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Several smaller customers; anything else would be myopic. General business intelligence: You do NOT want one of your 'verticals' (companies that you need to bu

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.
DeathArrow 5y ago
Having Apple as it's unique or main customer was a disaster for Imagination Technologies.
- Jensson 5y ago
  TSMC has a market cap of $600 billion, it is a totally different scale, Apple can't just push them around like they do with "small" billion dollar businesses.
  - nojito 5y ago
    They don't need to push them around....they will just pay more than everyone else combined.
rkangel 5y ago
I wrote that very badly. What I wrote came out to be about a diverse customer base which is obviously a good thing. What I meant to talk about was "predictable demand". Being able to know your exact order profile for a lead time of years is very valuable in manufacturing. That said, Apple probably just invested money in their 3nm in exchange for priority (or similar) and maybe TSMC is being a bit short sighted.
ksec 5y ago
> 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. Because your angle completely miss capacity and resources planning. As the 30 years old joke goes, most expensive Fab in the world isn't the leading edge Fab, it is the Empty Fab. And then there is the initial capital and order guarantee. As a matter of fact, it is nearly the same across all industry supply chain. Insert Pizza Doll, Sausage Rolls, Paper Towels, or the recent pandemic event Toilet Paper, and your skill set from production line are all the same. It is not Apple is without risk, so to speak. They will have to fill the Fab orders, even if somehow no one buys any iPhone. It just happens Apple has never had this problem. Compared to Qualcomm, AMD, Nvidia which all have their fair share of flops and market did not react as they expected. Or you could end up like Nvidia where they had three quarter worth of GPU stocks sitting channel during the BitCoin crash. Getting Apple ( or the largest customer )'s order filled with a price premium is and will always be the simplest and effective way for the business. And there is a huge market in GPU, HPC, AI, and Cloud Computing along with forever increasing chips in all segment. TSMC isn't really beholden to Apple like Dialog or PowerVR IMG.
oblio 5y ago
Monopoly buyers are called monopsonies, FYI.
hedgehog 5y ago
You're missing that the customers aren't all buying the same thing. Apple is willing to make the investment/commitment and take the pain of shipping a product on a brand new node, and the tooling will last longer than Apple needs it for. That rolls from phones up (eventually) to big pro chips as yields etc improve, but then volume tapers off after a few years as most products move to newer chips on the next process. Apple needs a lot of capacity up front (iPhone launch) so they make the deals so TSMC can scale up. Later smaller players like AMD, NVIDIA, Intel, etc can use the proven nodes with less risk. 16nm/12nm is still perfectly good for lots of things. TSMC keeps the fabs busy for a long time, Apple gets the volume of parts they need at a good price. Apple doesn't directly compete with the other major semis so it doesn't really matter that they always have access to better manufacturing. It's all fine.

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.

DeathArrow 5y ago

Having Apple as it's unique or main customer was a disaster for Imagination Technologies.

Jensson 5y ago
TSMC has a market cap of $600 billion, it is a totally different scale, Apple can't just push them around like they do with "small" billion dollar businesses.
- nojito 5y ago
  They don't need to push them around....they will just pay more than everyone else combined.

rkangel 5y ago

I wrote that very badly. What I wrote came out to be about a diverse customer base which is obviously a good thing. What I meant to talk about was "predictable demand". Being able to know your exact order profile for a lead time of years is very valuable in manufacturing. That said, Apple probably just invested money in their 3nm in exchange for priority (or similar) and maybe TSMC is being a bit short sighted.

ksec 5y ago

> 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. Because your angle completely miss capacity and resources planning. As the 30 years old joke goes, most expensive Fab in the world isn't the leading edge Fab, it is the Empty Fab. And then there is the initial capital and order guarantee. As a matter of fact, it is nearly the same across all industry supply chain. Insert Pizza Doll, Sausage Rolls, Paper Towels, or the recent pandemic event Toilet Paper, and your skill set from production line are all the same. It is not Apple is without risk, so to speak. They will have to fill the Fab orders, even if somehow no one buys any iPhone. It just happens Apple has never had this problem. Compared to Qualcomm, AMD, Nvidia which all have their fair share of flops and market did not react as they expected. Or you could end up like Nvidia where they had three quarter worth of GPU stocks sitting channel during the BitCoin crash. Getting Apple ( or the largest customer )'s order filled with a price premium is and will always be the simplest and effective way for the business. And there is a huge market in GPU, HPC, AI, and Cloud Computing along with forever increasing chips in all segment. TSMC isn't really beholden to Apple like Dialog or PowerVR IMG.

oblio 5y ago

Monopoly buyers are called monopsonies, FYI.

hedgehog 5y ago

You're missing that the customers aren't all buying the same thing. Apple is willing to make the investment/commitment and take the pain of shipping a product on a brand new node, and the tooling will last longer than Apple needs it for. That rolls from phones up (eventually) to big pro chips as yields etc improve, but then volume tapers off after a few years as most products move to newer chips on the next process. Apple needs a lot of capacity up front (iPhone launch) so they make the deals so TSMC can scale up. Later smaller players like AMD, NVIDIA, Intel, etc can use the proven nodes with less risk. 16nm/12nm is still perfectly good for lots of things. TSMC keeps the fabs busy for a long time, Apple gets the volume of parts they need at a good price. Apple doesn't directly compete with the other major semis so it doesn't really matter that they always have access to better manufacturing. It's all fine.