Apple blamed IBM and Intel for Mac chip delays, but TSMC won’t be next

Venture Beat

November 13, 2020

What happens when the world’s most ambitious mobile chip designer is constrained by the production capacity of its only chip manufacturing partner? Thanks to Apple’s introduction of M1 chips for Macs this week, we might soon find out, but leading chip fabricator TSMC won’t be the one to blame.

It’s not hyperbole to state that Apple has pushed the entire mobile chip industry forward and is now poised to do the same with PC chips. In 2013, Apple released the world’s first 64-bit mobile CPU, A7, which shocked rival chip designers by bringing iPhones closer to processing parity with low-end PCs. Five years later, the A12X Bionic enabled iPad tablets to match the performance of more expensive Intel Core i7 MacBooks, foreshadowing the end of Apple’s need for Intel chips. Now the M1 is here, and thanks to a breakthrough 5-nanometer manufacturing process, the tiny chip packs enough transistors to power both desktop and laptop PCs.

In the past, Apple blamed its CPU-making partners for failing to either keep up with industry trends or push past them, suggesting it could only evolve its Mac computers with newer and more power-efficient parts made by someone else. Now Apple is in full control of the Mac’s destiny, relying on its long-term partner TSMC to manufacture chips based on Apple designs. And though the companies have collectively gambled on cutting-edge 5-nanometer manufacturing technology to differentiate Macs from rival PCs, it’s highly unlikely that Apple will blame its Taiwanese fabricator for any of the Mac’s evolutionary failures going forward. For better or worse, Apple is calling all the shots now.

Apple’s stormy relationships with prior chipmakers were legendary: The company publicly ended its PowerPC CPU relationship with IBM in 2005, cut Samsung out of its mobile processor supply chain in the mid-2010s, and began transitioning away from Intel — first for modems, then for CPUs — over the past year. When it came to IBM and Intel, Apple left for greener chip pastures, but with Samsung, Apple wanted to stop buying parts from a company that was actively competing in its core mobile and PC businesses. Piece by piece, TSMC won the chip business others lost.

There’s little question that TSMC has been a strong partner for Apple. Backed by massive Cupertino budgets, TSMC has upgraded its manufacturing capabilities countless times to keep Apple’s latest chips at the bleeding edge of processor technologies. It’s now responsible for supplying literally hundreds of millions of A-series processors each year and is widely acknowledged to be the world’s top chip fabricator, even recently offering assistance to Intel.

But a South Korean business report suggested this week that TSMC might not have enough 5-nanometer chip production capacity to meet Apple’s growing needs. As rivals such as Qualcomm began moving their chips to 5-nanometer technology, Apple reportedly locked up all of TSMC’s 5-nanometer production facilities for its latest A- and M-series processors. The Korean report suggests Apple will turn to the world’s only other 5-nanometer chipmaker, Samsung, to supply 5-nanometer Mac chips if TSMC’s capacity falls short. That could happen, but it might be wishful thinking — there seemed to be a lot of that in South Korea as the Apple-Samsung relationship deteriorated.

If TSMC is legitimately constrained, that could threaten the short-term supply of iPhones, iPads, and/or Macs that depend on 5-nanometer chips. Even so, Apple has plenty of alternatives. Offering Samsung a supply contract is one of the bigger solutions; paying TSMC to rapidly bring more production capacity online is another. To deal with short-term issues, Apple could prioritize iPhone chip orders over other devices for some period of time and let arguably less important M1 Mac or iPad Air sales slip temporarily due to “overwhelming demand.” Or it could adjust iPhone, Mac, or iPad prices to move demand toward or away from specific models.

The bigger concern is that TSMC’s limited 5-nanometer capacity might push Apple to scale back its ambitions such that future Macs, iPads, Apple Watches, and Apple TVs will be stuck with chips based on older production technologies. Though the first M1-based Macs use 5-nanometer lithography, Apple could be forced to step back to a 7-nanometer process to make chips for upcoming iMacs or Mac Pros — the exact same “fall back to what’s available” strategy Apple chafed at in its relationships with IBM and Intel.

If you consider the scale of Apple’s various product lines, however, it’s unlikely that Macs could choke TSMC’s production capacity. Annual Mac unit sales (~20 million) are roughly one-tenth that of iPhones (~200 million). So during the M1 ramp-up, TSMC might add another 10 million Mac chips to perhaps 100 million 5-nanometer iPad Air and iPhone 12 chips. Moreover, Apple is controlling the pace of the ramp-up and has given itself two years to fully transition Macs to TSMC-made chips. Assuming TSMC later supplies Apple’s entire demand for Mac chips and that demand grows dramatically, the total number of chips would still be in the range of only 20 million to 30 million chips per year. That’s dwarfed by the number of iPhones, iPads, Apple TVs, and Apple Watches that annually use TSMC-made A- and S-series processors.

Despite the South Korean report, TSMC might not actually have a problem. With Apple’s backing, TSMC has historically done a solid job of scaling its manufacturing capabilities to meet growing demand. And this isn’t a static situation: Chip manufacturing is constantly evolving, and TSMC is already working on multiple generations of even smaller chip fabrication technology. As cutting-edge as the 5-nanometer process seems today, it will be both firmly established and improved upon next year, enabling TSMC and Apple to start selling 3-nanometer chips in 2022. So it’s likely that Apple and TSMC will continue to balance chips and devices across multiple manufacturing processes, bringing new ones on as old ones fade out.

In any case, Apple has invested too much in TSMC’s success to create issues with its top chipmaking partner anytime soon, if ever. Their collaboration has already yielded countless dividends in iPhone and iPad chips and is about to raise the performance floors for entry-level Macs. And there’s every reason to expect they’ll be doing the same for higher-end computers by this time next year. So don’t bet on TSMC having the same sort of issues with Apple that eventually befell Intel and IBM; this was a different sort of relationship from the start, and one that might actually last.