Apple’s Plans To Source Chips From Arizona Is Big News

Apple’s plans to source chips from Arizona is a major step forward for American semiconductor manufacturing. Those chips will likely come from the new fab that Taiwan Semiconductor Manufacturing Company (TSMC) is building outside Phoenix, as that company is the sole supplier for Apples processor chips use in iPhones, iPads, and Mac computers.

Apple is a large customer for TSMC’s 5 nm process, and it is said to be getting ready for its 3 nm process. TSMC’s Arizona fab will have an initial capacity for 20,000 12” wafer starts a month, and it recently announced plans to build another fab adjacent to the first. This might be related to Apple’s announcement, as 20,000 12” wafer starts a month is miniscule compared to its capacity in Taiwan, where its fabs have an aggregate capacity exceeding a million 12” wafers per month. It’s Fab 18 in Southern Taiwan Science Park is believed to be where it is focusing 3 nm production, and reportedly is on track for production in the fourth quarter of 2022.

TSMC reports that their largest customer (presumably Apple) accounted for 26% of its revenue in 2021, while its second largest was only at 10%. More intriguingly, that share has been on an uptrend from 23% in 2019, and 25% in 2020. The company points out that there are only a limited number of customers who are able to operate in this space – namely designing their own semiconductors and dealing directly with foundries like itself. That suggests that Apple and the Arizona expansion are closely linked. The Arizona fab is slated to come online in 2024 with 5 nm production.

If indeed Apple shifts some part of its sourcing to Arizona, it will pave the way for other fabless companies such as QualcommQCOM
, AMD, and Nvidia to move some of their production there as well. Like Apple, all of them likely want to diversify their sourcing needs, and TSMC also likely would not want to have a fab dedicated exclusively to Apple. Apple CEO Tim Cook reportedly commented that “60% coming out of anywhere is probably not a strategic position.” But getting some of that production back on U.S. shores will be pretty strategic for the U.S.