they don't find it valuable to haggle over small details in lieu of just getting the deal done.
For example, Apple has 150k+ employees.
A day wasted by the Company is 450 man-years
TSMC: you'll pay _____ or you can go to the other fab, oh right, you'll pay _____
--------
vendorSellingToBigBox: we would like _____ per unit of our product
bigBoxBuyer: that's nice. we'll pay 40%______ per unit. you'll sell extremelyLargeNumberOfUnits, and make it up in volume. oh, if you don't sell a minimum number, you have to buy all of the unsold items back from us. you'll also get the worst shelf space available compared to your competitors. i'm sorry you thought this was a negotiation.
Others will sell a white-label or generic brand to them. After all, it's just business.
Ill have to steal that one
How? I'm coming up blank. Is there a way to compare prices or quantity against other big box stores?
For awhile iPhones were just completely missing from some larger stores, but it seems Apple has the upper hand there now and they're back in business. And even now Apple holds a very right reign on the prices charged (Best Buy seems to have the most leverage here, as they often sell new MacBooks for a bit lower than the Apple Store). This is one of the reasons Apple started the stores; gives them leverage against the retail giants.
There are a number of brands you'll never see at Costco; they don't play the game.
It hurts Walmart as a business very little to stop selling Vendor X goods on their shelves when there are substitutes available. However, for Vendor X it's often the case that Vendor X cannot adjust their output as quickly as Walmart can take the product off shelves. That action, taking them off the shelves for even a short period of time while Walmart presses for renegotiating terms can result in layoffs, loss of revenue could result in lines of credit drying up. It's an existential threat to a company because they can't scale up and down at the speed Walmart demands.
If I recall correctly there's a record of this happening with Rubbermaid, and they responded to Walmart's demands for prices by cutting costs, cutting corners with quality, and ultimately sullied their brand name.
https://www.amazon.com/United-States-Wal-Mart-John-Dicker/dp...
https://www.barnesandnoble.com/readouts/the-wal-mart-effect-...
Step 1: Company has a great product. Walmart begins stocking it nationwide, perhaps promoting it to increase their marketshare. That product's revenues explode, they expand, everything seems great.
Step 2 to N: Then Walmart threatens to pull from shelves unless they can meet the cost of $substituteGood. The company cuts costs to make it work. Rinse and repeat.
Step N+1: The product is no longer great.
This is exactly what has happened with Rubbermaid and with countless other consumer goods.
Apple also has something TSMC desperately needs too: the ability to pay upfront and guaranteed volume.
Turning these lines on and off is basically impossible so guaranteed volume is a way to smooth out demand and is needed for planning.
These factories are tremendously expensive and getting cash upfront is basically a zero interest loan in a time of high interest rates.
If apple doesn't go to them, I think the only other option is Samsung? But I don't know that Samsung's fabs are open to third parties.
Samsung has produced parts for others for a Very Long Time, most famously NVIDIA (not "nVidia" since many decades) use(d) them.
Shorter-term that's true.
Apple is well known at times to think longer term on logistics, strategy. If push comes to shove, there are two additional options for Apple.
1) Political. Taiwan not being China depends on the support of the US. Apple is a economic security prize for the US, a strategic asset. Apple can get powerful politicians in the US to lean on Taiwan, which can dictate TSMC's behavior to an extent. This would prompt increased compromise from TSMC (3-4% hike, not 6%).
2) Apple starts investing into fabs and builds a TSMC competitor from the ground up, perhaps in alignment with ASML (Europe very much wants an improved semiconductor context) and a few US partners (build the fabs in the US and Europe for national security purposes). Apple is one of the few companies where you have to take this potential seriously, they can safely bankroll it entirely by themselves if necessary.
They most definitely are, my employer has sent trial tape outs to them recently.
TSMC's position in that context is less strong than you'd imagine, especially since Apple has to be thinking that they want to diversify away from Taiwan and China to avoid "Russia risk" of having their supply shut off to zero suddenly when China does something crazy.
I agree with the diversity angle though. Tim Cook seemed really slow to recognize it, but the last few years apple has accelerated shifting manufacturing. India will now be joining China in producing their latest phones (14), which is a big first.
It wouldn't be easy for Apple to just go to another fab. They'd have to find another vendor with the capacity and then they'd have to tweak things to match the new fab's design rules. Not trivial for something like M* chips. I suspect Intel would be happy to have Apple in their nascent foundry biz, but not sure they would have the capacity right away and also suspect the design would require a good amount of tweaking to get it in production in an Intel fab.
Apple could say that they will accept the 6% increase, but then lower their investment in new fabs 6%. I honestly don't know which number is bigger.
Taiwan:?
Apple: We also have the technology.
Taiwan: ??
Apple: Did we ever tell you about our iSoldier project?
["parody. not to be taken seriously"]
"The United States spends more on national defense than China, India, Russia, United Kingdom, Saudi Arabia, Germany, France, Japan, and South Korea — combined."
!?
And $200B is inside the consensus estimate of $200B to $300B. Wow.
I mean, the US has 20 aircraft carriers and the rest of the world has 28. The proof is in the pudding.
The most plausible scapegoat is the cutting-edge one with a price hike because there is maximum room for others to speculate on what isn’t right/good enough, and there is minimum risk of giving up their spot in line.
By the time competition is up on it, Apple can return to their most familiar location: somewhat behind on the bleeding edge of tech, but ahead on integration and UX.
It’s also possible that Apple is going to take fab in-house but I’m not aware of any signs of preparation and something like that seems like it would be impossible to keep secret.
Seems like a good tradeoff. Is the next years best TSMC chip really that much better than last year's? I doubt it.
> N3 technology will offer up to 70% logic density gain, up to 15% speed improvement at the same power and up to 30% power reduction at the same speed as compared with N5 technology.
That is a more modest bump than some previous nodes, but still seems worth a 6% increase in price depending on how yields shake out.
And if Apple is currently a "generation ahead" they can spend that lead-time in other ways. They've done it before out of necessity, and I wouldn't be surprised if Apple has phone features they're holding back to "gloss over" a release that doesn't really have much more CPU.
Any moves Apple made now would wind their way through ASML et al., through fab construction and qualification, and then finally adapting their chips to a new process.
They could pull the trigger on the Power to Intel because they'd spent a decade+ of contingency planning, OS/app support, and acquisitions.
This isn't like that.
https://www.bizjournals.com/phoenix/news/2022/05/26/tsmc-pho...
They’re probably not hiding something like that in Cupertino.
Maybe it's unrealistic but it wouldn't be the first time something like that happened in a market. The political conditions aren't unfavorable either.
TSMC has a market cap of $356B and maybe $30B in cash. Apple has a market cap of $3.25T and over $200B in cash. Surely you are overlooking a possible option here, which is Apple acquiring TSMC. I don't see it as likely, but it is an option.
This is a guaranteed route to introducing even more delays, cost overruns, schedule overruns, onerous requirements, intrusive oversight, and about a trillion meetings and studies along the way.
If you want to go fast, stay far far away from the USG.
This makes no sense?
M1 / M1 Pro / M1 Max / M1 Ultra were all manufactured on TSMC N5, even though volume production for N5P (improved N5) was already available by the time M1 Pro / Max were released. In fact, A15 (N5P) was released in September '21 whereas M1 Pro / Max (N5) were released in October '21 and Ultra was released in March '22.
M2 is manufactured on N5P, so it makes total sense that M2 Pro / Max / Ultra will also be manufactured on N5P. They're part of the same generation, so it makes sense to produce them on the same node.
This is also most logical from a financial standpoint: the base model M chips and the A chips are the smallest and therefore least expensive to produce on a new node with relatively poor yields and high prices. Once the node has matured a bit more (higher yields / lower prices), you manufacture the bigger chips (Pro / Max), and even later you print the big bois (Ultra)
M2 Pro / Max / Utra were never going to be N3.
You mean TSMC threaten? The only other huge players willing to pay a premium for state of the art node like that are GPUs, and they just got the whole crypto mining rug pulled out from under them so they may not be interested in paying top dollar any more.
Quantity varies though.
I also think the ability to improve tier prices as fast as they have is directly related to apple’s volumes.
On the other hand they have more money than they could possibly spend, so insourcing everything for vertical integration isn't out of reach.
Even posturing to begin that process would knock tens of billions off TSMC's market cap and spike its funding costs, to say nothing about complicating its contract negotiations with every other customer. They did it, after all, to Intel.
Besides with Perf/watt gap Mac/Iphone and rest Apple can wait it out for at least a year or maybe even longer.
Also worsening economic crisis will hit TSMC much sooner than Apple.
It's almost as if TSMC asking or an extra 6% when inflation is at an all-time high is reasonable, and Apple doesn't really have a viable alternative...
https://www.usinflationcalculator.com/inflation/historical-i...
But all this is likely just negotiations and Apple won't be making a move (where to anyway?). Maybe instead of 6% per chip Apple invests a bit more elsewhere in the company to keep production costs as low as possible.
I imagine the negotiations largely centre around timeline and quantity guarantees, as well as capability. Apple is cutting back iPhone Pro production [1]. If 3nm won't enable features that sell more iPhones, or if the market is shifting from a feature focus to one on costs, 6% more for 3nm may make sticking with five more profitable.
[1] https://www.bloomberg.com/news/articles/2022-09-28/apple-iph...
No, iPhone Pro demand is very strong. The regular iPhone demand appears soft or didn't ramp up. None is this is a surprise since early adopters would likely be the same who buy the Pros.
Isn't this misleading? If Apple doesn't take the fab capacity then somebody else will.
Is there? Seems like we're heading for a recession and reduced demand - at higher prices I wouldn't be surprised existing customers cut back on existing capacity.
Perhaps lower demand for consumer devices[1], but at Google and Amazon's scale, getting more efficient Tensor cores, ARM processors, and AI accelerators for their respective clouds will save them some OpEx by requiring less power (and cooling). It may also save CapEx as well, by reducing the need to build additional datacenters by getting +10% more compute[2] with the existing DC footprint, power and cooling budgets.
Server costs are amortized over long periods - longer than whatever recession may or may not happen. Also, if they can lock-in TSMC for years, they'll continue to reap benefits long after the recession is over and shift capacity to Kindles or Pixel devices when consumer demand recovers.
1. Which may explain Apple developing cold feet.
2. Back of envelope calculations. I do not know what node mixes Google and Amazon have in their data centers, but I'm guessing it averages-out between 10 to 15nm. How much can they benefit by replacing their oldest processors with 3nm parts?
There are many more possible reasons why Apple had dibs, including being able to guarantee specific volumes, or committing to pay large non-cancelable amounts as a deposit, and could be as pedestrian as TSMC preferring to deal with a single large order rather than 2 or 3 less large ones as they work out the kinks in a bleeding edge process.
What would Apple do in that case? Samsung doesn’t come close to TSMC just yet.
They'll both come to terms in some middle ground. Apple has history of such flexing to force other parties to play nice.
Apple has done precisely this multiple times or even bought up companies to have that level of vertical integration.
With Apple's cash war chest, they can afford everything.
TSMC having undisputedly best litography is advantageous to Apple. It means Apple can buy the whole production and nobody else will be able to compete with their chips. They will lose this if they will make the field more competitive by propping up a competitor.
In any case, Apple investing into their own fab also makes sense from a geopolitical point. Apple is already beginning to diversify from China because of their shoddy covid policies causing delays all the time, and everyone can see the writing on the wall that says China is very high on the sanctions priority list of the West. Additionally, the threat of China invading Taiwan and TSMCs fabs getting blown up in a scorched-earth action or damaged by war is only growing bigger every day.
You could be completely successful in making chips at small node sizes and have someone out-compete you, meaning your chips are less performant than the competition and you look worse, and it cost you tens of billions of dollars to get there. That's what samsung and intel have been experiencing for several years now.
One thing apple isn't famous for is manufacturing cpus. It's hard. They buy parts from other companies and pay yet another company to assemble them. There is no one to buy or fund to instantly catch up, and even if you did, next year you may be out again.
It's not an easy problem where throwing money means you win, and apple has the most money.
Intel struggled because of piss-poor decisions by execs:
- Reduce stake in ASML
- Not use EUV for 10nm
- 14nm++++++++++
- That was fine (for some time) because Intel had no competition from AMD
- Thinking that 4 cores 8 thread is what consumer needs (if it weren't for AMD we'd still top of the line i7, or how they call it today i9, would still have 4 cores and 8 threads)
- Not seeing that new node is getting more and more expensive in terms of R&D and that pure-play fabs have gigantic advantage
When AMD Zen happened, Intel got caught with its pants down.
Samsung "struggling" because they couldn't outbid TSMC for EUV machinery (wonder where TSMC got money from...)
Capacity for cutting-edge nodes is limited purely on how fast EUV machinery can be delivered. Currently, it's limited by ASML production capacity.
Including TSMC's price. When push comes to shove, accepting the price hike would likely be the cheapest option.
Both Intel and Samsung have been chasing TSMC for years now spending billions on their fabs but neither has managed to catch up.
I am not sure that there is enough demand from smaller clients to 100% cover apple's usual capacity.
in short this seems to be a real bras de faire :)
At the right price, everybody wants it, but TSMC wants a high price now, to recoup their investment on the new process. If they drop their price now, that will take a long time, and may even be never, as, over time, competition will drive down margins.
Apple may be fairly unique in having a “right price” that is a lot higher than that of other players while they also are willing to order hundreds of millions units.
My impression is that they invested huge sums of money into the 3nm lines; you don't want to delay getting returns on such investments.
Considering that capital has a cost, it might be cheaper for them to forego the 6% increase (at least for now) and start returning some of their loans, rather than letting the interest accumulate. (Which Apple knows, of course, which is why they play hardball).
Yeah, if numbers add up then why not. The trouble is numbers did not add up in past and in a world heading for recession it does not seem likely soon.
On one hand Apple doesn’t really have any other partner to go to that can deliver on 3nm or anything equivalent. On the other hand, at this point, does it even matter? Sure, it would be nice, but is it worth the cost?
TSMC also needs to look at it and say Apple accounts for 25% of our business and the most lucrative and prestigious 25% at that. Is it worth potentially harming the relationship?
Kinda crazy to not pay 6% for these gains but that’s just me!
While Apple chips are highly sought after in the West, that's still a minor part of the worldwide market altogether (and while I'd be happy to go back to M1 Max, I couldn't care less for their glossy displays, shallow keyboards and sharp edges — not to mention incomplete Linux support).
Apple solved these issues somewhat with the new MBP but the keyboard and screen still sucks for me. Their new SoCs are great though.
IOW, they can keep the cycle going for longer.
Yeah, I think they probably are.
> While Apple chips are highly sought after in the West, that's still a minor part of the worldwide market altogether
It is, but it's also the part of the worldwide market that actually makes high profits.
How would you break up Apple in this case? They can’t sell iPhones, iPads, Macs, Watches, monitors (their newest monitor has the same processor as the iPhone 11) and AppleTVs?
Would you break Apple up so each line of iPhones have to be a separate company?
What did they do with regards to TSMC that would be anti competitive? Invest money in a supplier to ensure that it had capacity?
It’s not like TSMC builds the machines. They just operate them, and we all know what happens to the man in the middle.
you clearly have no idea on chip manufacturing.
if foundry just operate machine then why GlobalFoundries licenses Samsung 14nm? it just operating machines, right? just operating machines, why you need to licenses the process? isn't ASML or other machine vendors cover everything you need? just operating machines required R&D on operating machines?
https://techreport.com/news/26336/globalfoundries-licenses-s...
Nah they are TSMC's machines. Really expensive ones. Apple just has bought the production of certain fab before they are built for certain amount of wavers (or time?) for X amount of money. Now TSMC is saying that due to inflation that X needs to be made bigger and thus renegotiating the contracts.
(Also this paying upfront is really good for TSMC as they basically get interest free loan for building the fab)
Also I think there is misconception that you could just buy a EUV lithography machines from ASML and start making chips. That is just one part (a very expensive hundreds of millions costing part) of a multistep process to make a modern microprocessor. In general it takes 3 to 4 months to go from a bare silicon wafer to a packaged chip. This is also why losing power/contamination can be really costly at a semiconductor fab as you can lose 1/4 to 1/3 of a years total production capacity even if you get the fab back to running next week.
Interesting scenario with both parties squaring off.
Apparently its called a Bilateral Monopoly
You are reading about it! If a deal is met, the supply and demand curves presumably intersect, and a price is discovered.
Of course, with extremely low volume of deals and extremely high complexity, the risk of miscalculation and loss for either party is high. Apple overpaying and their customers not willing to pay, or TSMC underpricing and not being able to cover their costs of production to deliver the goods qt the agreed upon specifications. This is also a loss for Apple, since having a functional TSMC is the ideal, not forcing them to go out of business.
But they won't do it unless they need to, or they think they can get a major win, and even then likely though a subsidiary.
Maybe Apple sees this (if we don’t pay, no one else will, so we don’t lose to another, but we don’t get the new fab) and thinks this is the optimal outcome. They are batting down the hatches prepared for a recession (and impacts of a super strong dollar), and cutting spending ahead of an expected demand drop.
Production of Apple chips by TSMC is not at stack. The price hike concerns the new 3nm process which is apparently costlier than usual. There apparently has been ongoing negotiation for a price hike for a bit which was rumoured to be 3% but seem to actually be 6%. Apple said they weren’t interested at this price point which means they probably won’t use 3nm for their next chips unless a different price agreement can be found.
This is not about Apple changing supplier.
If so, seems like some hard bargaining happening on TSMC front.
2. But its awesome that apple can say no to price hikes. This is good economics for end users and its a reason why capitalism and markets are often good and produce lower prices
You do not get rich writing unnecessary checks, but you do get rich writing checks towards investments that result in ROI. Such as paying TSMC to develop more advanced chips in exchange for retaining exclusivity for a certain period.
What makes you think they'd eat that? Would consumers balk at or even notice a 6% increase in price on their next Iphone? Even if they did Apple could just say "Inflation sry"