Apple’s sweetheart deal with TSMC isn’t as sweet as we thought | Cult of Mac

Apple’s sweetheart deal with TSMC isn’t as sweet as we thought


TSMC chip wafer
Not all of the chips on a wafer a good. But who pays for the defective ones?
Photo: TSMC

Apple’s chip-maker TSMC does not absorb the cost of defective processors created in the production process, according to a trusted analyst. That contradicts a recent report that TSMC “eats the cost of the defects.”

Which isn’t to say that Apple and the Taiwanese company don’t have a very close working relationship.

TSMC doesn’t bend over backward for Apple

Apple designs the A-series and M-series processors that go into iPhone, Mac and iPad, but the chips are produced by Taiwan Semiconductor Manufacturing Company.

Apple stays on the cutting edge of what TSMC can produce, which means the A17 in the iPhone 15 Pro models and the M3 in upcoming Macs will be among the world’s first made with a 3nm production process.

Defective chips are an inevitable part of production, and that’s especially true when a new process is being used. And a recent report indicated that TSMC was willing to absorb the cost for Apple.

“A sweetheart deal between the companies means TSMC effectively eats the cost of the defects that inevitably crop up in a new manufacturing process,” said The Information.

Not so, countered a new report from Ming-Chi Kuo, an analyst with TF International Securities.

“Because the latest advanced node has many defective chips in the early stage of production, Apple has always purchased finished goods. And TSMC allocates most of the cost of defective chips to the selling price of each finished chip,” said Kuo on Thursday.

In other words, Apple is paying for most of the defective chips while TSMC is absorbing some of the cost.

But the companies are close

Apple and TSMC depend on each other. The Taiwanese company is the only one capable of making the advanced the SoC processors for iPhone, Mac, etc. And Apple buys so many it accounts for 23% of TSMC’s entire revenue.

Their partnership is close enough that Apple is reportedly purchasing the Taiwanese foundry’s complete output of 3nm chips this year.


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