I'd love to be a fly on the wall during these negotiations. Just to see what the heck they even talk about, what information each party comes armed with, and what kinds of concessions get offered.
I mean it isn't just a "we'll lower this" I bet there's lots of juicy confidential future roadmap stuff, things like "Ok we'll help you invest in this _____ tech and machinery but you have to knock off half a cent" or who knows what!
TSMC: you'll pay _____ or you can go to the other fab, oh right, you'll pay _____
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vendorSellingToBigBox: we would like _____ per unit of our product
bigBoxBuyer: that's nice. we'll pay 40%______ per unit. you'll sell extremelyLargeNumberOfUnits, and make it up in volume. oh, if you don't sell a minimum number, you have to buy all of the unsold items back from us. you'll also get the worst shelf space available compared to your competitors. i'm sorry you thought this was a negotiation.
The TSMC fabs aren't idling. Between AMD, Intel, nVidia, Broadcom, Google, Amazon, etc. They've got customers with more demands for their chips than they have capacity to provide.
If apple doesn't go to them, I think the only other option is Samsung? But I don't know that Samsung's fabs are open to third parties.
Well, the facts are a little different. Apple is 25% of the volume on the latest nodes and Intel just had an awkward conversation with TSMC saying "Oh, those orders, no, we actually meant the year after", so Apple very much has TSMC "by the balls".
Samsung has produced parts for others for a Very Long Time, most famously NVIDIA (not "nVidia" since many decades) use(d) them.
> If apple doesn't go to them, I think the only other option is Samsung?
Shorter-term that's true.
Apple is well known at times to think longer term on logistics, strategy. If push comes to shove, there are two additional options for Apple.
1) Political. Taiwan not being China depends on the support of the US. Apple is a economic security prize for the US, a strategic asset. Apple can get powerful politicians in the US to lean on Taiwan, which can dictate TSMC's behavior to an extent. This would prompt increased compromise from TSMC (3-4% hike, not 6%).
2) Apple starts investing into fabs and builds a TSMC competitor from the ground up, perhaps in alignment with ASML (Europe very much wants an improved semiconductor context) and a few US partners (build the fabs in the US and Europe for national security purposes). Apple is one of the few companies where you have to take this potential seriously, they can safely bankroll it entirely by themselves if necessary.
It can get worse. At one point Walmart mispriced a product then came after my company for the loss. That was an awkward moment. Edit: even worse, now customers expect the lower price, eroding your pricing power.
Walmart will also do this intentionally to their vendors, or engage in what I call temporal arbitrage.
It hurts Walmart as a business very little to stop selling Vendor X goods on their shelves when there are substitutes available. However, for Vendor X it's often the case that Vendor X cannot adjust their output as quickly as Walmart can take the product off shelves. That action, taking them off the shelves for even a short period of time while Walmart presses for renegotiating terms can result in layoffs, loss of revenue could result in lines of credit drying up. It's an existential threat to a company because they can't scale up and down at the speed Walmart demands.
If I recall correctly there's a record of this happening with Rubbermaid, and they responded to Walmart's demands for prices by cutting costs, cutting corners with quality, and ultimately sullied their brand name.
You should, because this kind of behaviour ripples through so many companies, that I wouldn't be surprised if you actually not on the receiving end of things.
Retailer lowballs the manufacturer. The manufacturer then needs to lowball someone too, probably starting from its employees. Also the supplier who can be anything from local hardware store to some IT giant.
I think another upshot is that it ends up making all consumer products "lowest common denominator" consumer products. It's a vicious cycle:
Step 1: Company has a great product. Walmart begins stocking it nationwide, perhaps promoting it to increase their marketshare. That product's revenues explode, they expand, everything seems great.
Step 2 to N: Then Walmart threatens to pull from shelves unless they can meet the cost of $substituteGood. The company cuts costs to make it work. Rinse and repeat.
Step N+1: The product is no longer great.
This is exactly what has happened with Rubbermaid and with countless other consumer goods.
There's a book called The United States of Wal-Mart that details a lot of the damage that Wal-Mart has done. I wouldn't be surprised if there's a follow up for Amazon.
Apple is famous for pre-buying and covering upfront costs for new node processes at TSMC. TSMC has the best tech, but apple has the biggest purse. Even apple deciding to stay on existing nodes and not fund the latest one can probably affect their finances, especially when apple is 25% of their income
You can actually deduce the vendors that have influence on the big box buyers if you look carefully enough. And some of the vendors will tell Walmart/Costco to take an airborne intercourse course against rolling pastries.
Others will sell a white-label or generic brand to them. After all, it's just business.
Look for large big box stores that conspicuously have a product line absent, or only have a very defined subset of the product available.
For awhile iPhones were just completely missing from some larger stores, but it seems Apple has the upper hand there now and they're back in business. And even now Apple holds a very right reign on the prices charged (Best Buy seems to have the most leverage here, as they often sell new MacBooks for a bit lower than the Apple Store). This is one of the reasons Apple started the stores; gives them leverage against the retail giants.
There are a number of brands you'll never see at Costco; they don't play the game.
Supply chain shortages means you used to see an item, but it is not available at this time. Vendor arrangements means you've never seen Del Monte can corn at Costco, but you've seen Kirkland can corn that tastes just like Del Monte's.
> TSMC: you'll pay _____ or you can go to the other fab, oh right, you'll pay _____
It wouldn't be easy for Apple to just go to another fab. They'd have to find another vendor with the capacity and then they'd have to tweak things to match the new fab's design rules. Not trivial for something like M* chips. I suspect Intel would be happy to have Apple in their nascent foundry biz, but not sure they would have the capacity right away and also suspect the design would require a good amount of tweaking to get it in production in an Intel fab.
That's the point of the comment I made. TSMC knows that Apple can't just jump ship to another vendor. There isn't another vendor that can do what Apple needs. Currently. As long as that is true, Apple is stuck at TSMC.
Apple could say that they will accept the 6% increase, but then lower their investment in new fabs 6%. I honestly don't know which number is bigger.
Remember that Intel's fabs are waiting in the wings and that I would bet dollars to donuts that Intel is talking with Apple.
TSMC's position in that context is less strong than you'd imagine, especially since Apple has to be thinking that they want to diversify away from Taiwan and China to avoid "Russia risk" of having their supply shut off to zero suddenly when China does something crazy.
No way they could switch in under 5 years. TSMC provides design guidance and knowledge that will be deeply embedded in the design of their chips. It’s not like a print shop where you can send over a pdf.
I agree with the diversity angle though. Tim Cook seemed really slow to recognize it, but the last few years apple has accelerated shifting manufacturing. India will now be joining China in producing their latest phones (14), which is a big first.
Murdoch e-mails are nice in that they nicely highlight the multiple fronts nature of negotiating where you can often find compromise by shifting how you approach the problem.
The way Jobs closes it is quite unusual however because in this case NewsCorp were late movers. Apple had already reached terms with all their competitors and could put on the table a take it or leave it offer which Murdoch couldn’t refuse.
I was part of the team in charge on negotiating the termination of an on-going contract involving a potential settlement in the low teens millions of dollars between two huge industrial companies once. Obviously it’s nothing as big as a deal between Apple and TSMC but still not an insignificant sum.
I was surprised by how straightforward the whole thing went. Basically we had prepared our arguments: we knew the minimum payment we could justify, the maximum we thought the contract allowed them to ask, what we were aiming for and how much we estimated going to court would cost us and them. They had done the same. There were a couple of back and forth where one party made an offer, the other countered with another one explaining why what was asked didn’t apply and why it should rather be like so and so. At some point, we said that’s our last offer we won’t move anymore. They decided to agree and that was it.
What you witnessed proves bike shedding is real.
I'm in much smaller league when it comes to budgets, but lets just say I had longer arguments about a budget for a filing cabinet than a half year software project.
> I was surprised by how straightforward the whole thing went
Executives value their own time over anything else, and as such - they don't find it valuable to haggle over small details in lieu of just getting the deal done.
An even better equivalent would be the Apple-Microsoft negotiations in 1997, around Microsoft Office, IE-as-default, non voting shares, etc. I think TechEmails published a bunch of these.
Yeah absolutely. Another huge thing I got some window into at Qualcomm is technical validation. So Apple is going to be looking for proof that the chips deliver and TSMC is going to be pushing back against high expectations on that front.
Qualcomm is absolutely brutal as a vendor. They pursue % of revenue deals instead of selling chips at $Y. They can only get away with it for lte/5g because Broadcom and others totally dropped the ball.
> Most likely middle managers/directors emailing each other.
Pretty much like sovereign nations negotiating treaties.
Which is an apt metaphor, because neither Apple nor TSMC has the ability to force the other to do anything.
So, negotiations become a crawl to find a mutually-acceptable local optimum. Which ends up with both getting things they see as strategic priorities, while compromising on things they care about less.
Most of the dance is around figuring out what the other's strategic priorities actually are, and which concerns are secondary.
Or they have mutually-exclusove strategic priorities, in which case there is no deal.
Having worked at a company that got an Apple deal... It usually isn't a level bargaining table... And it isn't unusual for no profit to be made whatsoever on the Apple deal, because merely the rumour that Apple has signed a deal with your company has so many other benefits.
TSMC is in a stronger position than most suppliers, because they have really strong demand for their product and don't need the prestige that an Apple deal offers.
But Apple needs TSMC. Not saying you’re wrong, but TSMC also has leverage. TSMC doesn’t want to price Apple out, but at the same time, Apple can’t just pack up and go to a competitor. At the nodes they’re working at, going to a competitor could require a complete relayout with new design rules.
Apple 100% does need TSMC at this point and there is leverage both ways.
I suspect if Apple really wanted to they would probably start to produce their products in two lines like Nvidia did, with cheaper phones produced on something like Samsungs 4nm and the higher end phones on TSMCS 3nm.
This has the added benefit of diversifying their supply chain (to a degree), giving TSMC less leverage over Apple and potentially reducing the production cost of the lower end phones.
> I suspect if Apple really wanted to they would probably start to produce their products in two lines like Nvidia did, with cheaper phones produced on something like Samsungs 4nm and the higher end phones on TSMCS 3nm.
Wouldn't be the first time Apple has used multiple vendors for their SOC. The 6s for example had SOCs made by both Samsung (14nm) and TMSC (16nm).
No, but they can use their massive war chest and expertise to ramp up a competitor or become one themselves over the next decade or two. With massive corporate ships like TSMC and Apple it takes a long time to change course but they work on longer timelines so a big negative shift over a long time scale is an alarming signal.
Building your own semiconductor fab with good yelds that are profitable is monumentally more complex than all of those things combined. Why do you think only Intel and Samsung are the ones left at the cutting edge anf even they are struggling to keep up with TSMC?
If you think Apple can just buy their way into fab success, you don't understand the complexities of semiconductor manufacturing.
> If you think Apple can just buy their way into fab success
No one is saying they can "just" buy their way into fab success. However, I think they do have the cash and clout to make it happen on a decade long timeline, possibly in league with Intel/Samsung or the US Government, or all three, etc. Obviously that would be enormously costly and risky, but any move to eventually do so is a threat to TSMC, so even if they don't do it they have a negotiating position with TSMC right now because the relationship is enormously valuable.
> Sure, but how are they going to produce iPads and iPhones before then? They can't have more than a year's worth of CPUs stockpiled.
From TSMC chips. Basically if TSMC insists on raising prices to levels above what Apple is prepared to pay they can threaten to move away from TSMC eventually. If TSMC refuses to budge then Apple will have to pay the higher prices in the short to medium term and then expend capital to not be beholden to TSMC over the long term. So then the question is does TSMC value the relationship over the long term or do they value the higher prices in the short to medium term? That could be Apple's negotiating position.
Apple can't easily go to a competitor. They have the cash on hand to play kingmaker though. They could go to one of TSMC's competitors and make them into the new TSMC. TSMC's current position is largely due to Apple fronting huge sums of cash for them to develop new nodes. They get guaranteed sales at a generous price for the first few million chips off the line. There's few other players, if any, that could offer TSMC a deal like that.
Apple could with some pain replace TSMC but TSMC can't really replace Apple. While Apple is a demanding partner they pay their bills on time and can and do front R&D money. Once Apple's deliveries are made TSMC now has a money printer on the new process node Apple paid for.
I don't understand this comment: even if there were times in past years when AMD CPUs were significantly less performant and more energy-hungry than Intel CPUs, Macs with AMD CPUs that would have sold at least well enough to keep the Mac alive as a product line.
I don't think you can just drop a pile of cash and create a competitor to TSMC. Even some state actors can not achieve that. I think TSMC has leverage here, and it will have for long time to come.
Of course you can. China is doing it right now without ASML even. There is nothing special about TSMC here. It's just funding and time. If Apple wanted to I wouldn't doubt they could reach cutting edge tech level within 5 to 10 years. It would cost enormous amounts of money and would probably be a very bad business move. But technically there is no problem.
China is proof that you can not just create competitor to TSMC. China throws billions for decades and it still behind TSMC. They already lost chip war, that's why they are trying to catch up in some other new technologies - nuclear (fusion), AI, space etc.
China is proof you can just create a competitor of TSMC. It's simply a matter of poaching their underpaid talent.
> China throws billions for decades
PRC's first pseudo-serious semi push was 2014 big funds, so far they've spent about 50B, over 8 years. That's less than annual R&D of western semi sector. And basically for first 5 years it wasn't a very serious effort until Trump's Huawei sanctions. PRC semi poached about ~3000 semi engineers from TW, a few hundred top talent from TSMC, and that was enough to realize the recent 7nm breakthrough on DUV in the last couple years once PRC semi started to get serious. US companies wouldn't have any issue accessing western equipment and US could absolutely pressure TSMC / TW into further semi capitulation. So maybe dropping cash and add political sticks to brain drain TSMC. The secret isn't to recreate TSMC, but to paperclip all their people and get to to build US-SMC state side.
> lost chip war
That remains to be seen, so far there hasn't been any sector PRC couldn't successfully indigenize in relatively short order once central gov started turning the screws. It might not be leading edge, or even commercially competitive, but it will likely be enough. They could also destroy critical East Asian semi supply chain before US can reshore in next few years and be the only country with the most comprehensive indigenous semi supply chain even if on older nodes. Still lots of ways chip war can play out.
China is proof that you can do it within a decade. China at worst started a decade ago and for the majority of that time wasn't pushing hard, until Trumps sanctions hit. Now they have 7nm DUV. I don't see how this is anything but a huge success for China.
It may take time, and it may take more money than people want to spend, but I don't see how it can cost much more than half a trillion dollars, since you could just buy TSMC for less than that.
1) TSMC is not for sale. It's of national importance to Taiwan.
2) There is only one TSMC. If you could just buy one for 500bn the EU would have bought 3 already. Building your own TSMC from scratch takes a decade, if not longer.
The Chinese government, whose cash piles are even larger, has been unsuccessfully trying to do that for decades (i.e., produce semiconductors on the Chinese mainland high-end enough to go into a notebook computer that can compete on the global market).
They are not desktop or laptop chips though. Targeted at miners. If you are willing you could probably reverse engineer them and do some fun stuff. But they are definitely not general purpose.
They’re not quite equal. Apple needs TSMC but not newest node tsmc. TSMC needs apple to fund newest node. But apple can’t walk away entirely, because they need something from TSMC.
Apple is probably weaker because it’s likely someone else can fund the newest node for TSMC, just might take more work.
I'm half expecting Intel to start producing chips for others in the coming years. However I doubt that it's as simple as sending Intel the blueprints for the M3, there has to be some re-tooling on both ends I believe.
The conspiracy theorist in me wonders if they’ll join a secret lobby agitating for war between China and Taiwan, if Apple can’t get 6% off TMSC then no-one can. Then build a US based plant subsidized with taxpayer money.
How is this approach working out for China? Not snark, I genuinely want to know what resident experts think of the progress made by throwing vast sums at SoTA node fabs.
Clearly there's a level that Apple wouldn't pay (e.g. 100000000% hike), so there are definitely options up to and including cancelling plans to buy such chips from TSMC.
"The United States spends more on national defense than China, India, Russia, United Kingdom, Saudi Arabia, Germany, France, Japan, and South Korea — combined."
!?
And $200B is inside the consensus estimate of $200B to $300B. Wow.
Not to forget, Apple also controls the app store and billions of devoted fans with iPhone with push notifications /g. Seriously I am wondering when will we see a corporation go to war in a kind of futuristic Opium War sort of battle.
I'm not a fan of comparisons like that because they don't account for cost or standard of living between counties, just raw exchange rates. It would be especially pronounced when including countries like India and Russia.
You're right, but when the numbers are so lopsided on the US' favour, there's no way in hell that cost of living can account for such a stark difference.
I mean, the US has 20 aircraft carriers and the rest of the world has 28. The proof is in the pudding.
I have doubts that a fly posseses sufficient neuronal capacity to parse human language. Furthermore I'm also unsure if the hearing system of a fly would be sophisticated enough to capture the nuances of spoken language.
I mean it isn't just a "we'll lower this" I bet there's lots of juicy confidential future roadmap stuff, things like "Ok we'll help you invest in this _____ tech and machinery but you have to knock off half a cent" or who knows what!