There’s no way it’s that simple between Apple and TSMC.

Apple also has something TSMC desperately needs too: the ability to pay upfront and guaranteed volume.

Turning these lines on and off is basically impossible so guaranteed volume is a way to smooth out demand and is needed for planning.

These factories are tremendously expensive and getting cash upfront is basically a zero interest loan in a time of high interest rates.

The TSMC fabs aren't idling. Between AMD, Intel, nVidia, Broadcom, Google, Amazon, etc. They've got customers with more demands for their chips than they have capacity to provide.

If apple doesn't go to them, I think the only other option is Samsung? But I don't know that Samsung's fabs are open to third parties.

Well, the facts are a little different. Apple is 25% of the volume on the latest nodes and Intel just had an awkward conversation with TSMC saying "Oh, those orders, no, we actually meant the year after", so Apple very much has TSMC "by the balls".

Samsung has produced parts for others for a Very Long Time, most famously NVIDIA (not "nVidia" since many decades) use(d) them.

Nvidia just announced they have a glut of unsold inventory. They are the last company that is going to make up the slack.

> If apple doesn't go to them, I think the only other option is Samsung?

Shorter-term that's true.

Apple is well known at times to think longer term on logistics, strategy. If push comes to shove, there are two additional options for Apple.

1) Political. Taiwan not being China depends on the support of the US. Apple is a economic security prize for the US, a strategic asset. Apple can get powerful politicians in the US to lean on Taiwan, which can dictate TSMC's behavior to an extent. This would prompt increased compromise from TSMC (3-4% hike, not 6%).

2) Apple starts investing into fabs and builds a TSMC competitor from the ground up, perhaps in alignment with ASML (Europe very much wants an improved semiconductor context) and a few US partners (build the fabs in the US and Europe for national security purposes). Apple is one of the few companies where you have to take this potential seriously, they can safely bankroll it entirely by themselves if necessary.

> But I don't know that Samsung's fabs are open to third parties.

They most definitely are, my employer has sent trial tape outs to them recently.

It can get worse. At one point Walmart mispriced a product then came after my company for the loss. That was an awkward moment. Edit: even worse, now customers expect the lower price, eroding your pricing power.

Walmart will also do this intentionally to their vendors, or engage in what I call temporal arbitrage.

It hurts Walmart as a business very little to stop selling Vendor X goods on their shelves when there are substitutes available. However, for Vendor X it's often the case that Vendor X cannot adjust their output as quickly as Walmart can take the product off shelves. That action, taking them off the shelves for even a short period of time while Walmart presses for renegotiating terms can result in layoffs, loss of revenue could result in lines of credit drying up. It's an existential threat to a company because they can't scale up and down at the speed Walmart demands.

If I recall correctly there's a record of this happening with Rubbermaid, and they responded to Walmart's demands for prices by cutting costs, cutting corners with quality, and ultimately sullied their brand name.

I often think about the pickle story about how Wal-Mart can bully companies and their quest for always low prices have ripple effects.

https://www.barnesandnoble.com/readouts/the-wal-mart-effect-...

Thanks for linking that. I’ve heard horror stories and this is just another nail in the coffin.

Am I supposed to feel sorry for Vlasic here? The upshot is that I get cheaper pickles.

You should, because this kind of behaviour ripples through so many companies, that I wouldn't be surprised if you actually not on the receiving end of things. Retailer lowballs the manufacturer. The manufacturer then needs to lowball someone too, probably starting from its employees. Also the supplier who can be anything from local hardware store to some IT giant.

I think another upshot is that it ends up making all consumer products "lowest common denominator" consumer products. It's a vicious cycle:

Step 1: Company has a great product. Walmart begins stocking it nationwide, perhaps promoting it to increase their marketshare. That product's revenues explode, they expand, everything seems great.

Step 2 to N: Then Walmart threatens to pull from shelves unless they can meet the cost of $substituteGood. The company cuts costs to make it work. Rinse and repeat.

Step N+1: The product is no longer great.

This is exactly what has happened with Rubbermaid and with countless other consumer goods.

You also get lower quality pickles.

Cheaper pickles that taste like vinegar and rubber.

There's a book called The United States of Wal-Mart that details a lot of the damage that Wal-Mart has done. I wouldn't be surprised if there's a follow up for Amazon.

https://www.amazon.com/United-States-Wal-Mart-John-Dicker/dp...

Apple is famous for pre-buying and covering upfront costs for new node processes at TSMC. TSMC has the best tech, but apple has the biggest purse. Even apple deciding to stay on existing nodes and not fund the latest one can probably affect their finances, especially when apple is 25% of their income

You can actually deduce the vendors that have influence on the big box buyers if you look carefully enough. And some of the vendors will tell Walmart/Costco to take an airborne intercourse course against rolling pastries.

Others will sell a white-label or generic brand to them. After all, it's just business.

>You can actually deduce the vendors that have influence on the big box buyers if you look carefully enough.

How? I'm coming up blank. Is there a way to compare prices or quantity against other big box stores?

Look for large big box stores that conspicuously have a product line absent, or only have a very defined subset of the product available.

For awhile iPhones were just completely missing from some larger stores, but it seems Apple has the upper hand there now and they're back in business. And even now Apple holds a very right reign on the prices charged (Best Buy seems to have the most leverage here, as they often sell new MacBooks for a bit lower than the Apple Store). This is one of the reasons Apple started the stores; gives them leverage against the retail giants.

There are a number of brands you'll never see at Costco; they don't play the game.

Hmm how do you differentiate between supply chain shortages and this scenario?

Supply chain shortages means you used to see an item, but it is not available at this time. Vendor arrangements means you've never seen Del Monte can corn at Costco, but you've seen Kirkland can corn that tastes just like Del Monte's.

"take an airborne intercourse course against rolling pastries"

Ill have to steal that one

Nice Vonnegut bastardization

> TSMC: you'll pay _____ or you can go to the other fab, oh right, you'll pay _____

It wouldn't be easy for Apple to just go to another fab. They'd have to find another vendor with the capacity and then they'd have to tweak things to match the new fab's design rules. Not trivial for something like M* chips. I suspect Intel would be happy to have Apple in their nascent foundry biz, but not sure they would have the capacity right away and also suspect the design would require a good amount of tweaking to get it in production in an Intel fab.

That's the point of the comment I made. TSMC knows that Apple can't just jump ship to another vendor. There isn't another vendor that can do what Apple needs. Currently. As long as that is true, Apple is stuck at TSMC.

Apple could say that they will accept the 6% increase, but then lower their investment in new fabs 6%. I honestly don't know which number is bigger.

I wonder why iPhone 14 non-Pro continue using A15 is related to this price negotiation, instead of supply shortage of 4nm

Remember that Intel's fabs are waiting in the wings and that I would bet dollars to donuts that Intel is talking with Apple.

TSMC's position in that context is less strong than you'd imagine, especially since Apple has to be thinking that they want to diversify away from Taiwan and China to avoid "Russia risk" of having their supply shut off to zero suddenly when China does something crazy.

No way they could switch in under 5 years. TSMC provides design guidance and knowledge that will be deeply embedded in the design of their chips. It’s not like a print shop where you can send over a pdf.

I agree with the diversity angle though. Tim Cook seemed really slow to recognize it, but the last few years apple has accelerated shifting manufacturing. India will now be joining China in producing their latest phones (14), which is a big first.