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.
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
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?
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.
It's what Apple did to Imagination Technologies and tried to do to Samsung.
Similarly intels process issues showed up when they started trying to make xeon before the desktop processors.
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.
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.
Obviously TSMC doesn't care about VC's, but the same reason why VC's prefer a large number of small customers still applies.
This is intriguing and I would appreciate if possible to get any sources to read up on this?
When people see small number of large customers, the implication is you are basically just running an outsourced dev/consultant/staff aug shop. Less product vision and ability to "scale".
I think the caveat/variable is "all else being equal or close to equal."
If having 10 customers will net you $10 total per month, and having one large customer will net you $100 per month, it is really hard to justify going with the $10 customers. But if those 10 customers will net you $10 EACH per month, then the 10customers is a better situation.
Especially for a new untested company no customer is sure they actually need yet
This depends on your business strategy: having a single or few customers makes you much more dependent on their whims and their negotiation power. If you have more customers you are in a better position for pricing negotiations.
To me this says as much about Intel as about Apple. When Intel has a new chip or a bin that has small yields, they can’t supply a large customer. But MacBook had maybe a third of the market share it has now, so that’s a relatively small niche you can supply while you boost your yields.
And AMD and Qualcomm want more access to it than they have so they complain to the press. This is the supply chain folks.