A surprise dinner at Morris Chang's home in 2010 set the stage for one of the most consequential business relationships in the tech industry—one that made Apple Inc. AAPL the biggest client of Taiwan Semiconductor Manufacturing Ltd. TSMC.
What Happened: In a podcast, Chang, who is regarded as the founder of Taiwan’s semiconductor industry recalled how the then Apple COO Jeff Williams arrived at his for an unexpected dinner.
The meeting was arranged by Terry Gou, the founder of Foxconn, who is also the second cousin of Chang's wife Sophie.
Chang had no prior notice of Apple's interest in working with his company. Once at the dinner table, where the group had Chinese food, Williams wasted no time and expressed interest in TSMC manufacturing chips for Apple.
At dinner, Williams mentioned a 40% gross margin for TSMC, and Chang found this low since his company’s margin was already 45%. However, he chose not to debate pricing at that moment.
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Apple also wanted chips built on a 20-nanometer process, while TSMC had been planning to transition straight from 28nm to 16nm. For Chang, this was an issue. As he later recalled, "A half step is a detour."
Despite his initial reservations, Chang saw an opportunity and took a calculated risk—one that required billions of dollars in investment. TSMC eventually chose to avoid cutting dividends or issuing new stock. Instead, they opted to take on debt.
In February 2011, Apple paused talks with TSMC for two months after Intel approached Tim Cook, asking to be considered as a supplier.
Chang recalled that he reached out to Apple for clarity. In a follow-up meeting, Cook assured him that Intel didn't know how to be a foundry, confirming Apple's commitment to TSMC.
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TSMC and Apple also disagreed on yield rates and pricing. However, they ultimately negotiated and resolved the issues. TSMC adjusted its roadmap to produce Apple's 20-nanometer chips, delaying its 16-nanometer development but proving its reliability.
When TSMC launched 16-nanometer chips, Apple followed through on its commitment, making TSMC its primary chip supplier.
Why It's Important: Fast forward to 2024, and Apple is TSMC's single largest customer. Supply chain data compiled by Bloomberg revealed that Apple accounts for approximately 25.2% of TSMC's annual revenue, far ahead of other tech giants.
While Nvidia Corporation is experiencing explosive demand due to the AI boom, it still trails behind Apple, contributing around 10.1% of TSMC's revenue in 2024. However, this dynamic may shift in 2025.
According to a report from Economic Daily News, a Chinese-state-owned news publication, Citi Securities analysts predict that Nvidia could become TSMC's largest customer in 2025, driven by its high-performance AI chips.
Estimates suggest Nvidia could account for 20% of TSMC's revenue in 2025, closing the gap with Apple. However, Bloomberg's previous projections indicate that Apple will still maintain its lead—at least for now.
Photo by wakamatsu.h via Shutterstock
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