Apple taking a risk by putting all the eggs in one basket for the next two years
TAIPEI — Apple is likely to keep TSMC as its sole supplier of application processors for at least two years as other foundries fail to meet expectations, according to industry analysts.
The world’s biggest electronics company and the world’s biggest foundry have their arms around each other, yet both may find the intimacy a bit uncomfortable. Apple will be risking the regular launch of new iPhones and iPads by counting on TSMC for production of follow-up processors to the A11 without a backup supplier. TSMC, on the other hand, will depend on Apple to fill up nearly 80 percent of its leading-edge 7nm capacity, entering production this year.
The love affair started in 2014, when Apple embraced TSMC to make all of the new iPhone and iPad chips. The Taiwan foundry responded with an investment of $9 billion, employing 6,000 people around the clock to bring up a new fab in the southern city of Tainan in a record 11 months with “flawless execution”, according to Apple Chief Operating Officer Jeff Williams, speaking at a TSMC event in October last year.
“As long as TSMC continues to offer something new at leading-edge every year and continues to execute well on yield, I could see Apple remaining sole source on foundry at TSMC for years to come,” Arete Research analyst Brett Simpson said in an interview with EE Times.
TSMC is likely to remain the sole source for Apple’s processors until 2020, according to Credit Suisse analyst Randy Abrams. It’s a unique situation for Apple, which more typically maintains multiple Asian suppliers of key components to spread risk and wield pricing power.
“Apple and TSMC have mutually benefited to date from the relationship; Apple has been able to have annual upgrades to its processors, and TSMC has a very large anchor customer to bring it up to scale on its new nodes,” Abrams told EE Times.
For TSMC, supporting Apple represents a huge capital investment and a commitment to ramp leading technology at a faster pace than the semiconductor industry is accustomed to, he added.
The likely rivals to TSMC have dwindled with industry consolidation in the past few years. The number of companies that could snatch the Apple business from TSMC can probably be counted on fewer than two fingers.
Samsung, which previously made application processors for Apple, has a number of drawbacks going forward, according to Arete Research analyst Simpson.
“Samsung has a plan to scale its own foundry business and become No. 2 over time, but driving up its share via Apple will be challenging,” he says. “In smartphones, for example, it is already a sole source on OLED screens and provides a significant supply of DRAM, camera sensors and NAND memory chips to Apple. Samsung might have an appetite to build up their foundry relationship with Apple, but their share of Apple’s iPhone BOM is already really high today.”
Intel is an even less probable choice for Apple, according to Simpson.
“Intel is often viewed as a potential foundry player long term given its investment in leading-edge technology, but the reality is that foundry is a completely different business to building its own microprocessors in high-volumes,” according to Simpson. “Intel also lacks history building low-power SoCs that Apple needs at leading edge, so we do not see them as a viable alternative to TSMC.
TSMC’s leadership in 7nm technology will also help the company win new business, according to the analysts surveyed by EE Times.
TSMC will regain share in Qualcomm's leading-edge products this year, according to Bernstein’s Mark Li.
“This is an important development as Qualcomm has been sourcing its high-end products only from Samsung and Global Foundries since 2014,” Li says.
Added Packaging Strength
TSMC has locked up Apple’s A10 and A11 processor business in part because of a competitive advantage the Taiwan foundry has gained in packaging technology.
TSMC ramped its InFO (Integrated Fan Out) packaging for Apple's A10 processor in 2016. InFO uses fan-out, wafer-level packaging rather than a flip-chip substrate to provide a 20% reduction in package thickness, a 20% speed gain and 10% better thermal performance.
The technology has shifted semiconductor manufacturing into the “more than Moore” era as Moore’s Law reaches its physical limits at 5nm design rules. TSMC became the first with the packaging that increases chip I/O density beyond traditional ball-grid array technology by allowing multiple chips to be combined without an intervening substrate.
As Moore’s Law approaches physical limits and cost barriers for most chip vendors, new approaches have emerged to overcome these hurdles.
In July 2016, the Semiconductor Industry Association scrapped a technology plan widely known within the industry as the International Technology Roadmap for Semiconductors (ITRS). SIA’s decision to end the ITRS illustrated the industry’s admission that Moore’s Law is not just slowing down. The industry needs new tools, charts, and programs to define research gaps between where it has been and where to go in an even more connected world.
TSMC’s InFO packaging technology is seen as an alternative to the continuous scaling assumption of Moore’s Law.
Apple’s Jeff Williams said he isn’t worried about insufficient processing power in the future.
“We at Apple are not concerned about the talk of slowing in the semiconductor industry,” he said at the TSMC event last year. “That’s not the case at all. We think the potential is huge. We believe strongly in the cloud side, but the future will be a lot of on-device processing. We believe this is the best way to deliver great features without sacrificing responsiveness, privacy and security.”
TSMC has another strength that its competitors lack.
The company has built a strong ecosystem of equipment and IP suppliers that prioritize support for the technology roadmap of the world’s largest foundry. That strength helps cut costs for fabless companies, according to Arete’s Brett Simpson.
“NRE costs are rising to $100 million or more to design a 7nm chip from scratch,” he says. “So any chipmaker making this investment needs to ensure there is a healthy design ecosystem and a raft of IP blocks optimized for a new foundry process so that the tapeout process is successful. This is a source of differentiation for TSMC.”
—Alan Patterson covers the semiconductor industry for EE Times. He is based in Taiwan.