Apple is going to use Taiwan Semiconductor’s (TSMC) new 3nm process for its next-generation chips, including the M3 series processors for Macs and the A17 Bionic for the next-generation iPhone. Apple’s order is so large that the company will buy all the chips that TSMC produces using this process, and moreover, Apple will not have to compensate the manufacturer for the cost of defective processors, writes Ars Technica.

It’s no secret that some processors on large silicon wafers turn out to be defective, especially when a new technology process is introduced. Such processors usually operate at lower frequencies, have disconnected cores, etc., and are labeled differently and sold at a lower price. In the case of the new 3nm process, we are currently talking about 70% good chips and 30% defective chips.

Usually, the cost of defective chips is compensated not by the manufacturer, but by the customer/designer of the processor. In the case of the M3 and A17 Bionic processors, it should have been Apple. However, Apple’s exclusive order turned out to be so good that TSMC will not charge the company for the cost of defective wafers, which will allow Apple to reduce the cost of processors and thus increase its own profits.

Apple is TSMC’s largest customer, accounting for 23% of the Taiwanese manufacturer’s $72 billion revenue in 2022. For the past decade, TSMC has manufactured all of Apple’s chips, although the company previously worked with Samsung. Not surprisingly, Apple has “bought” all existing 3nm production facilities. TSMC’s 3nm chips will be “exclusive” to Apple for about a year before new facilities are built to allow other companies to place their own orders.

TSMC currently produces most of the high-end processors for the world’s largest chipmakers. Apple, NVIDIA, AMD, and Qualcomm all use TSMC facilities for their most advanced products, and many of them have switched from competitors such as Samsung and GlobalFoundries in recent years. Even Intel, which for most of its history has only manufactured chips in its own fabs, relies on TSMC to produce Arc GPUs and some of its upcoming Meteor Lake processors.

Samsung and Intel are just preparing to launch their own 3nm fabs, and they are far behind TSMC, which has maintained a technological lead over its competitors for several years.

On the list of largest companies in the world by capitalization Apple and TSMC occupy the first and tenth places, respectively.