TSMC delays $1 billion Apple order due to memory shortage? Ming-Chi Kuo: Apple's shipment reduction does not mean product backlog

Memory supply shortages are putting substantial pressure on Apple’s hardware shipments, but the claim that “TSMC has $1 billion worth of Apple processors in inventory” has been explicitly questioned by a well-known supply chain analyst.

On August 11, renowned Apple supply chain analyst Ming-Chi Kuo posted on social platform X, pointing out that Apple has indeed reduced some hardware shipment plans this year due to the memory shortage. However, he emphasized that this is completely different from the “passive inventory buildup” described by outsiders. He noted that Apple typically plans TSMC’s processor production pace at least three months in advance, based on the expected obtainable supply of memory, rather than instructing TSMC to manufacture a large quantity of processors in advance for inventory.

Kuo stressed that his industry research has not found evidence that TSMC is stockpiling $1 billion worth of processors waiting for memory to arrive. “Both TSMC and Apple are among the world’s top companies in supply chain execution capability, and the two have maintained long-term, highly collaborative coordination. Such large-scale passive semi-finished inventory buildup is very uncommon.”

At the same time, Apple’s management has already confirmed the existence of supply-side pressures in official earnings guidance. Apple CFO Kevan Parekh stated that supply constraints will “significantly intensify” in the fourth fiscal quarter, affecting the iPhone, Mac, and iPad product lines. CEO Tim Cook attributed the core problem to insufficient advanced-node SoC capacity, pointing out this stems from inaccurate demand forecasts rather than conventional supply bottlenecks.

The trigger for these rumors was the inventory data disclosed in TSMC’s Q2 financial report.

The results show TSMC’s inventory turnover days rose to 87, up from 80 days in Q1 and 76 days in the prior year; during the same period, the 2nm process contributed about 3% of wafer sales revenue. Based on this, sources claimed TSMC ramped up 2nm production for Apple’s A20 Pro processors, but due to a DRAM shortage, $1 billion worth of processor wafers are backlogged, awaiting DRAM to complete final packaging. Independent technology journalist Tim Culpan also noted that TSMC’s 2nm yields and capacity are sufficient, and DRAM shortages are the real bottleneck for iPhone shipments.

Kuo specifically challenged the above speculation, offering three rebuttals based on publicly available information.

First, when TSMC ramps up each new advanced process, inventory days usually increase. This pattern has been seen with 3nm and 5nm, and is not unique to 2nm.

Second, TSMC’s definition of “inventory” in its financial reports is quite broad, encompassing work-in-progress, finished products, raw materials, and supplies. Processor WIP is only a part of this, and overall inventory increases cannot be directly equated with processor semi-finished product buildup.

Third, Apple is not TSMC’s only client for 2nm this year; AMD, MediaTek and other chip companies also use this process, and their inventory requirements are reflected in TSMC’s overall inventory levels as well.

From a supply chain perspective, Kuo explained that if the current bottleneck is not at TSMC, there is no actual benefit for Apple to have WIP manufactured in advance, nor does Apple have sufficient reason to pay extra for this. He also added that this does not mean TSMC never builds WIP inventory in advance, but with the current synergy mechanism, large-scale passive backlog is extremely unlikely.

Although the specific claim of a $1 billion inventory backlog is in doubt, the supply-side pressures faced by Apple have been publicly acknowledged by management. Apple's guidance for fourth-quarter revenue is a 9% to 11% year-over-year increase, below analysts' previous expectations of about 12.1%, with FX fluctuations and supply constraints cited as the two major drags.

Kevan Parekh stated that, due to supply constraints, the growth rate for the related products will fall into the mid-teens range; after excluding nearly 2.5% FX impact, the service sector is expected to grow at around the Q3 level of 12%. Cook described the situation as “demand materially outperformed expectations, while supply chain resilience dropped sharply. Both iPhone and Mac performed notably better than the company had forecast, and we have been pulling supply forward in advance, but there is a limit at some point.”

According to reports, in order to ease the memory shortage, Apple has recently begun testing the use of memory chips from ChangXin Memory Technologies, planning to use these chips in some iPhones and MacBooks sold in China, and has entered into initial talks with ChangXin.