Apple chip contract would help Taiwan Semiconductor fill a Huawei-shaped hole

At its 2020 Worldwide Developers Conference on Monday, Apple is expected to cut or curtail its partnership with Intel, which has supplied semiconductors for the Cupertino, Calif., company’s Mac computers since 2005 but has fallen behind competitors in recent years.

Apple is likely to partner with Taiwan Semiconductor Manufacturing Co. (TSMC) instead, tapping the Taiwanese firm to make Mac chipsets more advanced than those Intel can provide. The companies did not immediately return requests for comment.

“This is good for Apple. If Apple switches to designing its own chips for MacBooks—like it has done for iPhones—then it can design a chip with better and more targeted performance than those provided by Intel,” said Brady Wang, an analyst at Counterpoint Research.

The chip shake-up is good for TSMC, too, since the new business arrives shortly after the U.S. forced TSMC to drop Huawei, the giant Chinese telecom equipment maker, as a client.

Manufacturing only

Unlike Intel, which designs and manufactures its own chips, TSMC only manufactures chips. With that narrow focus, TSMC has become the world’s largest and most advanced contract manufacturer for chipsets.

According to Wang, rumors that Apple might switch from Intel to TSMC for its Mac processors have been swirling since 2012, as TSMC’s chip performance surpassed that of Intel.

TSMC already does business with Apple; it manufactures iPhone and iPad chipsets. Apple designs the chips itself using architecture developed by U.K.-based chip designer Arm—acquired by SoftBank in 2016. Apple has reportedly tapped TSMC to provide cutting-edge five-nanometer chips for the upcoming iPhone 12, too. Only TSMC and Samsung are capable of making 5nm chipsets, which are revolutionary for their small size. Intel will begin manufacturing less-advanced 7nm chipsets next year.

Filling the Huawei hole

Analysts say the blow to Intel will be more symbolic than financial. Macs account for 5% of Intel’s revenue, but losing Apple as a client could erode confidence in the Silicon Valley icon.

Meanwhile, gaining the Mac contract from Apple will help TSMC offset some of its potential revenue loss from abandoning Huawei as a client. Orders from Huawei make up roughly 15% of TSMC’s income, but a new directive from the U.S. Department of Commerce forced TSMC to sever the relationship, at least temporarily.

The regulation, passed on May 15, prohibits manufacturers from supplying semiconductors to Huawei if U.S. equipment is used at any stage of production. Huawei’s chip design unit, HiSilicon, relies on U.S.-made software to design its semiconductors; elements of TSMC’s manufacturing equipment are also made in the U.S.

TSMC refused to accept new Huawei orders as of May 18. At a shareholder meeting on June, TSMC chairman Mark Liu said the company would wait until a public comment period on the new rule ends in mid-July before deciding whether to apply for a special license that would allow it to keep selling equipment to Huawei.

“We do see other customers and players hoping to fill any gap HiSilicon might leave,” Liu said.

More must-read international coverage from Fortune:

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.