Please ensure Javascript is enabled for purposes of website accessibility

Why Apple Inc.'s A11 Won't Be Built Using 16-Nano Tech

By Ashraf Eassa - Apr 17, 2017 at 11:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The schedule lines up nicely for a 10nm-powered iPhone.

Over on Twitter, semiconductor industry veteran Dick James with Siliconics recently posted the following thought-provoking Tweet, in which he comments on Taiwan Semiconductor Manufacturing Company's (TSM -2.27%) 10nm chip manufacturing technology ramp-up plans: 

Although the fact that TSMC expects a "very fast" production ramp of its 10nm technology in the second half of 2017 (i.e. beginning in the third quarter) might make it seem, as James notes, that this might be too late to hit Apple's (AAPL -1.80%) iPhone 7s/7s+/8 production schedule, I don't think it is. Here's why. 

A silicon wafer.

Image source: Intel.

Squaring the timing

If TSMC only started mass production of chips using its 10nm technology in the third quarter, then there would be absolutely no chance that Apple's A11 chip would be built using TSMC's 10nm technology. It usually takes three months (possibly longer) to fully process a silicon wafer, with additional time required to package and test those chips, ship those chips to customers (in this case, Apple's contract manufacturers), and then integrate those chips into devices, like Apple's iPhone. 

However, I believe that TSMC is talking about a revenue ramp up in this case. To dig deeper into this, we need to understand how TSMC recognizes revenue -- a fact that we can find in the chip-maker's most recent form 20-F filing

TSMC says that it recognizes revenue "when the goods are delivered and titles have passed." It goes on to list a set of conditions that it needs to meet to recognize revenue, which I've reproduced below for the sake of convenience: 

  • We have transferred to the buyer the significant risks and rewards of ownership of the goods;
  • We retain neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; 
  • The amount of revenue can be measured reliably; 
  • It is probable that the economic benefits associated with the transaction will flow to us; and 
  • The costs incurred or to be incurred in respect of the transaction can be measured reliably. 

In other words, TSMC likely doesn't report revenue from a wafer sale until Apple (or, more likely, its contract manufacturer(s)) have at least gotten ahold of the finished wafer, if not processed, packaged, and tested chips from said wafer. 

So, if TSMC begins production on the A11 this month, then finished chips bound for this fall's iPhone models should be ready to go in July or August, which is around when mass production of the next iPhone is expected to begin

From a timing perspective, 10nm should be good to go for the next generation iPhones. 

Beyond just timing

The timing appears to work, but that's not the only reason that I'm confident that the next iPhone models will have 10nm-based processors.

TSMC says that it expects that 10% of its entire 2017 revenues will come from sales of 10nm wafers. The only customers that could contribute this kind of volume and revenue in such a short amount of time are Apple and potentially Qualcomm (QCOM -1.91%), and we already know that Qualcomm isn't using TSMC to build 10nm chips. 

Beyond that, though, there are good technical reasons for Apple to move to the 10nm technology. Simply put, Apple is already shipping large chips (the A10 is about 125 square millimeters in size in TSMC's 16nm tech).

If Apple wants to dramatically increase the features and functionality that it integrates into its A11 chip, it needs to throw in more transistors, which balloons chip size (the A10 is already quite large for a mobile chip). The move to 10nm technology should allow Apple to cram in much more functionality while keeping chip size in check. 

All told, I'm very confident that this year's Apple A11 chip will be manufactured on TSMC's 10nm technology, not its older 16nm technology. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$136.72 (-1.80%) $-2.51
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
$81.75 (-2.27%) $-1.90
Intel Corporation Stock Quote
Intel Corporation
$37.41 (0.32%) $0.12
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$127.74 (-1.91%) $-2.49
Twitter, Inc. Stock Quote
Twitter, Inc.
$37.39 (-1.08%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.