Is Apple’s New Chip Supplier Bad News for Samsung?

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While the most noticeable changes to Apple’s (NASDAQ:AAPL) upcoming iPhone 6 models will likely be the rumored screen size increases, an even more significant change may be found inside the devices. According to “people familiar with the matter” cited by The Wall Street Journal, chipmaker Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) will be supplying some of the processors that will be used in the Cupertino, California-based company’s next-generation iPhones and iPads. The sources noted that Taiwan Semiconductor Manufacturing Co. began shipping the A8 processors to Apple’s product assemblers in the second quarter of this year after starting mass production in the first quarter.

If the Journal’s sources are correct, Taiwan Semiconductor Manufacturing Co.’s chip shipments could prove to be a major blow to Samsung (SSNLF.PK). Despite being Apple’s biggest rival in the worldwide smartphone market, Samsung has long been the sole provider of the A-series chips that power Apple’s mobile devices. While Apple has been battling the Korea-based company over patent-infringement issues in the courts over the past several years, rumors have been swirling that the iPhone maker was seeking to shift chip orders to Taiwan Semiconductor Manufacturing Co. in order to reduce its reliance on Samsung.

However, all of the various rumors eventually proved to be inaccurate. Some media outlets, such as the Korea Economic Daily, claimed that Taiwan Semiconductor Manufacturing Co. lost its A8 chip orders from Apple after struggling with yield issues due to the complexity of the 20-nanometer fabrication process. The Wall Street Journal’s sources suggested that Taiwan Semiconductor Manufacturing Co.’s advanced chip manufacturing problems were resolved through close cooperation with Apple, including sending the Taiwan-based company’s engineers to California to work with Apple on the process.