Apple Unsuccessfully Tried to Purchase Exclusive Access to TSMC Chip Production for iOS Devices
Bloomberg reports that Apple and Qualcomm each put forth investment bids topping $1 billion in attempting to secure exclusive access to chip supplies from Taiwan Semiconductor Manufacturing Company (TSMC), but the bids were declined as TSMC has sought to retain flexibility for its production. While Apple's effort has so far been unsuccessful, it does appear to be part of the company's continuing strategy to lessen its dependence on Samsung for components in its mobile devices.
The two companies are trying to satisfy booming demand for smartphones, a market estimated by to be worth $219.1 billion, according to data compiled by Bloomberg Industries. Any deal would give Apple an alternate supplier to Samsung Electronics Co., which builds the main chip used in the iPhone and iPad and is also its biggest rival in smartphones. Qualcomm needs to boost supply, since shortages are starting to limit earnings.
TSMC has, however, indicated in recent weeks that it would be open to dedicating one or two of its factories to a single customer, but it is unclear if Apple is pursuing that alternative in the absence of a deal for complete exclusivity.
Rumors dating back to March 2011 had pegged Apple as working with TSMC on production of the Ax-series chips that power Apple's iOS devices, but production issues were cited as a primary reason for those plans falling through and Apple remaining with Samsung for the time being.
Samsung has been working hard to compartmentalize its patent and design dispute with Apple in an effort to prevent the fallout from that situation from affecting component supply contracts. But a number of rumors in recent years have pointed to Apple seeking out alternate suppliers for some portion of its component needs as part of a strategic effort to diversify its supply chain away from Samsung and its increasingly competitive position in the mobile device marketplace.
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Top Rated Comments
Not everyone's first language is English. Don't be so sarcastic to posters, it doesn't make you clever, witty, superior or intelligent; indeed it just makes you look like a douche.
if there was one thing that I know..it's that you need to go back to school. ;)
Well, if your main business is chip fabrication, putting all your eggs in one basket is a VERY bad idea, well its a bad idea in any business.
If they sign this contract with Apple, they could miss out on other customers coming offering to pay more for the same capacity, and not be able to take that because of the Apple contract.
Most semiconductor companies today are fabless -- they design and test their chips, but actual manufacturing occurs at TSMC or another fabrication house. The reason is that a semiconductor fabrication plant costs over $1 billion. To make this profitable, the fab needs to run 24/7. You can't compete if you build a fab and only take advantage of 25% of its capacity, because you have to amortize the factory cost. TSMC basically "timeshares" its fabs among many customers, in order to share its manufacturing capacity across many semiconductor design companies (such as Qualcomm, Broadcom, etc).
It costs millions of dollars to design and validate a semiconductor, before even hitting the fab house. Then, very expensive masks have to be made - mask costs can run into millions of dollars for some processes, and it's time-intensive, so you cannot have a mistake in your design. This isn't software, where you can recompile and re-test.
Once the masks are made, sample wafers are made and tested, and minor mask changes are made, if necessary. Here's the important part: Once the masks are validated for production, they are validated only for that plant. Occasionally, a mask can be validated for production at two TSMC plants, but never across two companies, like TSMC and UMC. It simply isn't done.
The problem is that when demand is high, TSMC puts its customers on allocation. Instead of 10 million parts a month, they'll cut you back to 8 or 9 million a month. This has obviously affected Apple and Qualcomm, so much so that they're offering up $1 billion for exclusive fab access. For some reason, TSMC said no. Perhaps the cost of the fab is greater than $1 billion, or they have limited fabs and their total revenue is higher if they simply run them 24/7 across a range of customers. I don't think Apple and Qualcomm are trying to corner the market, they're trying to ensure reliable part supply.
Personally, it may make sense for the US government or a private consortium to form for American semiconductor manufacturing, but it is no easy feat.
I hope this long post was helpful to some of you.