It's well-known that Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the sole supplier of Apple's (NASDAQ:AAPL) A10 Fusion processor that powers the recently released iPhone 7 and iPhone 7 Plus smartphones. The chip is manufactured in TSMC's 16-nanometer technology, and according to Chipworks, it even employs TSMC's InFO chip packaging technology. (In a nutshell, this means more dollar content for TSMC beyond wafer manufacturing services.)
Although much of the focus in the press is around the manufacturer of Apple's A-series processor, it's important to note that there are a lot of chips inside of a smartphone. None are as high value as the applications processor, but the content is significant nonetheless.
TSMC has clearly done a good job of nabbing Apple's A-series business over the last several years, but investors shouldn't ignore the fact that it builds many of the other chips inside of Apple's iPhones, as well. Let's take a look at several examples.
The cellular modem (and related RF)
Apple is probably the last major smartphone vendor to use stand-alone applications processors and cellular modems. In the iPhone 7, teardown reports have revealed that Apple is sourcing cellular modems (and associated chips) from both Qualcomm (NASDAQ:QCOM), a longtime supplier of Apple modems, and Intel (NASDAQ:INTC).
The Qualcomm modem, known as MDM9645, is known to be manufactured in TSMC's 20-nanometer manufacturing process. The Intel modem, branded XMM 7360, is built in a foundry 28-nanometer process. BlueFin Research Partners say that this part, too, is manufactured by TSMC.
Beyond the baseband processor, though, TSMC is believed to be a key manufacturer of the RF transceivers used in iPhones, as well. Chipworks says that the RF transceiver that's used in the Intel version of the iPhone 7/7 Plus is built by TSMC, and it's likely that Qualcomm's RF transceivers are built by TSMC, as well.
The fingerprint sensor
Back in 2015, DigiTimes reported that the fingerprint sensors inside of the iPhone 6 and iPhone 6 Plus smartphones were manufactured in TSMC's 0.18-micron manufacturing technology. That same report also claimed that the second-generation fingerprint sensors inside of the iPhone 6s and iPhone 6s Plus are manufactured in TSMC's newer 65-nanometer manufacturing technology.
At Apple's keynote and in its marketing materials for the iPhone 7-series smartphones, the company makes no mention of dramatic changes to the fingerprint sensor. It's likely, then, that Apple is using the same sensor in the iPhone 7-series phones as it did in the iPhone 6s-series phones.
In that case, TSMC profits from the iPhone by manufacturing the Touch ID sensor, as well.
The connectivity combo chip
The Wi-Fi/Bluetooth connectivity combo chip, as well as the GPS chip inside of the iPhone 7-series phones, are almost certainly both provided by Broadcom (NASDAQ:AVGO). (Chipworks confirmed the latter, and Broadcom's public commentary confirms the former.)
According to a 2014 form 10-K filing, Broadcom counted TSMC as one of its main contract chip manufacturing partners. And back in 2012, Chipworks confirmed that the Broadcom Wi-Fi/Bluetooth combo chip inside of the iPhone 5 was manufactured by TSMC.
I believe that it's very likely that TSMC is one of the manufacturers -- if not the only one -- of the Wi-Fi/Bluetooth connectivity combo chips inside of the iPhone 7-series smartphones.
No wonder TSMC rakes in so much from smartphones
In TSMC's most recent earnings presentation, the company said that a full 60% of its revenue in the quarter came from communication products. This includes, and is likely mostly comprised of, chips that go into smartphones. It's not surprising, given how much content within major smartphones like the iPhone 7 it is responsible for manufacturing, that the company has benefited so much from the smartphone boom.
Going forward, as smartphone unit shipment growth cools off, TSMC is going to have to rely increasingly on content growth within smartphones -- through share gains, selling higher value technologies, and so on -- to try to outperform the overall smartphone market.