TSMC can charge as much as the market will bear. Nvidia already moved their production once to Samsung for the 3000 series GPUs just to call TSMCs bluff.
TSMC are the best in town, but they're also not the only game in town. Pretty sure Intel and Samsung are constantly tempting Nvidia with good offers, which Nvidia can use as leverage in negotiations to keep TSMC prices in check.
It does seem strange, because ok there’s competition, but there’s very limited competition – we’re talking maybe five or six chip manufacturers? And it seems they would all know the metrics of price and can ratchet upwards what they would charge Nvidia, like a cartel without officially forming a cartel.
If TSMC doubled or 10x what they charge Nvidia on Monday, Nvidia can’t switch suppliers overnight, and it would crash Nvidia’s valuation, leaving TSMC to say “ok we have the capacity for anyone who wants to take on Nvidia”.
Another side of that, while the whole “China invading Taiwan thing” isn’t exactly on the cards, there’s now $1+Trillion at stake shorting Nvidia stock alone if China felt like putting a few boots on the ground for a week.
>If TSMC doubled or 10x what they charge Nvidia on Monday
Chip manufacturing isn't like selling lemonade. You're not paying spot prices. You negociate fixed prices upfront for the duration of the manufacturing contract with various exit clauses and penalties for both sides.
>Nvidia can’t switch suppliers overnight
They can't switch overnight, but you also don't make good business by screwing over your customers for a one time hitjob just because you've locked them in for a few years. That trick will only work once. After that they'll avoid you with a 3,048 meter pole.
You stay afloat by building long term trust with your customers.
>Fascinating, for whatever reasons, I thought they were years ahead, and Nvidia’s (and apple) only option.
It's easy to get that impression based on all the recent talk about TSMC and Taiwan's importance to the global economy. My understanding is that while TSMC is currently ahead, the lead over Intel and Samsung is very slight. Intel was historically the global leading-edge producer until relatively recently, and there is no reason to think that it (or Samsung, or even someone else) cannot regain the lead. Intel is, as I understand it, the first purchaser of ASML's newest lithographic machines, in hopes of leapfrogging TSMC.
Theres a very recent comment from the CEO stating something similar... But historically it's seemed they've allowed their customers to take most of the margin.
They should have a lot of leverage being on the most advanced node, but doesn't seem they use it.
Likely a cultural thing, but if somebody has more insight would be curious
Nvidia is getting ~90% margins on their cards, which are manufactured by TSMC. Nobody else can manufacture to the same levels of density/performance/efficiency. TSMC is clearly not capitalizing well on their process advantage.
Apple and Nvidia can switch to other fabs, but performance and competitiveness will be impacted. TSMC seems to be running more like a charity than a business with the amount of margin their customers get on their products (both Apple and Nvidia)
