Apple Silicon: As demand grows, is TSMC driving a harder bargain?

"The gold rush across the high-end processor market might help Apple's processor manufacturing partner, TSMC, drive harder bargains than in the past. That's because Apple's huge appetite for processors is being met by fast-growing demand for chips for servers. As a result, the cost of the chips used inside Macs, iPads, and iPhones will likely increase, putting even more inflationary pressure on Cupertino's bottom line."

"Apple has been TSMC's biggest customer for years. The relationship began with the iPhone, expanded into chips for iPads, and got a pretty cherry popped on top when Macs adopted Apple Silicon chips - also made by TSMC. Apple leads the industry, so in the last few years, demand for Arm-based chips grew swiftly as the industry chased in its wake."

"This is particularly evident in servers for artificial intelligence; companies like Nvidia and AMD are knocking at TSMC's doors, demanding chips for servers that haven't yet been built for AI server farms not yet deployed to meet anticipated demand for an industry now using money it will have to pay back to investors. (That's likely to continue until the AI bubble bursts.)"

A gold rush in high-end processors strengthens TSMC’s bargaining position versus Apple. Apple's very large processor volumes now face competing demand from fast-growing server-side chip orders, especially for AI workloads. Companies such as Nvidia and AMD are placing aggressive orders for server chips that are intended for AI deployments. That competition for constrained manufacturing capacity will tend to raise unit costs for the chips used in Macs, iPads, and iPhones. Higher chip costs will increase inflationary pressure on Apple’s profit margins. Much of the server demand appears speculative and driven by investor-funded expansion, which could reverse if the AI investment cycle cools.

Read at Computerworld