Or they realize that at any point they have low-N years before Samsung, GloFo, etc. could catch up with investments from AMD, Nvidia, Apple, etc. so it behooves them not to gouge to the point that those investments make financial sense for those companies. TSMC might just be a couple billion dollar investments away from becoming a commodity again.

Exactly. TSMC's competition is down but not out. TSMC gets more market power by starving their competition than by putting cash in the bank.

I wouldn't count on GloFo being a leader in process tech. August of 2018 they announced they suspended work on their 7nm, 5nm and 3nm processes. It looks like they're focusing more on being a follower. This has also forced AMD to compete with Apple and others for the best 7nm that TSMC can offer. Intel is lucky that AMD can't meet demand.

GloFo is sinking because TSMC aggressively courted AMD. In an alternate universe where TSMC was content to sit back and extract margin, GloFo would still be in the running.

Even if TSMC decided tomorrow to sit back and extract margin, GloFo could still probably get back in the game. That ability decays with time, of course, and that decay is what TSMC buys with their low margins. They are suffocating their competition to build a moat. It's a much better strategy than "extract margin and make big bets on fancy new tech to stay one node ahead," with Intel as Exhibit A.

GloFo has historically been unprofitable and their investors were unhappy with the idea that, just as they had finally reached profitability, they now needed to either

A) spend tens of billions of dollars on a new fab facility B) shut down production in one of the existing facilities while spending billions of dollars to upgrade it to 7nm

While not having the volume to be able to court the largest customers who are the most interested in 7nm.

They decided to stick with their existing 14nm infrastructure and specialize in the long tail of smaller customers who want custom chips and don't need a leading-edge node.

The slowing of Moore's law means that they have the option to wait and see, bank up capital, and then jump back in when everyone else has done the hard work for them of figuring out EUV.

Nobody in the semiconductor industry will put up with anyone in the supply chain making a 600% margin.

Large Nvidia chips might not be able to move quickly, but all of the MCU, WiFi, etc chips would migrate to cheaper fabs like SMIC. Which reduces TSMC's revenue, which reduces their ability to invest in new processes. Cents (and even fractions of cents) matter to those chips.

And convince Apple to build a fab?

Exactly. Apple could build a fab and expend a few percent of their cache of cash.

If money's all that's needed to build a fab to match TSMC's 5 nm without prior experience then their biggest competitor would be China's SMIC. They have unlimited funding from the Chinese government because an embargo hurts China's electronics industry a lot more than just price gouging. SMIC, a company with unlimited funding to poach TSMC engineers and actual experience with chip fabrication is still 2 gens behind. Apple's not going to do any better.

I mean, it worked for chip design.

Apple's breakthrough came years after acquiring PA semi and Intrinsity -- and neither required $10B in annual CAPEX to maintain their lead in chip design.

I think Taiwanese engineers rather work for Apple in the USA than for the State owned companies in mainland China.

They have the money and can attract the talent

TSMC is already a major Apple partner, Apple had no reason to start a talent war here. Remember, Apple squeezes suppliers and labor (wage fixing from the Steve Jobs days).

They only build their own stuff when they see a competitive advantage to doing so — when IBM stopped delivering on chip efficiency or when Intel’s chips started stagnating.

TSMC is known to be very selective with cadres. People who are given "keys to the kingdom" are selected among all things upon loyalty. Take a look on their number of GMs, and VPs with 10+ years of work at TSMC. At the highest levels, TSMC kind of stops being a company, and starts looking like a fraternity.

You can't just create new fab with money.

There are other fabs in the world outside of Taiwan. It would be within the realm of possibility that Apple could purchase a company with good but not great fab capabilities and improve output with strategic hiring.

Like they did with an electric car?

Higher extraction margin also means it is more worth DYI which creates another competitor long term. It is sort of an auction for the leading one. "Only one able to produce them at the same cost/with this delay." Change the cost and others may run their numbers and decide. "Get our rivals and backers on the phone and see if they are willing to fund a shared fab - together we can probably reduce our expenses fifty percent long term but we can't afford it on our own."

Apple might buy, but they'd have to raise phone prices, and the public would end up buying less.

Apple is paying better margins than that. Apple funds R&D of new processes for TSMC. If you put a 600% markup on that, apple might just go build their own fab and put you out of business.

They can, but they don't

why you want to risk your loyal customer's trust for short term profit?

Maybe OP works in private equity.

> and Apple would still buy from you rather than let someone else take the crown of fastest smartphone...

... and invest in making their own chips from end to end in a couple of years. Apple has proven that they do not hesitate to completely take over stuff with the recent Intel-ARM switch when the quality or price does not match what they perceive to be fair.

TSMC is in an extremely powerful but also very precarious position - they are worth ~400B $ in market cap, and Apple has ~200B $ in cash reserves and a market cap of 2T $. If Apple wants they can either buy up TSMC whole or they can set up a competitor.

no they cant. The taiwanese government wouldnt let them buy it. also they cant set up a competitor because the kind of people that can pull this off is limited and they all work for TSMC. The prc government tried this for decades and they have infinite money. there is a good book about it called "hidden dragons paper tigers". Apple is not god :-)

Apple is not god, but Apple is, more importantly, not the PRC. It would be significantly easier to lure top engineers to America, pay them multiples of what they currently earn and work for a prestigious company. The PRC has only one of the main motivating components.

have you ever been to Taiwan? I think moving to America from Taiwan is not a perk. Its the opposite of that. Also you can debate if TSMC or Apple is more prestigious.

I love this modern Internet age and the fact I can google for a book and find the author throwing relevant ideas around from one hour ago

https://twitter.com/FuDaoge

I just searched for "hidden dragons paper tigers" and now I want to add it to my reading list. Thank you for the reference!

"Paper Tigers, Hidden Dragons"

=)

For geopolitical reasons, TSMC is not for sale. And as for setting up a competitor, China has been trying for more than a decade, spending a lot more money than Apple ever will, and they are still not close.