July 03, 2013, 1:56 AM — What began as a rumor is now news: Apple plans to sever its last tie to Samsung and have its line of ARM processors manufactured by the Taiwan Semiconductor Manufacturing Corp., otherwise known as TSMC.
It will be a while before TSMC actually gets anything from this deal, since Samsung will still be supplying chips to Apple for at least another year. It's a windfall for TSMC and a painful hit for Samsung, no doubt about it. Mark Newman, an analyst at Sanford Bernstein in Hong Kong, estimates that Apple's component orders from Samsung were set to hit around $10 billion last year. Who would want to give that kind of money to their mortal enemy?
Still, Tim, you couldn't make a worse decision. Well you could but I don't want to consider those options.
Intel was a rumored suitor to make the Apple ARM chips and I think Tim Cook will regret not signing with them. That presumes Intel didn't want their business, of course. Intel is an increasing rarity in semiconductors, a company that makes its own chips. Most are fabless, meaning they don't make their chip, they outsource to a firm like TSMC.
As manufacturing processes have gotten smaller and smaller, it's been harder and harder to stay competitive and some firms have fallen by the wayside, leaving just a few. TSMC is the leader in the fabrication field and it has all the fabless big chip makers, which is already proving a problem.
For starters, TSMC has a dubious history when it comes to on-time delivery and making the jump to a new fabrication process. There was a time when every Nvidia earnings call featured CEO Jen-Hsun Huang ranting and complaining about TSMC not being able to provide the company with all the product it needed. It got so bad, Nvidia publicly slammed TSMC at the International Trade Partner Conference, of all places.
Like Nvidia, Qualcomm is also fabless and counts on TSMC to make its chips. And TSMC's inability to deliver has hamstrung Qualcomm, too.
The fact that both companies remains with TSMC and haven't jumped to Globalfoundaries or Intel shows how intertwining these deals can be and how hard they are to extract your company. Apple has wanted out from the Samsung deal for a while and still won't be free until next year.
Intel may be struggling in mobility with the Atom processors, but Intel does yields and manufacturing process migration better than anyone. That's probably one reason why the guy who ran the fabs is the new CEO. While TSMC wrestles with 28nm and is looking to 20nm, Intel is at 22nm now and moving to 14nm for next year. This is important; the smaller the fabrication design, the less power used.
The stock pickers at Seeking Alpha know this. One columnist pointed out "it is quite possible that Intel might be 2 Moore generations ahead of TSMC and other companies by 2014," a reference to Moore's Law.
Not just that, but TSMC already can't meet the capacity needs of Qualcomm and Nvidia now. How can it soak up Apple's demands? Apple has a habit of making huge, all-at-once buys. It's been known to nearly drain the market of DDR or Flash RAM with one buy in preparation for a launch. TSMC can't meet the demands of Nvidia and Qualcomm and now it's taking on Apple. Apple is going to rue this decision. At the very least, Apple should make some kind of investment to fund expansion of TSMC's foundry facilities, which would not surprise me, but these take years to get going. Just ask Intel.
Something will have to give. This might be the impetus for Nvidia to move to Globalfoundaries (I doubt it will ever be able to work with Intel after what Jen-Hsun has said about Intel over the years) and Qualcomm may also abandon ship. In any case, three giant players all demanding capacity from a company that can't satisfy two is a recipe for disaster, or at the very least severe product shortages (which for some people is a disaster).