Why can't the FBI just work directly on the phone hard drive (removed the hard drive from the phone and connect it to another computer)? Why are the going through IOS operating system?
The FBI wasn't asking for the device to be decrypted. They were asking for a new operating system to be installed that circumvented the 10 wrong tries and the phone is erased.
The half-solution security chip plus the device's software form a psuedo trusted computing module.
It does seem that if the FBI desoldered the security chip and subpoenaed the KDF algorithm, they could recover the raw encryption key using their own hardware. But perhaps I'm missing a detail.