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.  

Assuming that the latest rumors about Taiwan Semiconductor Manufacturing Co. are true, the next-generation iPhones and iPads could be the first Apple mobile devices in years that do not include a Samsung-built system-on-chip. Although Taiwan Semiconductor Manufacturing Co. already supplies various other components for Apple, including the Touch ID fingerprint scanner module, it has never before provided the A-series processor. Besides supplying the A8 chips for this year’s devices, The Wall Street Journal’s sources also said that Taiwan Semiconductor Manufacturing Co. and Apple are already collaborating on the next generation of processors that will be made with an even more advanced 16-nanometer fabrication process.

A recent report from Reuters noted that many of Apple’s Taiwan-based suppliers, including Taiwan Semiconductor Manufacturing Co., have attracted increased investment due to the expected success of Apple’s upcoming products. Taiwan Semiconductor Manufacturing Co.’s stock price has climbed more than 30 percent since the beginning of this year. Although it is unknown how many of Apple’s A8 chip orders the company will be handling, analysts who spoke to the Journal predicted that the new processor orders could account for 10 percent of the chipmaker’s revenue this year.

While the shift to other chipmakers like Taiwan Semiconductor Manufacturing Co. may spell trouble for Samsung in the long run, the Korea-based company will likely remain a crucial supplier for Apple in the foreseeable future. Based on the number of times that rumors about Taiwan Semiconductor Manufacturing Co.’s A-series chip manufacturing have proven untrue, Apple watchers would be wise to take this latest batch of rumors with a large grain of salt.

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