According to the news from ChinaTimes, Qualcomm announced on the 11th that it has reached a three-year agreement with Apple to supply 5G communication chips for Apple’s smartphones from 2024 to 2026. This also implies that Apple’s efforts to develop its own 5G modem chips may fall through, and the contract manufacturer TSMC stands to benefit the most.

Qualcomm did not disclose the value of this deal but mentioned that the terms of the agreement are similar to previous ones. Previous supply agreements have been highly profitable for Qualcomm but costly for Apple. According to UBS estimates from last month, Qualcomm’s sales of modem chips to Apple in the previous fiscal year amounted to $7.26 billion, accounting for approximately 16% of the company’s revenue.

This also highlights that Apple’s progress in developing modem chips may not be as expected, leading to a delay in their use in their flagship smartphones. Currently, Apple’s iPhones use 5G modem chips from Qualcomm.

Only a few companies worldwide have the capability to produce communication chips, including Qualcomm, MediaTek, and Samsung. In 2019, Apple acquired Intel’s smartphone modem business for $1 billion, along with 2,200 employees and a series of patents. Intel faced difficulties in developing 5G modem chips, resulting in annual losses of around $1 billion.

The market expects Apple to gradually reduce its reliance on third-party chip suppliers. Qualcomm originally estimated that by 2023, their 5G chips would make up only 20% of iPhones. However, Qualcomm’s CFO stated in November of the previous year that “most” of Apple’s phones in 2023 would contain their chips.

(Source: https://www.chinatimes.com/newspapers/20230912000097-260202?chdtv)

The Chinese supply chain, led by Luxshare Precision, has secured Apple AirPods and iPhone assembly orders, while another ODM manufacturer Wingtec Technology, is gradually taking a slice of Taiwan-based orders. This development is poised to impact orders from Apple’s notebook computer between Taiwanese and Chinese factories, creating a ripple effect within the whole supply chain.

TrendForce’s Perspective:

• Taiwanese Manufacturers Face Reallocated Apple Notebook Orders as Chinese Suppliers Strengthen Their Position

Regarding Apple, MacBook assembly was primarily handled by Taiwanese manufacturers Quanta and Foxconn until 2022. With Chinese firm Wingtec progressing from small-scale trial production to mass production of M1 MacBook Air, according to reports in Chinese media, Wingtec’s Yunnan Kunming factory has also received 3C quality certification for M2 chips. This confirms that Wingtec Technology will take on a portion of the future MacBook Air orders. As Foxconn secures the production of larger MacBook Pro models, this shift will primarily affect Quanta’s share in producing Apple computers. Wingtec is set to become the first Chinese factory to manufacture complete Apple MacBook Air units. If Wingtec consistently meets Apple’s product quality requirements and secures additional orders, the fourth quarter of 2023 will become a battleground for Taiwanese manufacturers defending their orders for Apple notebook computers.

• The Taiwanese factories are accelerating the relocation of Apple notebook order production bases to Southeast Asia.

Given the slower recovery of the COVID-19 situation in China, rising labor costs, production capacity constraints, and restricted order volumes approved by customers, various electronic contract manufacturers have shifted their production focus to Southeast Asian countries, including Thailand, Malaysia, and Vietnam. Configuring production capacities for new and existing models, operating new factories, and rapidly transitioning supply chains are challenges of Taiwanese factories.

As Apple’s revenue from notebook computer products gradually contracts, the company is actively pressuring contract manufacturers to lower their product quotes. Additionally, China faces difficulties in recruiting workers, with local manufacturing labor transitioning into service-oriented roles such as live streaming, food delivery, and ride-hailing. This labor shortage has prompted Apple to actively demand that Taiwanese contract manufacturers accelerate the adoption of automation equipment to streamline factory operations, increase production output, and reduce labor costs. In light of the pressure from Apple’s orders and the emergence of the Chinese notebook computer supply chain, Taiwanese factories need to undergo further transformation to maintain their alignment with Apple and offer greater productivity and price advantages.

(Photo credit: Apple)

Apple is slated to unveil four new iPhone models in mid-September: the iPhone 15, iPhone 15 Plus, iPhone 15 Pro, and iPhone 15 Pro Max. TrendForce predicts a production figure of approximately 80 million units for the iPhone 15 series. This represents a 6% YoY growth, bouncing back from last year’s Foxconn-related production hiccups. The Pro series, armed with smoother production cycles and the Pro Max’s exclusive periscope lens, is poised to be a consumer magnet and potentially propel the Pro series to constitute over 60% of Apple’s new device production. However, with overall gloomy market sentiment and Huawei’s comeback in full swing, Apple’s total iPhone sales for the year may take a hit, expected to hover between 220 to 225 million units for a 5% YoY decline.

In regard to specifications for the iPhone 15 series, several noteworthy hardware upgrades have been made. Compliance with EU regulations has led Apple to jump on the USB Type-C bandwagon this year. The iPhone 15 and iPhone 15 Plus will come with significant camera upgrades, sporting a 48MP main sensor to align with the Pro series. Furthermore, they will also be featuring Apple’s Dynamic Island. On the other hand, the Pro series promises cutting-edge processor upgrades, increased Dram capacity, and introduces a titanium-aluminum alloy frame. The Pro Max also intends to elevate mobile photography to the next level with its exclusive periscope lens.

Advances in technology, while exciting, can also ratchet up the intricacies of mass production. Reports of component snags and assembly issues have surfaced as production of the new iPhone models revs up in the third quarter. The iPhone 15 and iPhone 15 Plus, in particular, have been grappling with lower-than-expected yield rates for their new 48MP cameras. Meanwhile, the Pro series is confronting challenges with panel and titanium alloy frame assembly. However, evidence suggests that the Pro series is likely to overcome its obstacles more swiftly than its non-Pro counterparts.

iPhone 15 Pro Max may see a price increase to reflect cost differences

In light of the global economic downturn, Apple is contemplating a cautious pricing strategy to preserve its sales volumes. While the iPhone 15 and iPhone 15 Plus boast 48MP main cameras, they’ll inherit the A16 processor from the iPhone 14 Pro series, with no other significant upgrades. Hence, their starting prices are projected to be aggressively competitive. The iPhone 15 Pro may sport several enhancements that inflate costs, yet these are anticipated to be offset by cost reductions in other components.

Overall, TrendForce predicts a stable pricing landscape for the iPhone 15, iPhone 15 Plus, and iPhone 15 Pro, largely mirroring last year’s figures. The Pro Max, however, is a different story. Equipped with an exclusive high-cost periscope lens, it’s expected to command a premium—likely a bump of up to US$100—to reflect its increased production costs. Should this price adjustment materialize, it would mark the first such move since the era of the iPhone X.

Semiconductor process technology is nearing the boundaries of known physics. In order to continually enhance processor performance, the integration of small chips (chiplets) and heterogeneous Integration has become a prevailing trend. It is also regarded as a primary solution for extending Moore’s Law. Major industry players such as TSMC, Intel, Samsung, and others are vigorously developing these related technologies.

What are SoC, SiP, and Chiplet?

To understand Chiplet technology, we must first clarify two commonly used terms: SoC and SiP. SoC (System on Chip) involves redesigning multiple different chips to utilize the same manufacturing process and integrating them onto a single chip. On the other hand, SiP (System in Package) connects multiple chips with different manufacturing processes using heterogeneous integration techniques and integrates them within a single packaging form.

Chiplet technology employs advanced packaging techniques to create a SiP composed of multiple small chips. It integrates small chips with different functions onto a single substrate through advanced packaging techniques. While Chiplets and SiPs may seem similar, Chiplets are essentially chips themselves, whereas SiP refers to the packaging form. They have differences in functionality and purpose.

Chiplets: Today’s Semiconductor Development Trend

The design concept of Chiplet technology offers several advantages over SoC, notably in significantly improving chip manufacturing yield. As chip sizes increase to enhance performance, chip yield decreases due to the larger surface area. Chiplet technology can integrate various smaller chips with relatively high manufacturing yields, thus enhancing chip performance and yield.

Furthermore, Chiplet technology contributes to reduced design complexity and costs. Through heterogeneous integration, Chiplets can combine various types of small chips, reducing integration challenges in the initial design phase and facilitating design and testing. Additionally, since different Chiplets can be independently optimized, the final integrated product often achieves better overall performance.

Chiplets have the potential to lower wafer manufacturing costs. Apart from CPUs and GPUs, other units within chips can perform well without relying on advanced processes. Chiplets enable different functional small chips to use the most suitable manufacturing process, contributing to cost reduction.

With the evolution of semiconductor processes, chip design has become more challenging and complex, leading to rising design costs. In this context, Chiplet technology, which simplifies design and manufacturing processes, effectively enhances chip performance, and extends Moore’s Law, holds significant promise.

Applications and Development of Chiplets

In recent years, global semiconductor giants like AMD, TSMC, Intel, NVIDIA, and others have recognized the market potential in this field, intensively investing in Chiplet technology. For example, AMD’s recent products have benefited from the ‘SiP + Chiplet’ manufacturing approach. Moreover, Apple’s M1 Ultra chip achieved high performance through a customed UltraFusion packaging architecture. In academia, institutions like the University of California, Georgia Tech, and European research organizations have begun researching interconnect interfaces, packaging, and applications related to Chiplet technology.

In conclusion, due to Chiplet technology’s ability to lower design costs, reduce development time, enhance design flexibility and yield, while expanding chip functionality, it is an indispensable solution in the ongoing development of high-performance chips.

This article is from TechNews, a collaborative media partner of TrendForce.

According to a report by Taiwan’s TechNews, Chinese electric vehicle giant BYD group announced on yesterday its intention to acquire the mobile electronics manufacturing business of American electronic contract manufacturer Jabil for nearly $2.2 billion in cash, encompassing operations in Chengdu and Wuxi, China. This move is widely interpreted as BYD’s strategy to infiltrate Apple’s supply chain, potentially encroaching on orders from Foxconn and Pegatron.

Notably, Jabil has been a significant supplier of iPhone components to Apple in the past. With BYD acquiring Jabil’s business in Chengdu and Wuxi, there’s speculation that BYD’s aim is to compete for orders from Foxconn and Pegatron. This development has again brought attention to the Apple supply chain dynamics.

In fact, recent times have seen frequent actions within the Apple supply chain landscape. Just last week, China’s Wingtec’s Kunming plant received the “3C Quality Certificate” for Apple’s M2 MacBook Air, indicating that, similar to the M1 MacBook Air, the M2 version will also be produced in China. Beyond BYD and Wingtec, Chinese companies like Luxshare Precision, GoerTek, and Tianma Microelectronics have made inroads into the Apple supply chain through various product avenues.

However, whether BYD’s acquisition of Jabil will significantly impact the volume of Apple orders for Taiwanese manufacturers remains to be observed. An industry insider shared insights with TechNews, suggesting that Jabil’s decision to sell its operations in Chengdu and Wuxi to BYD might be due to the increasing number of American companies relocating from China due to U.S.-China tensions.

Furthermore, there are rumors that Jabil is contemplating a corporate transformation, although the exact nature of this transformation remains unknown. Selling a portion of its business could potentially mark the first step in this transformation journey.

Additionally, while BYD is acquiring Jabil’s business in Chengdu and Wuxi for nearly $2.2 billion, this amount might not be substantial from a corporate perspective, implying that Jabil’s previous capacity offered might be considerably smaller than that of Taiwanese manufacturers.

The industry source also posits that BYD’s acquisition of Jabil’s business in China might simply signify BYD’s intention to venture into institutional component manufacturing, without necessarily indicating a shift towards producing Apple-related products in the end.

(Photo credit: BYD)