Apple has pledged to buy US-made chips once TSMC’s Arizona plants come online, but the company may have to pay more for them.
TSMC’s chief exec has said that it plans to charge customers more for chips made outside of Taiwan, due to the higher production costs …
US-made chips
Currently, Apple’s A-series and M-series chips are made by TSMC in its home territory of Taiwan. However, the company has pledged to buy at least some of its chips from TSMC’s upcoming plants in Arizona.
There had initially been doubts about whether this was much more of a PR move, since the chip elements seemed likely to have to be sent back to Taiwan for what’s known as ‘packaging’ – or final assembly. One analyst said this made the Arizona plant “a paperweight.”
Packaging is the name given to the process of placing the various circuit boards as close together as possible before encapsulating them into a single chip. For example, in the iPhone, the memory is placed directly on top of the processor to improve performance and reliability.
Packaging is a highly advanced process, where TSMC has a massive lead over its competitors, but the process can only be done in the sophisticated facilities which only exist in Taiwan.
However, Apple later said it would use another US company, Amkor, to do the chip packaging.
TSMC plans to charge more for US-made chips
Producing chips in the US carries higher costs than doing it in Taiwan, in part due to unionisation of US workers creating higher salaries. This was the basis for TSMC demanding subsidies for opening the Arizona plants.
Those subsidies were recently confirmed as totalling $6.6B in grants across three plants, and a further $5B in loans.
Despite this, there was a suggestion last year that US-made chips might be more expensive than those produced in Taiwan, and the company’s chief exec has now confirmed this. The Financial Times says TSMC has already started discussing this with its customers.
Taiwan Semiconductor Manufacturing Company plans to charge customers more for making their chips outside of Taiwan, as global capacity expansion, power costs and increasingly complex cutting-edge technologies weigh on its profitability.
“If a customer requests to be in a certain geographical area, the customer needs to share the incremental cost, said CC Wei, chief executive of the world’s largest chip manufacturer, to investors on Thursday during the company’s first-quarter earnings call.
“In today’s fragmented globalisation environment, cost will be higher for everyone, including TSMC, our customers and our competitors,” Wei said, adding that discussions with customers about price increases had started.
Apple is in a delicate negotiating position
Apple is used to being the dominant partner when it comes to negotiating with suppliers. Everyone wants Apple’s business, and it likes to have two or more suppliers for each element in its supply-chain, so that it can play them off against each other to strike favorable deals.
However, TSMC’s lead in chipmaking processes means that it has long been Apple’s sole supplier of A-series and M-series chips. That naturally weakens the iPhone maker’s hand when it comes to price negotiations.
While the company will of course strike the best deal it can, it seems likely that it won’t be immune to paying a premium on US-made chips.
Photo by Marek Studzinski on Unsplash
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