DigiTimes, an industry publication that often has very interesting (although not always 100% accurate) stories, today published a claim that Apple (NASDAQ:AAPL) just signed a three-year deal with Taiwan Semiconductor (NYSE:TSM) to build its in-house "A series" chips on the 20 nanometer, 16 nanometer, and 10 nanometer nodes. I believe that this report should, at the very least, come under serious scrutiny considering the track record of the source making the claims, TSM's own production timelines, and other established facts.
We've Heard This Rumor Before
Back in 2011, DigiTimes claimed that Apple had signed a deal with TSM to build its next generation A series chips on the 28 nanometer and 20 nanometer nodes. This adds some interesting color on the most recent report as it makes no mention of the 28 nanometer node. Will Apple be using TSM's 28nm for the A7 chip in the next-generation iPhone for this year, or will it stick with Samsung (OTC:SSNLF)?
Also of note, if TSM had already "signed" a deal for 28nm and 20nm, then why did the firm need to "sign" another deal for 20nm, 16nm, and 10nm? This suggests that DigiTimes' sources for the report two years ago were likely incorrect, and that this may simply be a rumor that periodically pops up for one of the following reasons:
- Apple Negotiation Tactic: Apple may simply be "seeding" these rumors every so often as a negotiation tactic against Samsung.
- TSM Chest-Pounding Tactic: TSMC is still deeply hurt by the "defection" of Altera (NASDAQ:ALTR) to Intel (NASDAQ:INTC) at the 14 nanometer node, so TSM may be trying to "brag" about its upcoming 16 nanometer and 10 nanometer nodes to shore up investor confidence. (Although given TSM's near monopolistic position in the foundry business, it's tough to see why shareholders would be unhappy.)
The Timelines Don't Make Sense
The timeline given in the article is as follows:
- Low-volume production of A8 chip by Q3 2013 on 20nm before higher volume production for a new iPhone release in early 2014
- A9/A9X (presumably on 16nm) will be in "newer generation" iPhone and iPad products
- Three-year contract involving 20nm, 16nm, and 10nm
So, obviously the first problem here is: "What about the A7 in the new iPhone/iPad launches in fall 2013?" Will Apple really go through the bother of designing, taping out, and building a set of chips that will be replaced in six months? On top of this, TSM noted in its own call that the first quarter in which 20nm would represent ~2% of revenues would be Q2 2014. If TSM is shipping chips to Apple for an "early" 2014 iPhone/iPad device launch, then wouldn't TSM expect its 2% quarter for 20nm to be much sooner?
Finally, the "10nm in three years" claim is suspicious; even TSM's own Morris Chang expects the 10nm node to come two years after the 16 nanometer one. If we assume Dr. Chang is correct about the 16nm timeline (one year after volume production of 20nm), then this puts 16nm volume production in the first half of 2015, and then 10nm production in the first half 2017. Wouldn't Apple need to sign a longer-term agreement in order to get its hands on the 10nm node for high-volume parts?
I don't believe this DigiTimes report, particularly given that the timelines don't make sense. Furthermore, the accuracy of previous reports remains in question, which hurts the credibility of this piece. The fact is, TSM still has to get 20 nanometer planar shipped in volume in 2014, and given how tough FinFETs are to manufacture with good yields, even 2015 is looking pretty optimistic for that process node. Seeing is believing in this industry, and right now, I don't see much beyond PR fluff.
Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.