TSMC Not Charging Apple for Defective 3nm Chips Ahead of iPhone 15 Pro Introduction

[MacRumors]

Chip supplier TSMC has taken the unusual step of not charging Apple for defective 3nm chips ahead of the introduction of the iPhone 15 Pro and the A17 Bionic chip, The Information reports.

The iPhone 15 Pro is widely rumored to feature the A17 Bionic chip – Apple's first chip manufactured with a 3nm fabrication process. The 3nm node allows transistors to be even more densely packed, resulting in better performance and efficiency.

Introduction of upgraded chip technology like 3nm involves the production of a high number of defective chips until the manufacturing process can be perfected. According to The Information, TSMC is only charging Apple for "known good dies," with no fee for defective chips. This is highly unconventional, since TSMC clients usually have to pay for the wafer and all of the dies it contains, including any defective ones.

• 3nm Apple Silicon: What Is It and Why Does It Matter?

Since Apple's orders from TSMC are so large, it can apparently justify absorbing the cost of defective chips. Apple's willingness to be the supplier's first customer for new manufacturing processes helps it pay for the research and development of new nodes, as well as the facilities to make them.

The size of Apple's orders also enable TSMC to more quickly learn how to improve and scale up a node during mass production. Once production and yield issues with manufacturing 3nm chips improves and other customers seek the technology, TSMC can demand higher prices from those clients, as well as charge for defective dies.

Update: According to Apple analyst Ming-Chi Kuo, The Information's report is not quite accurate. Kuo says that Apple's standard deal with TSMC does not ever include "defective" chips. Apple purchases "finished goods" that are of the expected quality rather than "wafer-buy," which can include defective chips.

Most chip buyers have a "wafer-buy" deal with TSMC and must eat the cost of defective chips, but in the case of TSMC and Apple, TSMC absorbs the cost through the price of the chips.

https://twitter.com/i/web/status/1689332407999270912

Article Link: TSMC Not Charging Apple for Defective 3nm Chips Ahead of iPhone 15 Pro Introduction

 

[anshuvorty]

Only a company with Apple's influence can get away with this...

 

[jz0309]

Unusual? Been in semi industry for decades and a lot of companies pay for “known goo die”…

 

[jecowa]

The way I heard it was that TSMS's 1st-gen 3nm process was not very desirable by customers because of its yield, and Apple was kind of saving them by using it. So maybe not charging them for defects is their thanks back to Apple.

 

[JPack]

Pretty sure it's built in to the cost already. And it's not as if Apple is switching to a Samsung process next year. There's plenty of opportunity to charge for it one way or another.

 

[Eldaerenth Faexidor]

Looking forward to this new chip and to see what kind of impact it has on user experience.

 

[NT1440]

Only a company with Apple's influence can get away with this...

They’re single-handedly funding the N3 node, so it’s not “getting away” with anything. Apple put up billions in capital investment to get this node up and running. Without them, N3 wouldn’t be produced.

 

[SigurTom]

Makes sense, I only pay for known good iPhones.

 

[NT1440]

The way I heard it was that TSMS's 1st-gen 3nm process was not very desirable by customers because of its yield, and Apple was kind of saving them by using it. So maybe not charging them for defects is their thanks back to Apple.

It’s not even yield, vanilla N3 is a technological dead end that isn’t compatible with the path forward of N3E/B/whatever the acronym is.

Apple will be the ONLY user of the first gen N3, but it was a required node to develop the upcoming variants.

 

[gleepskip]

Unusual? What kind of moron pays for broken materials?

 

[teknikal90]

Unusual? What kind of moron pays for broken materials?

according to the article, the entire industry?

 

[ArkSingularity]

Unusual? What kind of moron pays for broken materials?

They pay by the wafer. Part of the reason that binning is a popular practice is because it can make use of some of those dies that would otherwise have to be thrown out. If a company wanted to design a 1600mm^2 die and didn't utilize binning, it would be a financial hit on them rather than on the fab for designing a chip that would be very difficult to manufacture with high yields.

 

[vegetassj4]

AAPL needs the help, have you seen the stock price the last two days.

 

[JapanApple]

Shocking but not uncommon for very high sophisticated equipment failing first attempt at high production. But if things go on it’ll be corrected. It’s just the way the game is rolled

 

[OhMyMy]

Only a company with Apple's influence can get away with this...

I’m sure you’re perfectly fine with paying for your defective iPhone then

 

[SFjohn]

Sounds like TSMC is getting a high yield of 3nm chips for the iPhone 15s… 👍🏻

 

[teknikal90]

AAPL needs the help, have you seen the stock price the last two days.

Now click "1Y" and see the YTD.

 

[gpat]

Don't worry TSMC, even with your generosity, Apple is still going to raise prices on the 15 Pro.

 

[deconstruct60]

Chip supplier TSMC has taken the unusual step of not charging Apple for defective 3nm chips ahead of the introduction of the iPhone 15 Pro and the A17 Bionic chip, The Information reports.

....
Since Apple's orders from TSMC are so large, it can apparently justify absorbing the cost of defective chips. Apple's willingness to be the supplier's first customer for new manufacturing processes helps it pay for the research and development of new nodes, as well as the facilities to make them.

Apple's extremely large order means it makes even LESS sense for TSMC to soak up the defective dies. That would just mean even bigger losses for them; not more profits.

Coupled with the reports that no other very large players are selecting TSMC N3B , this is quite suggestive of this being a 'consolation' prize that Apple is getting because TSMC is going to kill off N3B a bit quicker than they normally would. Apple saves some money on bad N3B dies but has to spend extra money over relatively short term getting off N3B . ( e.g., the rumored 'midlife' re-spin of A17 on N3E ). Both sides are taking a 'hit' . Paying for bad die is just TSMC's 'half' of sharing the 'pain'.

Trying to spin this as a 'good thing' for Apple is likely slightly detached from reality.

Making TSMC pay for bad dies very likely contributed to even slower ramp to 'high volume manufacturing' status for N3B. And decent chance contributing to a slide on M3's generation's arrival.

The size of Apple's orders also enable TSMC to more quickly learn how to improve and scale up a node during mass production.

Actually likely not if Apple makes TSMC pay for ALL of the bad dies. Pretty likely TSMC will trottle the wafer run rate to minimize the losses they rack up. There were reports earlier in the year that around Feb-March time frame TSMC N3B run rate was only at 50% capacity. It is large enough to get feedback , but slow enough so that TSMC doesn't rack up too large of losses.

N3B also reportedly takes around 4 months to go from blank wafer to finished die. Even if TSMC is dong 1,000's of wafers per month the feedback cycle is elognated. Even more incentive to keep the utilization rate lower until the better feedback arrives.

So yeah perhaps Apple 'arm twisted' TSMC into soaking up some losses here, but doubtful Apple is taking no hit on 'time to market'. Mac unit sales are drifting down so maybe Apple doesn't care as much , but they are also taking a hit with this shifting of risk onto TSMC. If it results in Apple being kicked off of N3B in ~2years there is also a cost to that too.

Once production and yield issues with manufacturing 3nm chips improves and other customers seek the technology, TSMC can demand higher prices from those clients, as well as charge for defective dies.

That's part of the issue being swept under the rug here. Likely this is about TSMC N3B and not N3E (and its follow ons. ) . There is hardly anybody coming later for N3B. All the bragging about "Apple's orders are so big". Apple's orders are not big enough to lifecycle sustain a process long term all by itself. ( when Apple moves the leading iPhone to another process they need other folks consuming the now 'older' process to keep selling the A-serie that trickles down the product line like plain iPad/AppleTV (and continues in n-1 and n-2 phone sales).

 

[Jerry Fritschle]

They should not be charging!

We, as consumers pay high/premium prices for our precious iPhones. No one deserves a defective chip!

Who said that the defective chips are actually put into products?

 

[ghanwani]

Makes sense, I only pay for known good iPhones.

That's what you think. Hidden in the price you pay, among other things, are all the costs of returned and defective iPhones.

 

[Unregistered 4U]

They’re single-handedly funding the N3 node, so it’s not “getting away” with anything. Apple put up billions in capital investment to get this node up and running. Without them, N3 wouldn’t be produced.

Only companies with billions of dollars can get away with obtaining billions of dollars of stuff! It’s just not fair!

 

[BorisDG]

Sounds like TSMC is getting a high yield of 3nm chips for the iPhone 15s… 👍🏻

Around 85% which is not bad, but not perfect/optimal for sure.

Unusual? What kind of moron pays for broken materials?

They can build other products from the "defective" chips. Look at A15 for example. It has so many variations, because of yield issues:

Full A15 (5 GPU / 6 CPU cores):

• iPhone 13 Pro/13 Pro Max/14/14 Plus

Binned A15 #1 (4 GPU / 6 CPU cores):

• iPhone 13/13 Mini, SE (3rd gen)

Binned A15 #2 (5 GPU / 6 CPU underclocked cores)

• iPad Mini 6

Binned A15 #3 (5 GPU / 5 CPU cores - 1x Blizzard efficiency core disabled):

• Apple TV 4K (3rd gen)

 

[rumorphobe]

Chip supplier TSMC has taken the unusual step of not charging Apple for defective 3nm chips ahead of the introduction of the iPhone 15 Pro and the A17 Bionic chip, The Information reports.

The iPhone 15 Pro is widely rumored to feature the A17 Bionic chip – Apple's first chip manufactured with a 3nm fabrication process. The 3nm node allows transistors to be even more densely packed, resulting in better performance and efficiency.

Introduction of upgraded chip technology like 3nm involves the production of a high number of defective chips until the manufacturing process can be perfected. According to The Information, TSMC is only charging Apple for "known good dies," with no fee for defective chips. This is highly unconventional, since TSMC clients usually have to pay for the wafer and all of the dies it contains, including any defective ones.

• 3nm Apple Silicon: What Is It and Why Does It Matter?

Since Apple's orders from TSMC are so large, it can apparently justify absorbing the cost of defective chips. Apple's willingness to be the supplier's first customer for new manufacturing processes helps it pay for the research and development of new nodes, as well as the facilities to make them.

The size of Apple's orders also enable TSMC to more quickly learn how to improve and scale up a node during mass production. Once production and yield issues with manufacturing 3nm chips improves and other customers seek the technology, TSMC can demand higher prices from those clients, as well as charge for defective dies.

Article Link: TSMC Not Charging Apple for Defective 3nm Chips Ahead of iPhone 15 Pro Introduction

TSMC cant afford to let Intel steal Apple’s foundry business

 

[gpat]

Who said that the defective chips are actually put into products?

It depends on the kind of defect we're talking about.
Binned chips are used on entry level products all the time. Like the 7-core GPU M1 or the 4-core GPU A15.
If these are the yields, we'll almost certainly get the full A17 on the iPhone 15 Pro, and the binned version (less CPU/GPU cores, same efficiency) on the iPhone 15.