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Not saying you're wrong, but an alternate interpretation was that Apple was just leveraging their large order size to get to the front of the line because they

Not saying you're wrong, but an alternate interpretation was that Apple was just leveraging their large order size to get to the front of the line because they want to make products to sell. If you're TSMC, who are you going to favour - the large single customer who's guaranteeing order size over a period of time, or several smaller customers?

q-big 5y ago
> If you're TSMC, who are you going to favour - the large single customer who's guaranteeing order size over a period of time, or several smaller customers? This depends on your business strategy: having a single or few customers makes you much more dependent on their whims and their negotiation power. If you have more customers you are in a better position for pricing negotiations.
- melony 5y ago
  When you have a monopoly on a single component, it doesn't matter.
- bigdubs 5y ago
  Big point of strength for TSMC in negotiations is they're the only fab that can make 3nm chips in volume, which gives them a ton of leverage to push back against Apple.
  - JiNCMG 5y ago
    Nothing to negotiation. Apple invested (pre-ordered) before 3nm was built.
rzwitserloot 5y ago
Several smaller customers; anything else would be myopic. General business intelligence: You do NOT want one of your 'verticals' (companies that you need to buy supplies from, or companies that you sell your product to) to turn monopolistic; after all, once they are a monopoly they can really squeeze you out. This holds even if you are also nearing a monopoly or are an effective monopoly (in that you're the only one that can supply it at the quantity and quality required). There are mitigating circumstances, but most of them don't look good for apple: * TSMC is stupid. Don't knock it - I've seen companies go for the quick buck, then get killed by the monopolistic monolith they enabled and be surprised. * TSMC laughs in the face of this and simply isn't taking an apple near monopoly on chips particularly seriously. I can definitely see that - the risk is presumably that apple gains massive increases in marketshare of PCs/laptops and smartphones, but TSMC presumably doesn't think it'll be so high as to risk the situation that TSMC can produce more chips than non-apple buyers could buy. In other words, that apple's total 'TSMC fab capacity' needs won't go anywhere near 50% of what TSMC is likely to ever be able to manufacture. * Apple is putting pressure on TSMC. TSMC knows this is a risk and doesn't want to, but apple does want this to happen and is making some shady deals so that TSMC does the math and decided that the gains in dealing with apple exceed the losses*odds-it-will-happen of the squeeze if apple is a monopoly buyer for TSMC (as in, of dubious legality and certainly of questionable morality, but then, it's apple, a company. Waiting for companies to act morally is silly, you write laws and set up societal systems to incentivize them to do so instead, companies are amoral (not immoral - they just don't really know what it is, by design). Your comment seems to suggest it's a smart move for TSMC to just sign one giant deal with apple and be done with it: You can send the lawyers and salesfolk to early retirement, get some money upfront, guarantee 100% sales of all your fab capacity with a party that is unlikely to renege or declare bankruptcy. It's not. It's a dumb move. Either the C-level execs at TSMC are missing something pretty fundamental or more likely we don't know enough to realize that there's sufficient weights on the other side of the balance to counteract the downside of enabling the monopoly on verticals.
- ascar 5y ago
  > the risk is presumably that apple gains massive increases in marketshare of PCs/laptops and smartphones Apple is very far from monopolistic market share of smartphones and even much further away with Laptops. Apple with their intentionally overpriced products caters to a branded premium segment. They are not even aiming to take the mass market of low to mid level smartphones that makes up most of the market outside the US I would also not be afraid if I were TSMC, especially as this is just about the new 3nm process that is catering to the highend market and doesn't eliminate the existing business. Your comment reads a bit like there could be a distopian world where a shortage of 3nm results in Apple becomeing the only option for phones and laptops
- jagger27 5y ago
  This is complete FUD.
- kergonath 5y ago
  The whole post seems a bit myopic, to be honest. First, TSMC is more of a monopoly than Apple is (and ever will be as long as they don’t care about entry level consumer devices). Then, Apple gets a temporary exclusivity on the new node (which they helped finance), but this leaves a lot of capacity on the older nodes. These processes are still really good, the vast majority of TSMC customers don’t care about being on the bleeding edge for the sake of it. Let’s be realistic: what would have been the alternative for TSMC? Leave Apple’s investment out of the table and waste time bringing their new process online without it? AMD or Qualcomm would not be in a much better position right now. Or TSMC, for that matter. What is the end game you’re afraid of? Apple takes its business elsewhere? To whom? Wouldn’t this leave TSMC with paid-for facilities they could now use to produce chips for other customers at a discount?
  - AnthonyMouse 5y ago
    > First, TSMC is more of a monopoly than Apple is (and ever will be as long as they don’t care about entry level consumer devices). From TSMC's perspective, the entry level market isn't where they make their money. You can make entry level devices on old processes that have a lot of competition. It would be really bad for TSMC if Apple were to monopolize the high end of the market, because that's what uses the advanced process nodes TSMC makes its money from. > Then, Apple gets a temporary exclusivity on the new node (which they helped finance), but this leaves a lot of capacity on the older nodes. These processes are still really good, the vast majority of TSMC customers don’t care about being on the bleeding edge for the sake of it. Except that they do care, because they're competing in the same market. Apple is currently making a lot of hay out of the fact that the M1 is more power efficient than PC laptops, which is attributable in no small part to the fact that they're on TSMC 5nm when everyone else is on TSMC 7nm or worse. If nobody was on the newest node, or Apple was making products that didn't compete with AMD/Qualcomm/Nvidia/Intel in the market, the others not having it wouldn't matter. When the device customer is going to prefer the best one, and the one on the best node has an advantage, it does. > what would have been the alternative for TSMC? If Apple isn't signing some kind of exclusivity deal requiring TSMC to give all of its new capacity to Apple, build more of it using their own money so that when it comes online, there is enough for more than Apple. If they are demanding exclusivity, inform antitrust authorities of this. > What is the end game you’re afraid of? Apple takes its business elsewhere? Suppose Apple monopolizes the high end market. They take 75% of it using the process advantage, then take the rest as the network effect from that crushes alternatives. They're now your only customer for the newest process nodes, so they squeeze your margins to zero. At the same time, they buy Global Foundries and pour money into it until their process is better than yours, and you no longer have the money to compete because you let all your other high end customers be destroyed.
pfortuny 5y ago
“My app depended on google and I have been banned”…
intricatedetail 5y ago
I wonder if they had the same competitive advantage if they were not allowed to use tax avoidance schemes. Smaller corporations cannot afford to build such structures so they have more difficulties to compete.
- fundad 5y ago
  Making motherboards high volume that are faster than your competitors is something small businesses could not afford to do. We’re talking about one process that makes the same chips but more valuable. And AMD and Qualcomm want more access to it than they have so they complain to the press. This is the supply chain folks.
  - intricatedetail 5y ago
    Tax avoidance benefits build up through years. Basically smaller companies have less money to work with which is compounded by excessive taxes. Big corporations don't have such burden.
bryanlarsen 5y ago
This is HN, the audience should know that VC's have a very strong preference for a large number of small customers over a small number of large customers, and why. Obviously TSMC doesn't care about VC's, but the same reason why VC's prefer a large number of small customers still applies.
- InGoodFaith 5y ago
  > VC's have a very strong preference for a large number of small customers over a small number of large customers, and why. This is intriguing and I would appreciate if possible to get any sources to read up on this?
  - thrashh 5y ago
    “too many eggs in one basket”? Especially for a new untested company no customer is sure they actually need yet
  - chevman 5y ago
    Makes your public metrics look better (ie "we have over 500+ customers!!!!") and also demonstrates (in theory) a more durable product. When people see small number of large customers, the implication is you are basically just running an outsourced dev/consultant/staff aug shop. Less product vision and ability to "scale".
  - JumpCrisscross 5y ago
    Anyone should prefer lots of customers to a few key ones. The latter have more leverage. They also make one’s metrics risky, as a single defection can swing the firm from profitable to barely eking by.
    - sosborn 5y ago
      > Anyone should prefer lots of customers to a few key ones. I think the caveat/variable is "all else being equal or close to equal." If having 10 customers will net you $10 total per month, and having one large customer will net you $100 per month, it is really hard to justify going with the $10 customers. But if those 10 customers will net you $10 EACH per month, then the 10customers is a better situation.
hinkley 5y ago
Everyone has forgotten that when Apple moved to Intel, part of the deal was that Apple had the fastest laptop CPU for about 6 months. To me this says as much about Intel as about Apple. When Intel has a new chip or a bin that has small yields, they can’t supply a large customer. But MacBook had maybe a third of the market share it has now, so that’s a relatively small niche you can supply while you boost your yields.

q-big 5y ago

> If you're TSMC, who are you going to favour - the large single customer who's guaranteeing order size over a period of time, or several smaller customers? This depends on your business strategy: having a single or few customers makes you much more dependent on their whims and their negotiation power. If you have more customers you are in a better position for pricing negotiations.

melony 5y ago
When you have a monopoly on a single component, it doesn't matter.
bigdubs 5y ago
Big point of strength for TSMC in negotiations is they're the only fab that can make 3nm chips in volume, which gives them a ton of leverage to push back against Apple.
- JiNCMG 5y ago
  Nothing to negotiation. Apple invested (pre-ordered) before 3nm was built.

rzwitserloot 5y ago

Several smaller customers; anything else would be myopic. General business intelligence: You do NOT want one of your 'verticals' (companies that you need to buy supplies from, or companies that you sell your product to) to turn monopolistic; after all, once they are a monopoly they can really squeeze you out. This holds even if you are also nearing a monopoly or are an effective monopoly (in that you're the only one that can supply it at the quantity and quality required). There are mitigating circumstances, but most of them don't look good for apple: * TSMC is stupid. Don't knock it - I've seen companies go for the quick buck, then get killed by the monopolistic monolith they enabled and be surprised. * TSMC laughs in the face of this and simply isn't taking an apple near monopoly on chips particularly seriously. I can definitely see that - the risk is presumably that apple gains massive increases in marketshare of PCs/laptops and smartphones, but TSMC presumably doesn't think it'll be so high as to risk the situation that TSMC can produce more chips than non-apple buyers could buy. In other words, that apple's total 'TSMC fab capacity' needs won't go anywhere near 50% of what TSMC is likely to ever be able to manufacture. * Apple is putting pressure on TSMC. TSMC knows this is a risk and doesn't want to, but apple does want this to happen and is making some shady deals so that TSMC does the math and decided that the gains in dealing with apple exceed the losses*odds-it-will-happen of the squeeze if apple is a monopoly buyer for TSMC (as in, of dubious legality and certainly of questionable morality, but then, it's apple, a company. Waiting for companies to act morally is silly, you write laws and set up societal systems to incentivize them to do so instead, companies are amoral (not immoral - they just don't really know what it is, by design). Your comment seems to suggest it's a smart move for TSMC to just sign one giant deal with apple and be done with it: You can send the lawyers and salesfolk to early retirement, get some money upfront, guarantee 100% sales of all your fab capacity with a party that is unlikely to renege or declare bankruptcy. It's not. It's a dumb move. Either the C-level execs at TSMC are missing something pretty fundamental or more likely we don't know enough to realize that there's sufficient weights on the other side of the balance to counteract the downside of enabling the monopoly on verticals.

ascar 5y ago
> the risk is presumably that apple gains massive increases in marketshare of PCs/laptops and smartphones Apple is very far from monopolistic market share of smartphones and even much further away with Laptops. Apple with their intentionally overpriced products caters to a branded premium segment. They are not even aiming to take the mass market of low to mid level smartphones that makes up most of the market outside the US I would also not be afraid if I were TSMC, especially as this is just about the new 3nm process that is catering to the highend market and doesn't eliminate the existing business. Your comment reads a bit like there could be a distopian world where a shortage of 3nm results in Apple becomeing the only option for phones and laptops
jagger27 5y ago
This is complete FUD.
kergonath 5y ago
The whole post seems a bit myopic, to be honest. First, TSMC is more of a monopoly than Apple is (and ever will be as long as they don’t care about entry level consumer devices). Then, Apple gets a temporary exclusivity on the new node (which they helped finance), but this leaves a lot of capacity on the older nodes. These processes are still really good, the vast majority of TSMC customers don’t care about being on the bleeding edge for the sake of it. Let’s be realistic: what would have been the alternative for TSMC? Leave Apple’s investment out of the table and waste time bringing their new process online without it? AMD or Qualcomm would not be in a much better position right now. Or TSMC, for that matter. What is the end game you’re afraid of? Apple takes its business elsewhere? To whom? Wouldn’t this leave TSMC with paid-for facilities they could now use to produce chips for other customers at a discount?
- AnthonyMouse 5y ago
  > First, TSMC is more of a monopoly than Apple is (and ever will be as long as they don’t care about entry level consumer devices). From TSMC's perspective, the entry level market isn't where they make their money. You can make entry level devices on old processes that have a lot of competition. It would be really bad for TSMC if Apple were to monopolize the high end of the market, because that's what uses the advanced process nodes TSMC makes its money from. > Then, Apple gets a temporary exclusivity on the new node (which they helped finance), but this leaves a lot of capacity on the older nodes. These processes are still really good, the vast majority of TSMC customers don’t care about being on the bleeding edge for the sake of it. Except that they do care, because they're competing in the same market. Apple is currently making a lot of hay out of the fact that the M1 is more power efficient than PC laptops, which is attributable in no small part to the fact that they're on TSMC 5nm when everyone else is on TSMC 7nm or worse. If nobody was on the newest node, or Apple was making products that didn't compete with AMD/Qualcomm/Nvidia/Intel in the market, the others not having it wouldn't matter. When the device customer is going to prefer the best one, and the one on the best node has an advantage, it does. > what would have been the alternative for TSMC? If Apple isn't signing some kind of exclusivity deal requiring TSMC to give all of its new capacity to Apple, build more of it using their own money so that when it comes online, there is enough for more than Apple. If they are demanding exclusivity, inform antitrust authorities of this. > What is the end game you’re afraid of? Apple takes its business elsewhere? Suppose Apple monopolizes the high end market. They take 75% of it using the process advantage, then take the rest as the network effect from that crushes alternatives. They're now your only customer for the newest process nodes, so they squeeze your margins to zero. At the same time, they buy Global Foundries and pour money into it until their process is better than yours, and you no longer have the money to compete because you let all your other high end customers be destroyed.

pfortuny 5y ago

“My app depended on google and I have been banned”…

intricatedetail 5y ago

I wonder if they had the same competitive advantage if they were not allowed to use tax avoidance schemes. Smaller corporations cannot afford to build such structures so they have more difficulties to compete.

fundad 5y ago
Making motherboards high volume that are faster than your competitors is something small businesses could not afford to do. We’re talking about one process that makes the same chips but more valuable. And AMD and Qualcomm want more access to it than they have so they complain to the press. This is the supply chain folks.
- intricatedetail 5y ago
  Tax avoidance benefits build up through years. Basically smaller companies have less money to work with which is compounded by excessive taxes. Big corporations don't have such burden.

bryanlarsen 5y ago

This is HN, the audience should know that VC's have a very strong preference for a large number of small customers over a small number of large customers, and why. Obviously TSMC doesn't care about VC's, but the same reason why VC's prefer a large number of small customers still applies.

InGoodFaith 5y ago
> VC's have a very strong preference for a large number of small customers over a small number of large customers, and why. This is intriguing and I would appreciate if possible to get any sources to read up on this?
- thrashh 5y ago
  “too many eggs in one basket”? Especially for a new untested company no customer is sure they actually need yet
- chevman 5y ago
  Makes your public metrics look better (ie "we have over 500+ customers!!!!") and also demonstrates (in theory) a more durable product. When people see small number of large customers, the implication is you are basically just running an outsourced dev/consultant/staff aug shop. Less product vision and ability to "scale".
- JumpCrisscross 5y ago
  Anyone should prefer lots of customers to a few key ones. The latter have more leverage. They also make one’s metrics risky, as a single defection can swing the firm from profitable to barely eking by.
  - sosborn 5y ago
    > Anyone should prefer lots of customers to a few key ones. I think the caveat/variable is "all else being equal or close to equal." If having 10 customers will net you $10 total per month, and having one large customer will net you $100 per month, it is really hard to justify going with the $10 customers. But if those 10 customers will net you $10 EACH per month, then the 10customers is a better situation.

hinkley 5y ago

Everyone has forgotten that when Apple moved to Intel, part of the deal was that Apple had the fastest laptop CPU for about 6 months. To me this says as much about Intel as about Apple. When Intel has a new chip or a bin that has small yields, they can’t supply a large customer. But MacBook had maybe a third of the market share it has now, so that’s a relatively small niche you can supply while you boost your yields.