Taiwan Semiconductor Manufacturing Company (NYSE:TSM), or TSMC for short, is going to be bringing its 10-nanometer chip manufacturing technology to market early next year. This new technology is expected to deliver better performance and significantly lower chip areas than what its current 16-nanometer technology is capable of.
TSMC has made it very clear that it expects to recognize revenue from 10-nanometer products in the first quarter of 2017. According to a new report from DigiTimes, it looks as if Apple (NASDAQ:AAPL) may be the first customer to use this technology.
Next-gen iPad Pro reportedly to go into production in December
DigiTimes says Apple's upcoming iPad with a 10.5-inch display is expected to begin mass production in December, with shipments beginning in the first quarter of 2016. That new iPad, DigiTimes reports, will be powered by Apple's next-generation A10X tablet-specific applications processor. The current-generation iPad Pro models use Apple's A9X chip.
There is significant evidence in the public domain to suggest that the A10X will be manufactured in TSMC's new 10-nanometer tech rather than its current 16-nanometer technology. Such evidence includes the LinkedIn profiles of Apple chip engineers, as well as a report from well-connected Apple analyst Ming-Chi Kuo.
If Apple is beginning mass production of the next-generation iPad Pro models in December, that means the company will need production-quality A10X chips to go inside them. If we assume that it takes about three months to build a chip from start to finish, then for A10X chips to be ready to support December iPad production, that production needs to have begun ahead of time.
To that end, TSMC co-CEO C.C. Wei said on the company's third quarter earnings call that the company has "transferred 10-nanometer from [research and development] to production in the third quarter of this year." He also said the company's "first 10-nanometer customer product has been produced with reasonable yield."
It's certainly plausible, and indeed very likely, that the chip that TSMC was talking about was the A10X. Everything seems to line up perfectly.
A10X paves the way for A11
TSMC's commentary in regard to the yield rate for its first 10-nanometer product doesn't suggest that said yields are by any means great. I suspect that both TSMC and rival Samsung (NASDAQOTH:SSNLF), which recently began production of Qualcomm's (NASDAQ:QCOM) Snapdragon 835 chip, rushed to get their respective 10-nanometer technologies into production to meet their customers' strict product-release schedules.
The Snapdragon 835 needs to be available to power flagship Android smartphones in the March-April time-frame, the A10X needed to be ready for an early 2017 iPad launch, and Qualcomm rival MediaTek has said that its own 10-nanometer mobile applications processor, manufactured by TSMC and known as the Helio X30, will ship in the first half of 2017.
The A10X and the Helio X30 are likely to ship in low volumes, but they should be instrumental in helping TSMC to further boost its 10-nanometer manufacturing yields. The technology is going to need to be in top shape to support Apple's next-generation A11 chip that's set to power Apple's next-generation iPhones.
Considering how big a deal Apple's next-generation iPhones are expected to be in terms of unit shipments, Apple really can't afford any significant supply bottlenecks. But it's very likely that by the time Apple starts building the next-generation iPhone models, TSMC's 10-nanometer tech will be in solid shape.
Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Apple and Qualcomm. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.