In today's interwoven globalized economy, everything is connected. Even though Taiwan Semiconductor Manufacturing (NYSE: TSM) isn't a direct supplier for Apple (Nasdaq: AAPL), the contract manufacturer might still be the source of multiple bottlenecks for Cupertino.
You got some 'splainin to do
Apple doesn't currently get any of its chips directly from TSMC. Various Apple suppliers including Broadcom and Cirrus Logic, among others, tap Taiwan Semi for production, so Apple ends up with chips from its foundries.
It's long been rumored that Apple wants to move production of its custom A-family of mobile processors to the company, starting with the A6, and is having trial runs as we speak. But for now they're still produced by frenemy Samsung.
As the largest contract manufacturer of semiconductors, with an estimated 48.8% market share, any hiccups that TSMC sees is bound to affect the rest of the tech world. The company is currently in the process of ramping up its 28-nanometer manufacturing process, although it's been seeing its fair share of issues with manufacturing yields.
Last quarter, 28-nanometer process technology comprised just 2% of wafer revenues, and just 1% for the full year, so this ramp is just getting started.
Exhibit A: NVIDIA
Graphics specialist NVIDIA (Nasdaq: NVDA) is widely expected to have won the discrete GPU seat in the next generations of Macs, again taking turns with Advanced Micro Devices (NYSE: AMD) after AMD scored the win nearly two years ago.
The company just launched its newest lineup of chips based on its 28-nanometer Kepler architecture, which are likely to be featured in the next generation of MacBook Pros. These new laptops will probably be the biggest upgrade in years, potentially seeing a major form factor redesign, and may be just around the corner.
During NVIDIA's last earnings release, CEO Jen-Hsun Huang acknowledged that it has been adversely affected by TSMC's 28-nanometer yields, although he expected the company to be "in a pretty good place" by the end of the year.
These supply constraints will probably end up limiting the extent that NVIDIA can enjoy its presumed win in Macs this year. While this will certainly hurt NVIDIA more than it will Apple in terms of revenue upside, the situation holds back how much graphics horsepower Apple can deploy throughout its Mac lineup.
Exhibit B: Qualcomm
Digging through Qualcomm's (Nasdaq: QCOM) own earnings release earlier this week, you'll notice that the mobile-chip leader has run into the exact same speed bump with TSMC. Apple has shifted to relying entirely on Qualcomm as the sole supplier of the baseband modems that allow iPhones and iPads to connect to data networks.
The next generation of these 4G LTE-capable baseband chips is similarly built on the same 28-nanometer process at TSMC, again seeing some fallout from TSMC's slow ramp-up. I jumped the gun a bit when I predicted that these new chips would be in the new iPad, considering the release timing didn't match up very well. It wasn't too surprising when a slightly different flavor baseband from Qualcomm was found inside Apple's newest tablet.
The timing does conveniently line up with the possible launch of the next iPhone, and I'm fully expecting these chips to be at the heart of an LTE equipped iPhone released later this year
If this turns out to be the case, constraints over these baseband modems could end up causing delays or, worse yet, shortages for this year's iPhone if they persist throughout the rest of the year.
Can't we all just be frenemies?
While Apple inevitably competes with both NVIDIA and Qualcomm on the mobile front, as both of those companies supply application processors (Tegras and Snapdragons, respectively) for popular Google Android devices, it still relies on them for critical components in its products.
If Taiwan Semiconductor continues to see yield hiccups in its 28-nanometer manufacturing, Apple may inadvertently end up running into some hurdles of its own.
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