Smart Phones

The fates of Apple and Taiwanese semiconductor manufacturer TSCM have grown inextricably intertwined since the advent of the iPhone. 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. In his new book, Chip War: The Fight for the World’s Most Critical Technology, economic historian Chris Miller examines the rise of processor production as an economically crucial commodity, the national security implications those global supply chains might pose to America.

Simon & Schuster

Excerpted from Chip War: The Fight for the World’s Most Critical Technology by Chris Miller. Reprinted with permission from Scribner. 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. Since his earliest days at Apple, Steve Jobs had thought deeply about the relationship between software and hardware. 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 designed 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. A year after launching the iPhone, Apple bought a small Silicon Valley chip design firm called PA Semi that had expertise in energy-efficient processing. Soon Apple began hiring some of the industry’s best chip designers. Two years later, the company announced it had designed its own application processor, the A4, which it used in the new iPad and the iPhone 4. Designing chips as complex as the processors that run smartphones is expensive, which is why most low- and midrange smartphone companies buy off-the-shelf chips from companies like 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. Now Apple not only designs the main processors for most of its devices but also ancillary chips that run 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 phones, tablets, and other devices to several hundred thousand assembly line workers in China, who are responsible for screwing and gluing tiny pieces together. China’s ecosystem of assembly facilities is the world’s best place to build electronic devices. Taiwanese companies, like Foxconn and Wistron, that run these facilities for Apple in China are uniquely capable of churning out phones, PCs, and other electronic. 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 assembles most of its Apple products in China, but it builds some in Vietnam and India, too. 

Unlike assembly line workers, the chips inside smartphones are very difficult to replace. As transistors have shrunk, they’ve become ever harder to fabricate. The number of semiconductor companies that can build leading-edge chips has dwindled. 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. Chinese foundries like SMIC were trying to catch up but remained years behind. 

Because of this, the smartphone supply chain looks very different from the one associated with PCs. Smartphones and PCs are both assembled largely in China with high-value components mostly designed in the U.S., Europe, Japan, or Korea. 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 make up most of the bill of materials needed to build a smartphone. 

As semiconductor fabrication capacity migrated to Taiwan and South Korea, so too did the ability to produce many of these chips. 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. Today, no company besides TSMC has the skill or the production capacity to build the chips Apple needs. 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. But they can only be made in Taiwan.