Apple books exclusive access to TSMC's 3nm chipmaking capacity for a whole year

Apple has secured itself a sweetheart deal with Taiwan Semiconductor (TSMC) for one year of exclusive use of its 3nm process technology. This will boost the production of its M3-series Macs launching in October and the A17 Bionics chip inside of the upcoming iPhone 15.

According to The Information (via Ars Technica), Apple's massive chip order is worth billions of dollars and is large enough to eat up all of TSMC's 3nm manufacturing capabilities for at least one year, leaving it with no capacity to handle orders from other companies. It's no surprise that Apple would make this move since TSMC has already had issues producing enough 3nm wafers to fill its demand. 

The deal is even more remarkable because, in contrast to the industry norm where companies typically pay for each die regardless of whether it works or not, Apple's order is so big that it will only be charged for functional chips.

This could potentially save the iPhone maker billions of dollars, as TSMC will be responsible for eating the cost of any defective chips that come out of the production process. Reports suggest that roughly 70% of TSMC's current yield of 3nm dies are good, and improvements in manufacturing processes should lead to a further decline in the rate of defective chips in the future.

The announcement also highlights that Apple's orders constituted 23% of TSMC's $72 billion revenue in 2023, making Apple its largest customer. Apple has exclusively relied on TSMC for its chip requirements across its product lineup for nearly a decade. 

The deal with Apple also means that other major customers, such as Nvidia, AMD, Qualcomm, and even Intel, will need to explore alternative sources for 3nm chips during the exclusivity period.

Samsung recently had decent yields on its current 3nm processes, which could give TSMC some welcome competition in the 3nm space. Intel is also investing billions of dollars to build its own chip fabrication facilities worldwide.