Apple is set to use Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC)’s 3 nm manufacturing process for its next-generation chips, including the M3 series processors for Macs and the A17 Bionic for some next-gen iPhones. Tsmc has reportedly offered favorable terms to Apple, including covering the costs of defective processor dies, in exchange for the large chip orders worth billions of dollars placed by Apple.

In the chip manufacturing process, silicon wafers are used to create multiple chips, which are then sliced into individual processor dies. It is common for some of these dies to be defective, either not functioning or not meeting specifications. Typically, chip designers have to pay for each die, even if it is defective. However, Apple’s significant orders with TSMC have allowed the company to avoid charges for defective dies.

This arrangement can lead to substantial savings, especially with a new manufacturing process like the 3 nm technology. The Information reports that around 70 percent of early 3 nm dies have been usable, though this percentage can vary depending on the chip being manufactured and improves over time as processes are refined.

Apple has become TSMC’s largest customer, responsible for 23 percent of the company’s $72 billion revenue in 2022. The exclusive agreement between Apple and TSMC for the use of 3 nm technology is expected to last for approximately a year until there is capacity for other companies to utilize it.

This collaboration between Apple and TSMC dates back to 2014 when Apple began using TSMC’s factories for its processors. While Apple previously used multiple sources, it has relied on TSMC for the majority of its chip manufacturing in recent years.

TSMC is a leading manufacturer of high-performance CPUs, GPUs, and SoCs for major chip companies worldwide. Companies such as Nvidia, AMD, and Qualcomm also utilize TSMC for their advanced products. Even Intel, historically producing its own Intel-designed chips, has turned to TSMC’s manufacturing capabilities for its Arc GPUs and certain components of its upcoming Meteor Lake processors.

While Samsung and Intel have also made progress in developing 3 nm technology, comparisons across companies are challenging due to variations in underlying technology. TSMC has maintained a lead over its competitors, but Apple could consider alternative options if TSMC fails to provide favorable terms in the future.

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