Apple, TSMC, and 3nm chips

The news from a few months back is that Apple has purchased all of TSMC's capacity for 3nm chips for one year. That's a pretty impressive deal. It gives Apple exclusive access to TSMC's latest chip technology, locking out all other PC manufacturers. It also shows that Apple is planning on a lot of sales in the coming year.

Yet I see a dark side to this arrangement.

First, it places a cap on Apple's sales in the year. Apple has "maxed out" its chip source; it cannot get more from TSMC. Apple's growth is now constrained by TSMC's growth, which has been less than planned. (TSMC's new fabrication plant in Arizona has been delayed and cannot produce multi-chip assemblies.)

With a cap on production, Apple must choose carefully which chips it wants from TSMC. What percentage will be M2 chips? M2 Pro chips? A17 chips for iPhones? If Apple guesses wrong, it could have a lot of unsold inventory for one product and be unable to meet sales demand for another.

Second, it makes allies of PC manufacturers (anyone who isn't Apple) and chip manufacturers (anyone who isn't TSMC). TSMC may have difficulty winning business from Lenovo, Dell, and even Microsoft. The arrangement probably doesn't help Apple's relationships with Intel and Samsung, either.

Third, it shows that Apple's latest processors are not second-sourced. (Second-sourcing was a common practice in the 1980s. It reduced risk to the customer and to the primary manufacturer.) Not having a second source for its processors means that any disruption to manufacturing will directly the finished products. If TSMC cannot deliver, Apple has nowhere to turn.

It may be that Apple's chips cannot be second-sourced. I don't know the details, but it may be that Apple provided specifications for the chips, and TSMC designed the chip layout. If that is the case, then it is most likely that TSMC owns the layouts, not Apple, and for Apple to get chips from Intel or Samsung those companies would have to start with the specifications and design their own chips. That's a lengthy process, and might take longer than the expected lifetime of the chips. (The M1 chip is all but obsolete, and the M3 is already replacing the M2 chip. The "A" series chips have similarly rapid turnover.)

So Apple purchasing all of TSMC's capacity for a year sounds impressive -- and it is -- but it also reveals weaknesses in Apple's position.