

Image Courtesy TSMC Image Courtesy TSMC

One of my colleagues recently posted an article hypothesizing about whether Apple might build its own fab. That possibility is very real given recent supply chain shortages - specifically in the 28nm node - and considering a company (and CEO for that matter) that is fastidious when it comes to supply management. My colleague went on to describe that on the surface at least, it looks like the fabless semico model that became so popular over the past decade might be falling out of favor and in jeopardy of being replaced by the previous model - fabricating one’s own silicon, as Intel does for instance.





Why is there so much concern over fabrication service supply lately and what is causing the major fabrication providers to be concerned?





Perhaps it was the Qualcomm announcement that a shortage of 28nm supply from its main foundry service provider - TSMC - for its Snapdragon chips could adversely affect its end business until the end of the year. News of Qualcomm's supply shortage at one point caused speculation that Apples next generation iPhone fall release could be at risk (Qualcomm is a critical supplier of baseband processors in many smartphones including the iPhone).





Quick to spot an opportunity, UMC offered a 10% stake in its fabrication business to a suitable strategic investment partner (read Qualcomm or Apple) in order to compete more effectively with the leader, TSMC. An investment of this sort would effectively ensure preferred status in the production queue and offer some insurance against future supply issues for the strategic partner.





TSMC itself, the perennial leader in silicon fabrication threw a bone out to see who might bite, that it is willing to dedicate an entire factory for wafer production to a single customer (again read Apple or Qualcomm please apply). The current model entails providing fabrication services to many customers at each plant which can cause queues and bottlenecks, particularly when dealing with newer, smaller processes that have initial lower yields.





Others in the blogosphere stirred the waters by musing that Apple might consider building its own fab in the U.S.A. For about the cost of about a third of quarterly profits, Apple could build a fab and reap huge tax incentives from federal, state and local governments who are salivating at the prospect of a new fabrication plant on home soil, creating new American jobs.





Whatever the trigger was, the major foundries are keen to gain an edge and enhance, or at least maintain, the current customer relationship model. The focus seems to be contract business from Apple and Qualcomm, two of the most likely candidates pulling chip production in house. Whatever the direction, is it just a matter of time before Samsung loses some or all of the Apple processor production? Given the current legal battles and animosity between Samsung and Apple, it would not be much of a surprise.



