[Apple Shockwave] ① Apple Revolution Shifted to 'Chip'... The Secret is the 'TSMC Alliance'

Apple, maker of iPhone and MacBook, teams up with TSMC to shake up semiconductor industry
Traditional Intel also faces crisis
'Made in America' semiconductor competition hinges on Apple
Samsung attempts fierce chase by allying with Qualcomm

Editor's Note[Apple Shockwave] is a content series that examines the upheaval caused by Apple entering the semiconductor market. You might wonder why Apple is involved in semiconductors. Apple is no longer just a company that makes smartphones and computers. After long efforts starting from the late founder Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the leader in the PC era, Apple has become the top predator in the mobile era semiconductor ecosystem. Amid the global semiconductor supply chain crisis and large-scale semiconductor production line investments, we will carefully examine the upheaval in the semiconductor market brought about by Apple Silicon and its future prospects to broaden our readers' insights. Apple Shockwave will visit readers every Saturday. After more than 40 installments, it will be published as a book.

[Asia Economy Reporter Baek Jong-min] # Mr. A purchased an Apple iPhone 13 Pro Max after waiting for a whole month a year ago. Although the consumer price was 1.6 million won, he opened his wallet without hesitation. He had used Samsung Galaxy S for over 10 years but had no regrets. While his colleagues used Samsung’s foldable smartphones, Mr. A did not hesitate. The folding feature was not important. After using the Galaxy S, which heats up quickly even with a little use, he tried his daughter’s iPhone and made up his mind. "I have to switch." The phone usage time was also ample. Although the iPhone battery is said to be large, it lasted much longer than Galaxy phones of similar size. About 10 years ago, when many started using the Galaxy S3, many thought the iPhone was convenient but its performance was inferior to Galaxy. What has happened since then?

# Recently, Mr. A bought a 2021 model used Apple MacBook Air laptop. Is he caught in the so-called 'Apple curse,' buying Apple Watch, AirPods, and iPad one after another after the iPhone? No. Mr. A just wanted to say goodbye to hot laptops. He disliked the heat rising to his wrist while using the laptop. He needed a true 'lap top' computer that could be used on his lap. Longer battery life would be a bonus. Mr. A’s face brightened after using the computer. Even after long hours, the laptop did not get hot. There was no noise to cool down the heat. It could be used all day without recharging. His daughter’s face turned serious using a 2019 MacBook Pro laptop. After just two years, her laptop made a loud noise called 'levitation.' It is the sound of the fan spinning to cool the heat generated by the computer’s CPU. His son, who recently bought a Windows laptop, also glanced sideways. Although the Windows laptop was more expensive, performance tests showed Mr. A’s MacBook was superior. Mr. A thought, "Did Apple torture aliens to make this MacBook?"

# Mr. B, an iPhone user, was surprised after handling the Samsung Galaxy S23 announced by Samsung Electronics. The Galaxy S23 was not as hot as before. It was not the old Galaxy that emitted intense heat when playing games. Its performance soared to match the iPhone. High-performance games were no problem. "Should I switch back to Galaxy instead of the iPhone, which does not even allow call recording?" Mr. B’s mind became complicated.

Apple's M1 chip, designed and introduced in-house.

iPhone Overcomes Galaxy S Threat...The Answer is Semiconductors

The answer to the changes felt by Mr. A and Mr. B lies in semiconductors. It is the change brought by Apple Silicon that Apple introduced. Apple Silicon is a semiconductor designed by Apple and manufactured by Taiwan’s TSMC. Most Apple products, including iPhone, MacBook, iPad, AirPods, and Apple Watch, contain A, M, W, and H series chips. As Apple Silicon boosted the performance of Apple products, the semiconductor industry as well as the computer and smartphone markets were caught in the aftershock. Now, those who can chase Apple will survive, and those who cannot will be eliminated. The competition for victory is not over yet.

Apple led PC development from the 1970s to the early 2000s through Apple II, Macintosh, and iMac. Many recognized the excellence of Apple products. The design was top-notch, and the operating system (OS) was the best. Despite releasing the best products, Apple was pushed into crisis. The problem was the heart, the central processing unit (CPU).

Apple lacked a semiconductor to support the OS, which acts as the soul of the computer, and to serve as the heart. The externally sourced 'heart' was weak, so Apple lacked the final push in every race. They tried cooperating with Motorola and IBM, but it was futile. Eventually, in 2006, Steve Jobs started using CPUs from Intel, the world’s largest semiconductor company, in Apple computers. Since Intel chips outperformed the chips Apple used, it was an unavoidable choice.

Currently, apart from CEO Tim Cook, Apple has no 'star' executives. Steve Jobs, the founder who was synonymous with Apple, Scott Forstall, known as the father of the iPhone, and designer Jony Ive, who led Apple’s innovation with Jobs, are no longer at Apple. The 'Avengers-level' dream team formed by Jobs is gone. The only remaining figure is CEO Cook. By personnel composition, Cook’s Apple should have been in decline. The market expected so. Negative views outweighed positive signals right after Cook took charge of Apple’s management. The stock price fell. Criticism of lack of innovation followed every time a new iPhone was released.

Cook’s magic erased doubts about him. The 'final execution sword' Cook pulled out amid criticism of lacking innovation was Apple Silicon. The heart made by Apple overwhelmed Samsung and Intel. iPhones and laptops using Apple chips began to outpace competing products.

Apple does not manufacture chips directly. Logistics expert Tim Cook entrusted chip production to Taiwan’s foundry (contract manufacturing) company TSMC, which does not compete with Apple. As results came, Apple removed Samsung’s and Intel’s chips from its products.

The newly implanted 'Designed by Apple, Made in Taiwan' chips led Apple to become the world’s most valuable company. Long lines formed in front of Apple Stores, and earnings soared daily. Those who used to talk about Intel CPU brands like 386, 486, Pentium, and Core 2 Duo now remember M and A.

Apple’s rapid rise has transformed the semiconductor ecosystem. As Apple’s achievements grew, TSMC, which produces Apple semiconductors, also grew in size. The more TSMC proactively installed ASML equipment, known as the 'super subcontractor' in the semiconductor equipment industry, and applied advanced fine processes, the better Apple Silicon’s performance became. The combination of Apple and TSMC resulted in a market capitalization of $3 trillion and the world’s number one semiconductor sales company. Meanwhile, Intel, once the world’s largest semiconductor company, fell to third place. Samsung maintains its number one position in memory semiconductors but is losing ground to TSMC in foundry.

Will the fierce joint attack of Apple and TSMC last forever? The counterattack has begun. Samsung excluded its self-designed chip 'Exynos' from the Galaxy S23. There was no mercy for Exynos, which only left big wounds. Samsung’s resolute will to abandon even its own child is evident. The securities industry noted that Samsung does not reduce semiconductor production to maintain market share, but Samsung’s decision not to use its own designed chip in strategic smartphones is a challenge comparable to production cuts.

Samsung, after deep reflection, teamed up with longtime ally U.S. semiconductor company Qualcomm. It is a strategy to defeat Apple. Even though Qualcomm switched its client from Samsung foundry to TSMC, Samsung chose Qualcomm. The signs are good. In many benchmark tests, chips provided by Qualcomm to Samsung showed performance comparable to Apple.

[Image source=Reuters Yonhap News]

Now the ball is in Apple’s court. To maintain the gap with the Samsung-Qualcomm camp, the Apple-TSMC camp, which must defend, needs to evolve. If they falter, they may allow Samsung-Qualcomm to overtake them. Intel cannot be pushed aside like this either. The history of the semiconductor market proves this. There is no eternal winner.

Another name for Apple Silicon is the future of 'Made in America' semiconductors. The U.S. government’s semiconductor supply chain recovery aims to manufacture cutting-edge chips in the U.S. Did the U.S. enact the semiconductor law and allocate a huge $52.7 billion package just to produce low-end automotive semiconductors? Certainly not. CEO Cook said he would use 'Made in America' chips. Samsung, TSMC, and Intel are already building semiconductor production lines in Arizona, Idaho, and Texas with U.S. government support. Apple holds the leash of these semiconductor companies. Now, let’s start the full story about Apple.