Why This Apple Inc. iPhone 8 Speculation Doesn't Make Any Sense

By Markets Fool.com

Image source: Apple.

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According to an article published in the Wei Feng network, Apple's (NASDAQ: AAPL) next-generation smartphone processor, which is likely to be marketed as the A11 Fusion, will be manufactured in Taiwan Semiconductor Manufacturing Company's (NYSE: TSM) 7-nanometer chip-manufacturing technology.

The article suggests that TSMC's 7-nanometer technology, which is currently expected to go into mass production in the first quarter of 2018, could be pulled into the fourth quarter of 2017. Such a pull-in, the report suggests, could allow Apple to build the A11 chip in the more advanced 7-nanomter technology rather than, as widely expected, TSMC's 10-nanometer technology.

Here's why that doesn't make much sense.

Late 2017 mass production would still be too late

Even if TSMC were to get its 7-nanometer technology ready to go for mass production in the fourth quarter of 2017 -- to be extremely generous, let's say production begins on Oct. 1 of next year -- that still wouldn't be early enough to support the iPhone 8 ramp.

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Remember, it's a very long road from the production start of a key component that goes inside the device to millions, if not tens of millions, of devices shipping to customers.

First, it takes about three months, give or take, to produce a finished silicon wafer of chips, with a little more time on top of that to test and package those chips. After those chips have been produced, they need to be shipped out to the facilities where the device assembly is taking place.

Next, once the components all make it to where they will ultimately be assembled, it takes time to build and package those phones. After that, those phones need to be shipped from where they were manufactured to all of the different countries around the world in which they will be sold.

The bottom line is, TSMC would need to have its 7-nanometer manufacturing technology cranking out production chips in the May-June timeframe for Apple to reasonably be able to hit its launch goals. That's simply not in the cards.

Even if production could be pulled in, would it matter?

The fact is that it takes a long time to develop processors, especially ones as complex as Apple's A-series designs. More to the point, the manufacturing technology that a chip is going to be built on is decided years in advance, and there is a lot of work done to implement a chip in a given manufacturing process. In other words, a chip design targeted for some manufacturing technology requires non-trivial effort to be moved to a different technology.

So let's say TSMC could move 7-nanometers up enough such that it would be in production just in time to intercept the iPhone 8. Unless TSMC gave Apple notice of this pull-in well in advance, allowing the Cupertino-based smartphone giant to dedicate the resources to actually building a chip in 7 nanometers, Apple still probably wouldn't be able to build the A11 on this new technology anyway.

This speculation is false

Apple's A11 chip will almost certainly be manufactured in a 10-nanometer manufacturing process, very likely TSMC's -- the idea of a 7-nanometer A11 chip just doesn't make sense. However, I do expect that the A11X, which will probably power the new iPads that are likely to emerge in the spring of 2018, to be built on TSMC's 7-nanometer technology -- paving the way to a 7-nanometer A12 chip for the iPhone 9 later that year.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.