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Apple Has Reportedly Rejected TSMC's Chip Price Hike of 6%
- smugma 4y agoApple blinked: https://www.macrumors.com/2022/10/05/apple-agrees-to-tsmc-chip-price-hike/ https://www.macrumors.com/2022/10/05/apple-agrees-to-tsmc-ch...
- manuelabeledo 4y agoIt would be interesting to see what would happen if TSMC could fill the capacity with other orders. Quite possible, as it seems to be the most sought chipmaker. What would Apple do in that case? Samsung doesn’t come close to TSMC just yet.
- geodel 4y ago> It would be interesting to see what would happen if TSMC could fill the capacity with other orders. 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.
- e3bc54b2 4y agoThey're probably both flexing. TSMC is so valuable because Apple's reserved high end high volume orders allows them to expand capacity, Apple probably also is a tester for new tech. They'll both come to terms in some middle ground. Apple has history of such flexing to force other parties to play nice.
- nspattak 4y agoWhen you buy such a huge part of the available capacity then you are in the position to bargain like this, unlike "smaller" clients.
- meragrin_ 4y agoBut TSMC can delay 3nm until it has the clients. Enough of the "smaller" players will eventually want and pay for it. Apple is far more dependent on TSMC than TSMC is on Apple. Where else is Apple going to go to realistically? It would likely take 3-5 years to fund another competitor to bring it up to what is needed.
- mschuster91 4y ago> It would likely take 3-5 years to fund another competitor to bring it up to what is needed. 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.
- The_Colonel 4y agoThat would mean having sub-optimal chips for 3-5 years in their products while Qualcomm/AMD could finally catch up. 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.
- marticode 4y agoApple can afford everything but regulators can stop it from happening, especially if it's a strategic target.
- mschuster91 4y agoRegulatory agencies can stop them from buying TSMC, but they cannot prevent Apple from creating its own fab business.
- marticode 4y agoSure, but good luck with that endeavor. Samsung and Intel are struggling to keep up with TSMC despite decades of expertise in the field and very deep pockets, so starting from scratch even with infinite money isn't gonna be a picnic. And won't solve Apple problem in the short term.
- lemon_bottle 4y agoThat's what I'm thinking. In Economics terms, this weird situation is called "bilateral monopoly" where both the buyer and seller have a monopoly of sorts since they're like the only unicorns in town.
- newaccount2021 4y ago
- atonse 4y agoI'd love to be a fly on the wall during these negotiations. Just to see what the heck they even talk about, what information each party comes armed with, and what kinds of concessions get offered. 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!
- epberry 4y agoYeah absolutely. Another huge thing I got some window into at Qualcomm is technical validation. So Apple is going to be looking for proof that the chips deliver and TSMC is going to be pushing back against high expectations on that front.
- foobiekr 4y agoQualcomm is absolutely brutal as a vendor. They pursue % of revenue deals instead of selling chips at $Y. They can only get away with it for lte/5g because Broadcom and others totally dropped the ball.
- epberry 4y agoYep they are extremely aggressive. The technology is also extremely hard though.
- cft 4y agoSince they are basically the only manufacturer, when Apple "rejects" the price hike, what options does Apple have?
- duxup 4y agoSame options as TSMC, continue negotiating. They both want this to get worked out.
- 4y ago
- alphabetting 4y agoTSMC charging 6% more for the 3nm process seems reasonable. Article notes Apple accounts for 25% of their revenue and says this gives them leverage over TSMC but aren't they the only 3nm player in town?
- jimnotgym 4y agoThat was my thought. Can't they just threaten to sell the space to someone else?
- jeswin 4y agoApple probably pays a premium on the 200 million pieces they buy. Since no one else apart from Samsung is making signficant money from Android, it'd be somewhat hard to cover the loss. PC volumes are lower, a lot of them are low-end, and Intel uses their own fab for most of their CPUs.
- phkahler 4y ago>> Can't they just threaten to sell the space to someone else? 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.
- ClumsyPilot 4y agoThere are always people who spend tip dollar on latest GPU to play rayteacing doom in 8K 120 HZ. Or run stable diffusion Quantity varies though.
- gpapilion 4y agoMy thought is margin is low on apple but volume is high. They also are a good partner helping to push the process forward. AMD and NVIDIA are probably more profitable than apple for tsmc but volumes are much lower. I also think the ability to improve tier prices as fast as they have is directly related to apple’s volumes.
- webmobdev 4y agoApple has more to lose here as they've bet their future on Apple Silicons currently only manufactured at TSMC. So it is interesting to see them still trying to arm-twist TSMC - would love to see their playbook as this is something they are known to do with all their suppliers.
- jbverschoor 4y agoAFAIK TSMC is operating Apple’s machines. If they want, and the contract allows, they can ship the machines somewhere else, and operate them there themselves or with another partner. It’s not like TSMC builds the machines. They just operate them, and we all know what happens to the man in the middle.
- kube-system 4y agoOperating them is not a trivial process. The same machines are available to other fabs, but they are behind the capabilities of TSMC.
- MangoCoffee 4y ago>It’s not like TSMC builds the machines. They just operate them 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-samsung-process-tech-grants-amd-access-to-finfets/ https://techreport.com/news/26336/globalfoundries-licenses-s...
- jbverschoor 4y agoHmm.. I think I've mixed up them and other manufacturing partners.
- doikor 4y ago> AFAIK TSMC is operating Apple’s machines. 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.
- drexlspivey 4y agoWhat other options does Apple have? Intel doesn’t manufacture ARM chips (yet) and Samsung is 1+ process nodes behind the upcoming TSMC N3E
- Octoth0rpe 4y agoThe article outlined at least one option that Apple has: stay on the 5nm node for a bit longer. It doesn't seem impossible at all that TSMC would cave/agree to only a 2-3% hike in 6 months. While a greater lead is I'm sure welcome, it's not like Apple isn't _extremely_ well positioned in every market they operate in, even on 5nm.
- drexlspivey 4y ago“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” Kinda crazy to not pay 6% for these gains but that’s just me!
- Octoth0rpe 4y agoWell, there are lots of weasel words in there, as well as leaving out the error rate.
- necovek 4y agoOnly if your customers are willing to pay that much. 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).
- GekkePrutser 4y agoSame here. My Thinkpad doesn't look as cool but it's so much better to work on. Amazing keyboard, matte screen that even has touch, no sharp edges. And it has PORTS! Apple solved these issues somewhat with the new MBP but the keyboard and screen still sucks for me. Their new SoCs are great though.
- mtoner23 4y ago1. Crazy to me to think apple can't absorb 6% price hike on chips. their margins are usually so high. 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
- greenthrow 4y agoOf course they can but why would they if they don't have to? They obviously feel they can push back on this and so they are.
- fooblaster 4y ago1. Of course they can? Will they? No.
- SnowHill9902 4y agoApple didn’t get rich by writing a lot of checks.
- lotsofpulp 4y agoIt seems to me that they did pay a lot to do R&D to develop computers, laptops, software, chip designs, etc. 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.
- zzbzq 4y agoInteresting that in point #2 you think the market helps lower prices, when in point #1 you establish that Apple doesn't lower the price of what they're selling regardless of how much they lower their own prices.
- adamsmith143 4y ago> 1. Crazy to me to think apple can't absorb 6% price hike on chips. their margins are usually so high. 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"
- float4 4y ago> Apple has rejected these offers. [...] This may be one reason why we reported that the upcoming M2 Pro and the M2 Max for updated MacBook Pro models would be manufactured on the 5nm process instead of 3nm; both entities might not have reached a middle ground for price agreement. 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.
- akelly 4y agoThe rumor I read was the entire M2 line was designed for N3 and then that got delayed so they backported to N5P.
- LatteLazy 4y agoIs there a special name for situations where you have only one or very buyers AND sellers at the same time? Like a combination of monopoly and monopsony power? I wonder how prices are discovered in situations like these?
- beAbU 4y agoYep, mentioned in anothere thread here somewhere. Apparently its called a Bilateral Monopoly
- lotsofpulp 4y ago> I wonder how prices are discovered in situations like these? 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.
- alberth 4y agoDoesn't Apple already pay TSMC literally billions to build new fab & to get first access. This is outside the normal chip cost. If so, seems like some hard bargaining happening on TSMC front.
- boringg 4y ago6% rate hike is pretty high especially as I've read recently a lot of the inflation costs have actually gone back into corporate profits instead of inflated products costs / labor costs. Add in high cost of USD on global markets. Interesting scenario with both parties squaring off.
- fundad 4y agoExactly, The whole story has been “we tried for higher prices and this time we got ‘em!” Not gettin em this time.
- JackFr 4y ago"Increase? But I'm getting 40% fewer nm's!"
- fundad 4y agoThe only way to fight inflation is to refuse to pay inflated prices.
- onceiwasthere 4y agoBeing almost completely uninformed on the details of Apple/TSMC's dealings, I'm curious, would Apple ever position themselves to get into chip fabrication? I'm sure there are big reasons this is unlikely but it seems like if anyone could do it, it's Apple.
- bluGill 4y agoIT is billions of dollars to get a chip fab. I know of several companies that have looked into it (our core competency is manufacturing - why not add chips to the list of things we make and get out of these supply issues..), but the cost to get into it is far too high. Though I suspect some of those companies are regretting the decision over the past 2 years, they could have made the investment back just because we can make those chips you need for a price (to others who can't get needed chips at any price)
- Sakos 4y agoHonestly, I'm surprised they haven't started yet. If TSMC puts up too much of a fight, they might start internally considering how they would get into chip fabrication. They've already done everything else to great success (and to much surprise), so while the problem seems insurmountable, maybe Apple would be able to do what nobody else has been able to do in decades (aside from the Chinese with significant state investment).
- bombcar 4y agoIf Apple isn't at least working on how to bring chip manufacturing in-house I'd be incredibly surprised. They have $48 billion in cash on hand, they at least have worked out a plan on how they would do it if needed.
- TillE 4y agoIt's risky because if they do it, they have to consistently be as good or better than TSMC, year after year. Makes more sense than trying to build a car though.
- svnt 4y agoMy reading of this is that Apple is happy to wait a bit on next-gen given the macro conditions. However if they just admitted that it would be a big hit to image. So instead they are looking to create scapegoats. 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.
- adamsmith143 4y ago>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. Seems like a good tradeoff. Is the next years best TSMC chip really that much better than last year's? I doubt it.
- MobiusHorizons 4y agoFrom TSMCs marketing material > 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.
- bombcar 4y agoAll those "up tos" can sometimes add up to "actually not much". 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.
- andreime 4y ago
- robotnikman 4y agoWould be interesting to see if this opens up 3nm for AMD. Would love to see that in an AMD laptop
- sfifs 4y agoWill be interesting if Samsung buys TSMC 3nm capacity for their top-end :-)
- etempleton 4y agoI would suspect the strong dollar is impacting these negotiations. TSMC is probably trying to maintain margins and Apple is bulking at the larger than normal price increase. 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?
- yucky 4y agoI'm curious what sort of provision exists in the contract language if China invades Taiwan.
- anaganisk 4y agoProbably, US will step in. Since it has more problems than Apple if TSMC is gone?
- diebeforei485 4y agoApple tends to be overly concerned about every half cent in the bill of materials. This is why many of their accessories have substandard (weak) processors and flopped. HomePod used a 4 year old chip which wasn't very responsive to voice commands.
- anaganisk 4y agoYou dont become rich by spending.
- deleted 4y ago[deleted]
- WastingMyTime89 4y agoMost of the comments seem to be reacting to the title rather than the content of the article. 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.
- smugma 4y agoLooks like what this means is not that TSMC or Apple fold or even meet in the middle… the article implies that it’s sort of a stalemate that results in a short term lose-lose: products may get delayed or not be as good as they might otherwise be, investments get pushed out, etc. 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.