Apple drives the semi industry harder than Wintel ever did: Is winning Apple’s chip business a pyrrhic victory? Is 14nm done before it starts? Too short to be profitable?
Chips marching to an Apple cadence…
In the “old days” when Wintel ruled the roost and drove the semi industry, it was driving spending cycles based on new versions of Windows that stimulated unit volume of PCs and thus chips.
New versions of Windows did not specifically demand nor require new technology nodes of Intel processors which were released at the standard “Moore’s Law ” cadence. Windows releases and Intel technology nodes were not interdependent and were relatively loosely linked. It was a “nice to have” if new processors came out at the same time as a new version of Windows but it wasn’t a “must have”
In today’s world, a new version of the iPhone can’t be released unless a new processor is inside to drive it to new heights. The product, processor and software are inextricably linked.
Given that Apple is driving the train with its fall, seasonal roll out of the new iPhone every year, everybody else, who supplies Apple (this means semi suppliers) has to be on board or be left behind at the station. In essence this means that Apple is setting the schedule for the next semiconductor technology node roll out, not the semiconductor industry itself or Moore’s Law as it had previously been.
Apple is forcing and imposing a schedule upon its suppliers, which may be different than a “natural” cadence and likely negatively impacts those who are forced to follow.
Is 14nm done before it even starts?
We are amazed by the level of BS in the industry that competing players are throwing around about 14nm and now 10nm. Both Samsung and TSMC are pushing their competing press releases about 10nm in 2016 before the ink is even on the paper for 14nm orders.
Going by whats in the trade rags and around the industry, we have moved on so quickly from the issues of 14nm and FinFET on to who has the lead at 10nm it makes my head spin. Apple won’t have a product out until the fall and we have already started to talk about who will win the A10 for 2016.
If we believe the hype (and I’m not sure wether we do or not…) it sounds like 14nm will be another “lite” node much like 22/20nm was. The last “good” node being 28nm. However there are those in the industry that say that 10nm will be another “good” node much like 28nm.
It feels like 14nm is already “old news” and the PR wars and jockeying for position at 10nm is even more severe than it was at 14nm….and who does this all benefit??….Apple.
Is Apple chip business a “loss leader”?
When you take into account the massive effort to ramp, the less than ideal yields and the competitive positioning needed to win Apple’s business its not likely very profitable at the end of the day.
One of the main reason’s we would suggest this is that the cost of manufacturing semiconductors is primarily the amortization of the manufacturing costs over as many years and products as is possible. If Apple forces chip makers to move on before they get a chance to amortize the cost of equipment and R&D needed to get to that technology node then how do you make money? Certainly not on Apple. The only way you can make money is by trying to amortize that cost on the backs of trailing technology companies and no one wants to pay up for what is perceived as trailing edge devices.
We think that Apple has made it a more dangerous, potentially much less profitable game by both compressing the technology nodes and forcing them to their own cadence.
Cook’s Law..
“Supplier competition goes up exponentially with each new supplier or technology node added”
The semiconductor industry may be just as much a slave to Apple’s whims as are the Apple slaves at the Foxconn factories in China. Walmart may have a million employees in the US but Apple has more if you count suppliers globally.
If you are going to be a slave at least be a high priced slave. We have a hard time seeing the semiconductor industry getting better profitability out of Apple given the current competitive supplier dynamics involved.
We don’t see this changing soon as neither TSMC nor Samsung are likely to drop out of the race. Maybe Apple kicks Samsung to the curb again just to remind them of their place as a supplier but they will keep coming back. Maybe Global Foundries has the right idea as they are currently working on Qualcomm 14nm parts and not Apple A9. Maybe they figured out it was a bad game to play or maybe they were just too late. Apple has been the maestro of playing its suppliers and they continue to write the rules and set the standards
Can equipment companies win?
One would think with technology nodes coming fast and furious that equipment companies would be rolling in orders but that is obviously not the case. So where is the disconnect? Business is good but not great on the foundry side of life. Could it be that chip companies recognize that we have “lite” technology nodes, that are relatively short lived and are spending accordingly to not invest too much money in a node thats over as soon as it starts. Could it also be that the equipment for older nodes can get rolled over into new nodes and “reused” more quickly as not as much capacity is needed at trailer nodes as used to be the case in the past?
Even given these two factors its still going to be hard to not spend incremental money when you start talking about quadruple patterning at 10nm and below. Lots of etch and dep tools, lots of stuff to go wrong needing yield management. EUV is nowhere to be seen at 10nm and 7nm may be “iffy”.
Likely positive WFE spend trends at 10nm…
If 10nm turns out to be more than the “lite” 22/20nm node or what seems like a “lite” 14nm node that would obviously be good for the likes of Lam, AMAT & KLAC. Less so for ASML.
As far as the stocks go, we remain positive on Lam and KLAC, feel that AMAT is fully valued and ASML is overvalued…..based on these longer term trends. These should be interesting topics at the upcoming SemiCon West show……
Robert Maire
Semiconductor Advisors LLC
Also Read: Why does Apple do business with Samsung?
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