iPhone 18 A20 chip will cost TSMC a lot more to make

Apple's upcoming iPhone 18 A20 processor, utilizing TSMC's 2nm technology, is projected to incur a 50% higher manufacturing cost due to TSMC's substantial capital expenditure and improving yield rates for the advanced node. Despite this significant increase, Apple is expected to absorb these costs rather than pass them on to consumers, consistent with historical practices and given that the processor constitutes a relatively small portion of the overall bill of materials. Analyst Ming-Chi Kuo predicts the 2nm chip will be integrated across the entire iPhone 18 lineup, underscoring TSMC's pricing power for cutting-edge technology and Apple's strategy to maintain competitive pricing while investing in next-generation performance amidst broader rising component costs.

Analysis

TSMC's upcoming 2nm chip, destined for Apple's iPhone 18 A20 processor, is projected to incur a 50% higher manufacturing cost due to substantial capital expenditure and TSMC's current pricing power. This increase is significant, with even Apple's considerable buying power unable to secure a discount.

Despite this, Apple is expected to absorb the higher processor cost, consistent with its historical strategy of maintaining consumer pricing. The processor represents a relatively small portion of the iPhone's overall bill of materials, estimated at approximately 10% for the iPhone 16's A18 chip, making cost absorption more manageable.

Analyst Ming-Chi Kuo anticipates the 2nm chip will be integrated across the entire iPhone 18 lineup, signaling Apple's commitment to widespread performance upgrades. TSMC's 2nm R&D trial yields have reportedly surpassed 70%, indicating improving production efficiency for this advanced technology.

Key Decisions for Investors

• Monitor Apple's gross margin performance for potential compression stemming from absorbed component cost increases, especially if broader supply chain inflation persists.
• Assess TSMC's sustained pricing power for cutting-edge nodes as a key driver for its revenue growth and profitability in the advanced semiconductor market.
• Evaluate Apple's ability to leverage performance upgrades across its entire iPhone 18 lineup to maintain or expand market share, despite internal cost pressures.