They don't have to buy TSMC a fab, they simply have to pay (slightly) more than other TSMC customers - and Apple with its uniquely high margins can afford to do just that. Of course, depending on other details of the contract (such as guaranteeing certain volumes, which Apple can also do much more easily because they use the chips themselves), they don't even have to pay more to be TSMC's preferred customer.
Actually I would put the blame squarely on AMD and Qualcomm for making themselves dependent on TSMC - especially AMD who have turned themselves into a "fabless manufacturer" and are now experiencing the consequences...
> they simply have to pay (slightly) more than other TSMC customers
I'd argue that they need to pay significantly more than other customer in order to get such preferential treatment.
In a short-sighted view of things, you only need to pay slightly more. If AMD is willing to pay $1 and Apple is willing to pay $1.01, you make more profit selling to Apple. However, as this article shows, you might end up losing the other business if you offer Apple such preferential treatment. If Apple isn't going to use all of your capacity year-round, you don't want to alienate the other companies whose orders you rely on.
I think Apple likely has to pay a significant premium for getting access to the latest and greatest to the detriment of competitors. It's not in TSMC's interests to become too dependent on Apple. If AMD and Qualcomm mutiny and their orders start boosting Samsung's foundries with more money for R&D, TSMC could find itself 1) competing against a better-funded Samsung foundry; 2) with one customer that now has leverage over TSMC and getting paid less.
If AMD and Qualcomm move all their orders to Samsung, it provides Samsung with the money to reinvest in its chip business. If they're able to make long-term commitments to Samsung, that's bad for TSMC since it will allow Samsung to invest knowing it will make a profit (just as TSMC has been able to do that with Apple's commitments).
Likewise, if the two other giant chip design companies move to Samsung exclusively, that leaves TSMC in a tough negotiating position with Apple. Before, Apple would have to compete against AMD and Qualcomm for capacity. Now if AMD and Qualcomm have made long-term commitments to Samsung, TSMC becomes really reliant on Apple and Apple will know that TSMC has capacity they can't sell elsewhere. Sure, MediaTek and others exist, but it swings the power away from TSMC and toward Apple. Let's say that Apple was using 40% of TSMC's capacity, AMD 25%, Qualcomm 25%, and MediaTek 10%. Now AMD and Qualcomm make long-term commitments to Samsung. Apple knows that TSMC's orders have dropped 50% and that gives Apple a lot of power.
Giving Apple the best to the detriment of AMD, Qualcomm, and others is a risky play for TSMC. They'll definitely want to be getting very well compensated for it, not merely slightly more. They'll want to make sure that what Apple is offering is enough to offset the substantial risk of angering competing chip design companies who might look for fabs elsewhere.
Risking the future of your business for a 20% customer sounds like a tricky proposition, and moves like this have real risk for TSMC.
It's hard to predict the future; and the whole point of a foundry and why TSMC has been so successful is because they refused to play that game. They kept their options open and flexible rather than betting on a few key chips, and they've repeatedly pointed out how the very diversity of their customers has meant they always have some customer willing to be a guinea pig for some new tech.
Losing diversity is a cost; it undermines their very business model. From a business perspective you'd hope they really made apple pay through the nose for that cost, and not just acquiesce because they're a significant customer.
I'd say it's at least plausible that TSMC miscalculated here, and didn't think AMD and Qualcomm (and perhaps others) would dare.
To be clear: they might still get lucky (and AMD/Qualcomm unlucky) - it's not exactly news that new process nodes sometimes fail or are delayed, and if Samsung turns out not to be able to deliver, they'll be able to reacquire that diversity with little trouble, surely. And if they can replace AMD/Qualcomm with other leading edge customers they might not even really be losing much of that diversity they value so highly.
Apple is also the biggest customer for Samsung, outside of Samsung themselves. And they have preferential contracts with Samsung, too. Enough that Apple has required the Samsung chip manufacturing subsidiary to operate with Chinese Walls between them and the other Samsung businesses, and sometimes Apple gets preferential treatment over those other Samsung businesses.
So, this is a frying pan versus fire situation. I don’t think AMD and Qualcomm are doing themselves any favors here.
Do you have any link or data to back that up? Obviously, Samsung isn't entirely open about who's paying it how much...
Another large customer (that will be jumping ship to TSMC) is Nvidia, and clearly Samsung isn't supplying any of apples core SOC's anymore, so what is Samsung providing to apple that's valuable enough to make apple it's largest customer?
Apple is not known for overpaying. Apple is however a significant volume customer and volume customers usually enjoy a huge discount that smaller customers don't get. So in addition to preferential allotment, Apple is probably paying less for the same node.
Apple may not overpay, but if they're willing to pre-pay multiple billions of dollars that's a huge incentive for a company like TSMC, who gain the ability to instantly (well, "instantly") launch capital projects, rather than having to wait for three years of revenue to roll in first.
For all we know, TSMC is taking all that 3nm Apple money and putting it into producing new 3nm fab lines, which would honestly be better for everyone in the long term (except Intel, I suppose).
Sure, Apple's prepay financial arrangement might have some outsized influence in smaller, riskier, or declining businesses, such as GTAT or JDI, but there is nothing special about pre-pay, especially in this market and this particular industry. Top fabless makers from Qualcomm, to nVidia, to AMD, to TSMC are flushed with money and are desperately competing for capacity. In fact, TSMC recently disclosed that they received over $3.8B in such prepay, or "temporary receipt" from various customers for their future nodes [1].
Further, Samsung and TSMC routinely spend many more billions on capex every year. Both companies not only have many billions stashed away, but also have the means to finance them without relying on Apple. For instance, Samsung's capex in 2020 was nearly $30B; TSMC ~$25B, vs Apple's $7B.
Sure, Apple is a big consumer of the latest nodes, but the process nodes will advance with or without Apple or Apple's money.
The reason AMD went fabless had nothing to do with edge. It was a move to prevent bankruptcy. Intel fell behind because of its process woes and managerial issues. They weren't outworked, they played themselves.
Only half the story. AMD also needed to do that due to antitrust shenanigans that harmed AMD. In my recollection of history, this was litigated in court and (I think?) eventually settled before a verdict.
"n 2005, following an investigation, the Japan Federal Trade Commission found Intel guilty of a number of violations. On June 27, 2005, AMD won an antitrust suit against Intel in Japan, and on the same day, AMD filed a broad antitrust complaint against Intel in the U.S. Federal District Court in Delaware. The complaint alleges systematic use of secret rebates, special discounts, threats, and other means used by Intel to lock AMD processors out of the global market. Since the start of this action, the court has issued subpoenas to major computer manufacturers including Acer, Dell, Lenovo, HP and Toshiba.
In November 2009, Intel agreed to pay AMD $1.25bn and renew a five-year patent cross-licensing agreement as part of a deal to settle all outstanding legal disputes between them."
Unfortunately by that point the damage had been done. Fabs are an extremely expensive, normally lower margin, business. Risk averse companies probably can't get into that game. Even with Apple they appear to have focused on something of a partnership with TSMC rather than their own fab.
Yeah this one is hard to look at, especially because for a while it looked like it was a very bad move for AMD. In retrospect it was still a kinda bad contract for them for a while (IIRC, GloFo couldn't deliver on process for Bulldozer, which led to poor yields/heat/etc, killing demand, but AMD had contracts with GloFo stipulating penalties for not hitting certain order numbers.)
But at the same time, they were then unshackled as you said; As time went on and they could move more volume to TSMC it wound up helping them out immensely.
It's kinda worth remembering too though, that even at their 'peak' in the early 2000s AMD was 6-12 months behind Intel on process tech if you go by releases. Given the trouble Intel has had keeping up one could only imagine where AMD would be now.
I don't think there's any debate. GloFo abandoned 7nm research 3 years after TSMC shipped. TSMC has since pushed out 6nm and 5nm while GloFo is just languishing in 12/14nm.
They don't have to, but buying production equipment for their manufacturing partners (in return for guaranteed pricing and production levels) is the norm at Tim Cook's Apple.
We can’t know for sure, but it’s highly likely they provided heavy capital investmeny to TSMC, and you can bet that came with strings attached.
To add to the other examples given here, Apple actually owned the manufacturing equipment for the first generation retina panels, even though it was housed in factories owned and operated by Sharp.
They did for the glass manufacturer who built the large panels for the Apple Flagship Store in NYC. They also invested in Corning for building the glass for the iPhone (Tech that Corning shelved for decades).
Maybe not literally, but effectively. If Apple's willing to place a cast-iron multi-year order worth tens of billions of dollars with TSMC, the latter is going to go out and build more fabs. Any bank would lend them the money to do so on that basis.
Undoubtably that's why Apple gets such preferential treatment from TSMC and other suppliers.
> Any bank would lend them the money to do so on that basis.
There is a good chance Apple lent TSMC the money - although the actual transaction would probably not simply be lend at x%, but be designed to be taxation efficient for both parties which might involve other parties or securities.
> Actually I would put the blame squarely on AMD and Qualcomm for making themselves dependent on TSMC - especially AMD who have turned themselves into a "fabless manufacturer" and are now experiencing the consequences...
The consequences being if you don't like what your fab is up to, you can switch fabs. Doesn't sound too bad. GlobalFoundries, the former AMD fab, has all but given up on smaller nodes at this point, but AMD switched to TSMC for CPUs and a mix of TSMC and Samsung for GPUs. On the other hand, Intel had problems with their fab for several years, and is only now starting to consider using other fabs, when their process seems to be starting to work.
Yes, designing chips to fabricate on different lines is more work, but it's something AMD has intentionally done and it has benefits over running your own fab, especially when your own fab has trouble with node shrinks.
Eh, the business world isn't as simple as Econ 101. Personal and business relationships matter. Risk matters quite a bit too. Which is why strategic partnerships happen between large businesses.
> They don't have to buy TSMC a fab, they simply have to pay (slightly) more than other TSMC customers - and Apple with its uniquely high margins can afford to do just that.
It's not as simple as high margins but controlling most of the stack. If all Apple was doing was charging more, we'd see comparable quality devices at lower cost but we don't and it's not uncommon for e.g. a Samsung flagship to cost more despite being slower (or narrowly beating the previous generation, depending on launch timing). What we're seeing instead is that Apple has both consistent goals on their execution (e.g. not Google and Qualcomm working at cross-purposes which make sense for their individual businesses) and captures more of the revenue.
That's a lot harder to catch up with and gives Apple consistent enough revenue that they can do things like effectively floating TSMC a great loan or pay more per unit since they don't need to justify it based on the profits from a single layer. Dell can't pay for their processor R&D using the money you spend on Spotify or Steam.
Indeed, this is the obvious risk of allowing a TSMC monopoly, and its "fabless" customers have little justification for complaining.
AMD is not the savior here, nor any other TSMC customer. Intel completely squandered its lead, and now we really need to hope they can catch up and remain competitive. We shouldn't allow TSMC to take total control of the market.
I don't think they would only need to pay slightly more. It is a bad move to be entirely dependent on a single customer to the detriment of your other customer relations. To gain exclusivity there would likely need to be a significant premium paid and minimum order commitments.
They're not though. There are still many fabs available, just not the premium ones. It's up to every other company that wants those seats to pony up and do what they need to do to get that capacity.
It's like a restaurant reservation for a very regular "VIP" customer. They may get really special treatment, because they're probably spent enough to earn it. And everyone else schleps in line.
Really there's nothing wrong with that. It may be annoying, but someone is paying way more and consistently for that table.
I think that restaurant analogy is pretty bad. Driving customers to a competitor is a risk you take when locking them out of your restaurant, and those customers could also be lucrative VIP customers as well, not just schleps from the street. If that mega VIP ever stops coming to your restaurant, and you've lost your other VIP/customer base, you'll be hurting big time. This can lead to leverage the mega VIP has over you, as they know you've overcommited to them, and can tighten the screws.
Yet this is what practically all non fast-food restaurants do. And kind of how general strategy goes for many businesses.
I know the few places I frequent often, I get a table mostly right away if anything is available, regular staff knows what I want, more or less, and I get what I expect, mostly because I have a relationship with the vendor.
I tip well. Chat everyone up, etc.
You don't think Apple or TSMC does this?
I've been in that type of relationship in that industry. That's really how it kind of works. It's not even the most $$$$, but relationship and longer term leverage.
Do you reserve the restaurant exclusively for yourself? No. So this scenario is not really similar at all to skipping the line at a restaurant just because you visit often and tip well(which means you are paying a premium here). It's turning away the entire line for a single patron. The restaurant better make sure that's in their best long-term interest before pissing off the other patrons. Also the number of patrons willing to shell out for leading-edge lithography is probably in the single digits. TSMC can't rely on foot traffic to pick up for lost business elsewhere.
Actually I would put the blame squarely on AMD and Qualcomm for making themselves dependent on TSMC - especially AMD who have turned themselves into a "fabless manufacturer" and are now experiencing the consequences...