[Apple Shockwave](26) iPhone Users First to Experience 3-Nanometer Chips

Apple to Use A17 Chip in Expected iPhone 15 Launch Next Month
3nm Process Semiconductor, First Opportunity to Verify Consumer Performance
Significant Performance Improvement Expected Compared to 5nm and 4nm Chips
TSMC Expected to Exclusively Supply 3nm Semiconductors to Apple for One Year
Competitors Can Secure 3nm Chips Only After One Year
Overcoming Process Evolution Performance Gap Not Easy
Qualcomm and Other Apple Competitors May Choose Samsung's 3nm Process

Editor's Note[Apple Shockwave] is a content series that explores 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 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 and prospects in the semiconductor market brought about by Apple Silicon to broaden our readers' insights. Apple Shockwave will visit readers every Saturday. After more than 40 installments, it will be published as a book.

"The 3-nanometer chip to be used in the iPhone 15 Pro will be on a level that cannot be compared to other phones for the time being." (IT device specialist media Tom's Guide)

One nanometer (nm) is one billionth of a meter. It can be thought of as one hundred-thousandth the thickness of a human hair. There is a lot of discussion about nanometers in semiconductor news. While good design is important, the performance of a semiconductor is largely determined by how small the circuit width can be manufactured.

Currently, the global semiconductor industry, as well as the smartphone, PC, and other IT-related sectors, are focusing on the evolution of the 1-nanometer scale. General consumers also have plenty of reasons to pay attention to this evolution.

Latest semiconductors, which were made through 10nm, 7nm, 5nm, and 4nm processes, are now on the verge of entering the 3nm era. This marks a turning point where semiconductor performance, which had stagnated after 5nm, is expected to improve significantly once again.

Expected image of iPhone 15 Pro. Photo by Ice Universe Twitter

Recent semiconductor competition is often described as a battle over manufacturing processes rather than just design. This is because the era of integrated semiconductor companies handling both design and production has ended, and foundries specializing in contract manufacturing have become dominant.

Taiwan's TSMC, a contract semiconductor manufacturer, began operating its 3nm process at the end of last year. Samsung announced the world's first 3nm process launch earlier in June last year.

Companies have explained that the introduction of the 3nm process will lead to "longer battery life," "reduced heat generation," and "improved performance," but consumers found it difficult to perceive these changes. This is because there were no PCs or smartphones using semiconductors produced by the 3nm process yet.

The performance of 3nm semiconductors will be directly experienced by consumers this September, or at the latest October. This will be through Apple's iPhone 15. The 'A17' chip, expected to be used in the iPhone 15 Pro and 15 Pro Max, will be the protagonist opening the 3nm semiconductor era.

It is certain that the iPhone 15 will use both A16 and A17 chips. Last year, Apple used A15 and A16 chips in the iPhone 14. The iPhone 14 contained the A15 chip used in the iPhone 13, while the iPhone 14 Pro included the newly developed A16.

Although the A16 chip is the latest, it did not represent a dramatic performance leap compared to the A15. This is because the 4nm semiconductor manufacturing process did not improve significantly over the 5nm process. For users of the iPhone 13, there was little reason to replace their phone after just one year. The recent decline in iPhone sales is not unrelated to this phenomenon. Savvy consumers are delaying purchases while waiting for the A17.

It is difficult for semiconductor performance to show dramatic improvements every year. Intel's past 'Tick-Tock' strategy, alternating between design and process changes, reflected this characteristic. Intel led the industry by changing CPU design one year and manufacturing processes the next.

The era of sub-10nm processes has begun, led by Samsung and TSMC in the foundry era. Fabless companies, i.e., semiconductor design firms, must wait for foundry companies to refine their processes. As miniaturization advances, introducing new processes becomes more challenging. Reducing from 10nm or 7nm to 1nm is easier compared to reducing from 4nm to 3nm. After 3nm, the 2nm process must also be introduced. The 2nm process is a highly difficult task, requiring a 50% reduction in circuit line width from 3nm. Many consider 2nm to be practically the physical limit.

Therefore, more attention is focused on the 3nm process A17 chip designed by Apple and manufactured by TSMC. The achievements of the A17, which opens the 3nm era, will be a benchmark not only for Apple but for all semiconductor, smartphone, and PC industries preparing for the 3nm era. It is also a window into the future of foundry competition involving TSMC, Samsung Electronics, and even Intel.

Apple Leading by Sweeping Up TSMC's 3nm Supply with Buying Power

The Information has learned that TSMC has achieved a wafer yield of 70-80% in the 3nm process ahead of the iPhone 15 launch this September. This greatly surpasses earlier reports of about 55%. In early July, Hi Investment & Securities reported that Samsung's 3nm yield had surpassed 60%, raising expectations, but TSMC's 3nm process is also entering full swing.

The contract details between Apple and TSMC also seem to be somewhat settled. The Information reported that TSMC decided not to charge Apple for defective A17 chips. While TSMC could charge more for good chips, Apple does not have to bear the cost of defective products. Apple, which accounted for 23% of TSMC's revenue last year, has gained the upper hand in price negotiations.

Chips produced from the same design on a single wafer do not all perform identically. Especially chips from the wafer's edges tend to have higher defect rates due to process characteristics. Therefore, most chip manufacturers distinguish between chips that meet design-level performance and those that do not, even if they come from the same design. Lower performance does not necessarily mean defective.

Qualcomm's Dilemma... Will It Also Allocate Volume to Samsung's 3nm Foundry?

More important than price is whether TSMC will allocate 3nm process volume to fabless companies other than Apple.

Apple is already known to have secured TSMC's 3nm process production capacity for one year. This complicates the industry's calculations. A prime example is Qualcomm, which makes Snapdragon chips competing with Apple's A-series. Qualcomm is also a major customer of TSMC. Qualcomm's Snapdragon 8 Gen 2 chip used in the Galaxy S23 is evaluated to have significantly narrowed the gap with Apple's A15 chip. This chip is manufactured using TSMC's 4nm process.

If Apple equips the iPhone 15 with the A17 produced on the 3nm process, the performance gap with Qualcomm's 4nm chips is expected to widen significantly. Qualcomm's recent efforts to narrow the gap could be diluted. To close the gap, securing 3nm process capacity is essential for Qualcomm. However, the industry estimates that Qualcomm will be able to supply chips using TSMC's 3nm process around 2025.

The prospect of Apple monopolizing TSMC's 3nm process for about a year also affects the status of Samsung, which currently has the 3nm process.

Although Qualcomm has experienced a decline in performance due to sluggish Android smartphone sales, it remains a major player in the semiconductor industry. After experiencing heat issues with Snapdragon 8 Gen 1 produced by Samsung Foundry, Qualcomm returned to TSMC. This was the unavoidable reason Samsung used TSMC-manufactured Snapdragon 8 Gen 2 in the Galaxy S23.

Snapdragon 8 Gen 3 will be produced by TSMC. The issue is the 4th generation. Ming-Chi Kuo, an analyst at TF Securities, recently reported that Qualcomm appears to have dropped Intel's 2nm process. WCCFTech predicted that Qualcomm is increasingly likely to exclude Intel and partner with Samsung. There have already been reports that Qualcomm has trial-produced 4th generation samples at Samsung's 3nm line.

Analyst Ming-Chi Kuo predicted that if trust in Samsung's 3nm process developed with Gate-All-Around (GAA) technology increases, Qualcomm may switch chip production to both TSMC and Samsung. Unlike Apple, which relies solely on TSMC, Qualcomm could gain an advantage in supply price negotiations by expanding its chip suppliers to two companies.