Contract chip manufacturing giant Taiwan Semiconductor Manufacturing Company (NYSE:TSM) expects to begin recognizing revenue from the sale of chips built on its new 10-nanometer technology during the first quarter.

Image source: Apple. 

The 10-nanometer technology is expected to deliver performance, power, and area benefits over the company's current 16-nanometer technology, used to manufacture chips such as the Apple (NASDAQ:AAPL) A10 processor found inside the iPhone 7 and iPhone 7 Plus.

There have been several reports that TSMC's 10-nanometer technology is currently facing yield challenges, something that DigiTimes suggested could potentially affect the launch schedule of Apple's upcoming iPad Pro tablets, which are expected to incorporate chips built using this technology. 

TSMC provided EETimes with an update on its expected 10-nanometer manufacturing ramp-up. Let's see what it might mean for Apple's upcoming tablets. 

10-nanometer "on track"

TSMC's Elizabeth Sun told EETimes that the 10-nanometer process is "totally on track" and -- to quote EETimes -- "will contribute to sales revenue for the first time in the first quarter of 2017."

In other words, no change to what the company has said previously, though no apparent update on the yield rates of the technology. 

However, the company did seemingly reveal a "new" bit of information. Although TSMC is counting on some level of revenue contribution in the first quarter of 2017 from its 10-nanometer process, Sun told EETimes that the contribution to TSMC's overall revenue in the first quarter of 2017 will be "less than one percent."

To put this into perspective, analysts expect TSMC to generate $7.63 billion in revenue during the first quarter of 2017. One percent of that would be $76 million, meaning TSMC is expecting to recognize less than that in 10-nanometer wafer revenue in the first quarter.

In other words, the "real" volume is likely to show up in the second quarter -- and beyond.

Implications for the iPad Pro

Let's suppose TSMC recognizes $50 million in revenue from 10-nanometer wafers during the first quarter at $10,000 per wafer -- so, approximately 5,000 wafers -- and let's further suppose that all of it is for the upcoming Apple A10X chip.

Going a little further, let's assume that the chip will measure in at around 130 square millimeters, a slight shrink from the 147 square millimeters of the A9X. And just to err on the side of caution, let's suppose only 50% of the chips that come off those wafers even work. BlueFin Research claims that yields are sub-50%, but bear with me.

Using these numbers, a 300-millimeter wafer should produce around 457 chips total and about 229 good chips. That many good chips per wafer multiplied by 5,000 wafers gives us just over 1.1 million A10X chips.

Last quarter, Apple shipped roughly 9.3 million iPads, though only a fraction of those were probably of the latest iPad Pro systems.

If, by the time the new iPad Pro tablets formally launch, Apple has managed to stockpile about a million of the new models using the A10X chip with additional builds in progress, it seems unlikely that production of the A10X will prove a bottleneck in the production of Apple's next-generation iPad Pro tablets.

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