Apple Inc. Supplier Talks About A11 Chip Tech

By Ashraf Eassa Markets Fool.com

Apple (NASDAQ: AAPL) supplier Taiwan Semiconductor Manufacturing Company (NYSE: TSM) reported its first-quarter earnings and held a conference call discussing the results, outlook, and technology development progress and ramp-up plans.

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It is widely believed that Apple's A11 chip, which will power the company's iPhone lineup this year, will be manufactured by TSMC using its brand-new 10-nanometer chip manufacturing technology.

Image source: Intel.

The 10-nanometer technology, TSMC has indicated previously, should enable performance and power benefits, as well as a significant transistor area reduction, relative to its 16-nanometer technology, which is currently used to produce some of Apple's A9 chips and all its A10 chips.

On TSMC's first-quarter earnings call, the company provided some insight into its progress and revenue expectations vis-a-vis the 10-nanometer technology. Let's go over what the chipmaker had to say.

Qualified for production, ready to ramp

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TSMC co-CEO C.C. Wei said that the 10-nanometer technology, referred to as N10, from "[research and development] to operation in both Fab 12 in Hsinchu and Fab 15 in Taichung and is ready for high-volume production."

Wei conceded that this technology is "very challenging," but claimed that the company's manufacturing yield progress is "slightly ahead of schedule" (although it's important to point out that without knowledge of the original schedule, this statement doesn't mean much).

Wei also explained that the production ramp-up of its 10-nanometer technology "will be very fast in the second half of this year" and said that the company expects 10-nanometer wafer shipments to contribute "about 10%" of the company's wafer revenue during 2017.

That's a lot of iPhone chips

Consider that TSMC's revenue from 10-nanometer chips in the first quarter was zero and that its revenue from 10-nanometer chip shipments in the second quarter is likely to be small. For it to make up 10% of the company's total revenue for the year, TSMC is going to need to ship a gargantuan amount of 10-nanometer wafers in the second half of the year.

There are only two potential chip vendors that could consume enough leading-edge wafers to drive the kind revenue that TSMC seems to be expecting, and one of them is already known to not be using TSMC, so we know it must be Apple.

What this means for Apple

For three product generations in a row, Apple has been forced to use manufacturing technology with roughly the same manufacturing density -- 20 nanometer for the A8, and 16 nanometer (which was 20 nanometer with higher-performance transistors grafted on) for the A9 and A10.

Apple has managed to increase the amount of performance and functionality of its chips in that time through architectural innovations, transistor performance improvements, and die size growth, but at some point, meaningful improvements without a bigger leap in manufacturing technology become harder to achieve.

With 10-nanometer technology, Apple should be able to substantially increase the number of transistors that it allocates to the functionality baked into the chip. This, in a nutshell, means greater performance and feature potential than what would have otherwise been possible.

It'll be interesting to see, come this fall, just how Apple chose to utilize this new 10-nanometer technology in its new iPhone models. Considering just how important this year's iPhones are, though, I'm expecting something awesome.

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Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.