TApple’s fate and Taiwanese manufacturer of semiconductors TSCMSince the invention of the iPhone, the two have been inextricably linked. As each subsequent generation of iPhone hurtled past the technological capabilities of its predecessor, the processors that powered them grew increasingly complex and specialized — to the point that, today, TSCM has become the only chip fab on the planet with the requisite tools and know-how to actually build them. His new book is available here. Chip War: The Fight for the World’s Most Critical Technology,Chris Miller, an economic historian, examines the rise in processor production as an economically vital commodity and the national security implications that global supply chains may have for America.
Simon & Schuster
Excerpted From Chip War: The Fight for the World’s Most Critical TechnologyChris Miller. Scribner permission granted permission to reproduce. Copyright 2022
Apple Silicon
The greatest beneficiary of the rise of foundries like TSMC was a company that most people don’t even realize designs chips: Apple. The company Steve Jobs built has always specialized in hardware, however, so it’s no surprise that Apple’s desire to perfect its devices includes controlling the silicon inside. Steve Jobs was deeply interested in the relationship between hardware and software from his very first days at Apple. In 1980, when his hair nearly reached his shoulders and his mustache covered his upper lip, Jobs gave a lecture that asked, “What is software?”
“The only thing I can think of,” he answered, “is software is something that is changing too rapidly, or you don’t exactly know what you want yet, or you didn’t have time to get it into hardware.”
Jobs didn’t have time to get all his ideas into the hardware of the first-generation iPhone, which used Apple’s own iOS operating system but outsourced design and production of its chips to Samsung. The revolutionary new phone had many other chips, too: an Intel memory chip, an audio processor designed by Wolfson, a modem to connect with the cell network produced by Germany’s Infineon, a Bluetooth chip designed by CSR, and a signal amplifier from Skyworks, among others. All were developed by other companies.
As Jobs introduced new versions of the iPhone, he began etching his vision for the smartphone into Apple’s own silicon chips. Apple purchased PA Semi, an in-demand Silicon Valley chip design firm that was specializing in energy-efficient processors, one year after launching its iPhone. Soon Apple began hiring some of the industry’s best chip designers. Two years later, the company revealed that it had created its own application processing processor, the A4, for use in the new iPad and iPhone 4. The cost of designing complex chips like the ones that power smartphones is high. That is why low- to mid-range smartphone manufacturers buy off-the shelf chips from companies such as Qualcomm. However, Apple has invested heavily in R&D and chip design facilities in Bavaria and Israel as well as Silicon Valley, where engineers design its newest chips. Apple designs not only the main processors in most of its devices, but also ancillary chip that runs accessories like AirPods. This investment in specialized silicon explains why Apple’s products work so smoothly. Within four years of the iPhone’s launch, Apple was making over 60 percent of all the world’s profits from smartphone sales, crushing rivals like Nokia and BlackBerry and leaving East Asian smartphone makers to compete in the low-margin market for cheap phones.
Like Qualcomm and the other chip firms that powered the mobile revolution, even though Apple designs ever more silicon, it doesn’t build any of these chips. Apple is well-known for outsourcing assembly of its tablets and phones to hundreds upon thousands of workers in China. These workers are responsible for gluing small pieces together. China’s ecosystem of assembly facilities is the world’s best place to build electronic devices. Foxconn and Wistron are Taiwanese firms that manage these facilities for Apple China. They are uniquely able to produce phones, PCs and other electronic devices. Though the electronics assembly facilities in Chinese cities like Dongguan and Zhengzhou are the world’s most efficient, however, they aren’t irreplaceable. The world still has several hundred million subsistence farmers who’d happily fasten components into an iPhone for a dollar an hour. Foxconn builds most of its Apple products in China. However, it also makes some in Vietnam, India and Vietnam.
The chips in smartphones are much more difficult to replace than those used by assembly line workers. As transistors have shrunk, they’ve become ever harder to fabricate. There are fewer semiconductor companies capable of building cutting-edge chips. By 2010, at the time Apple launched its first chip, there were just a handful of cutting-edge foundries: Taiwan’s TSMC, South Korea’s Samsung, and — perhaps — GlobalFoundries, depending on whether it could succeed in winning market share. Intel, still the world’s leader at shrinking transistors, remained focused on building its own chips for PCs and servers rather than processors for other companies’ phones. SMIC and other Chinese foundries tried to catch up, but were years behind.
This is why the supply chain for smartphones is very different to that of PCs. Both smartphones and PCs are made largely in China, with high-value components mainly designed in the U.S.A, Europe, Japan, Korea, or Japan. For PCs, most processors come from Intel and are produced at one of the company’s fabs in the U.S., Ireland, or Israel. Smartphones are different. They’re stuffed full of chips, not only the main processor (which Apple designs itself), but modem and radio-frequency chips for connecting with cellular networks, chips for WiFi and Bluetooth connections, an image sensor for the camera, at least two memory chips, chips that sense motion (so your phone knows when you turn it horizontal), as well as semiconductors that manage the battery, the audio, and wireless charging. These chips are the main component of the materials bill for a smartphone.
The ability to produce many chips increased as the semiconductor manufacturing capacity moved to Taiwan and South Korea. Application processors, the electronic brain inside each smartphone, are mostly produced in Taiwan and South Korea before being sent to China for final assembly inside a phone’s plastic case and glass screen. Apple’s iPhone processors are fabricated exclusively in Taiwan. TSMC is the only company that has the ability and the production capacity to produce the chips Apple requires. So the text etched onto the back of each iPhone — “Designed by Apple in California. Assembled in China”—is highly misleading. The iPhone’s most irreplaceable components are indeed designed in California and assembled in China. However, they cannot be made in Taiwan.
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