Apple Inc. Dodged a Serious Bullet

Apple's iPhone 7 and 7 Plus in red.

There used to be a lot of speculation that Apple (NASDAQ: AAPL) would one day move at least some of its A-series applications processor production to Intel (NASDAQ: INTC) . Apple originally relied on Samsung (NASDAQOTH: SSNLF) to build its custom-designed chips, but has, in recent product generations, moved over to contract chip-manufacturing specialist Taiwan Semiconductor Manufacturing Company (NYSE: TSM) .

Apple's iPhone 7 and 7 Plus in red.

Image source: Apple.

Indeed, TSMC manufactures Apple's current A10 Fusion chip and is expected to manufacture Apple's upcoming A11 Fusion chip , as well.

In hindsight, Apple seems to have dodged a rather serious bullet by not relying on Intel to build its chips. Here's why.

Betting on Intel 10nm would've meant disaster

Had Apple bet on Intel's 10nm technology for the upcoming A11 Fusion chip -- which Intel continues to publicly claim is about a generation ahead of competing 10nm technologies -- it would be in a world of hurt right now. TSMC has been cranking out chips for Apple -- as well as others, like MediaTek and Huawei -- using its 10nm technology for months now. TSMC will need to deliver tens of millions of units to help Apple meet what could be insatiable demand for the latter's upcoming new iPhone models.

Intel, on the other hand, has seen its schedule for 10nm production continue to slip. In late 2013, Intel told investors that its 10nm technology would be production ready by the end of 2015. After many delays, Intel is now hoping to get this technology into volume production sometime in the second half of 2017, and doesn't expect volume shipments of its lead product -- known as Cannon Lake -- to occur until the first half of 2018.

You can see how this would've been a problem for Apple, right? If Apple had chosen Intel 10nm technology for the upcoming A11 Fusion, it would probably have needed to delay the introduction of its new iPhone models, wreaking serious havoc on its business.

Now, Apple could have conceivably chosen Intel's 14nm technology for the A11 Fusion, which Intel claims is "comparable" to the 10nm technologies from TSMC and Samsung. The reality is, however, that Intel's 14nm technology just isn't as dense as either of the 10nm technologies.

This would've meant that, in a best-case scenario, Apple would've been able to cram the same feature set into the A11 Fusion using Intel's 14nm technology as it ultimately did with TSMC's 10nm technology, but the chip size would've been appreciably larger, potentially driving Apple's costs up.

Neither situation would've been particularly good.

This shows why Intel will fail in foundry

At the end of the day, Intel can, in all the pretty PowerPoint slides that it would like, talk about how it has a leadership position compared to its competitors. The reality, however, is that a company like Apple would be negligent to tie the fate of an iPhone product cycle to Intel's ability to get next-generation chip-manufacturing technology into mass production.

Both TSMC and Samsung have shown, time and time again, that they can ramp tough new technologies into mass production at predictable cadences. That's why any company that builds products for which delays are unacceptable should -- and likely will -- avoid Intel's contract chip manufacturing arm -- at least until Intel gets its act together with respect to chip-manufacturing technology.

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Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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