Apple Inc. Supplier Plans Risk Production of 5-Nano Tech in 2019

One of the most important parts of Apple's (NASDAQ: AAPL) iPhones is the company's custom-designed A-series processors that power them. Each year, Apple integrates new capabilities and improves the functionality of existing technologies in its chips.

These improvements directly touch virtually every part of the iPhone experience, ranging from the quality of the photos and videos that each new iPhone can take to the speed and quality of the games that iPhone users can enjoy on their devices.

Underpinning those improvements has been and continues to be improvements in chip manufacturing technology. Those improvements help to improve performance and power efficiency while at the same time allowing chip designers to keep chip sizes and chip costs in check.

Taiwan Semiconductor Manufacturer (NYSE: TSM), or TSMC for short, has been a critical chip manufacturing partner to Apple over the last four years, having been the exclusive manufacturer of three of the last four iPhone processors and one of only two manufacturers of the A9 chip that powered the iPhone 6s.

On TSMC's website , the company says that it plans to start risk production of its 5-nanometer technology (which I'll refer to by the designation "N5" henceforth) in the second quarter of 2019.

Let's look at what this means for Apple.

N5-based A-series chip in 2020

Risk production, a TSMC spokesperson tells me, "means that the technology has successfully reached a certain stage of reliability" and that TSMC can begin to take in customer chip designs and "begin small quantity production."

There's usually a lag time of about a year between when a technology goes into risk production and when chips based on that technology can start being built for sale.

For example, TSMC claimed risk production start of its N10 technology, which is used to build Apple's A10X and A11 Bionic chips found in this year's iPad Pro and iPhone devices, respectively, in the first quarter of 2016; first N10-based chips showed up in the market about a year later.

So, if TSMC plans to go into risk production on N5 in the second quarter of 2019, then this means that it should be ready for volume production about a year after that in the second quarter of 2020.

If TSMC doesn't suffer any significant bumps during N5 technology development, then the technology should be ready to crank out Apple's A14 processors in support of the 2020 iPhone launch.

Imagining an N5-based chip

TSMC's N5 technology should be a little more than three times as dense as the N10 technology that's being used to manufacture Apple's A10X and A11 Bionic processors today. This means that Apple will have a lot of room to increase the number of transistors in its A14 chip compared to the A11 Bionic chip available today.

For some context, Apple says that the A11 Bionic has 4.3 billion transistors (chips are made up of transistors). In the same physical area that the A11 Bionic occupies, an N5-based chip could house nearly 14 billion transistors.

That's just an insane number of transistors.

Although it might seem insane to imagine that kind of transistor count in a mobile processor, it's not too hard to imagine how Apple will spend that transistor budget. Apple is likely to substantially increase the CPU, GPU, imaging, and artificial intelligence capabilities of its chips in the coming years all while adding dedicated technologies to handle tasks that those of us outside of Apple have yet to dream up.

If you thought this year's A11 Bionic chip was impressive, then let me tell you: The A11 Bionic is going to look downright primitive compared to what we'll likely see in an Apple iPhone in just three years time.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.