Samsung May Be Next Winner in Apple Suppliers’ Game of Musical Chairs

Mandy Cheng/AFP/Getty Images

As one of the biggest smartphone vendors in the world, Apple (NASDAQ:AAPL) can have a significant impact on the fortunes of companies that provide components or assemble devices for the Cupertino, California-based company. This may prove especially true in the coming months as production for the highly anticipated larger-screen iPhone 6 models is expected to ramp up. According to analysts at the Taiwan-based Topology Research Institute cited by the Economic Daily News, Apple may sell as many as 80 million iPhone 6 units in 2014 alone.

One supplier that has benefitted from its growing relationship with Apple over the past several months is chipmaker Taiwan Semiconductor Manufacturing (NYSE:TSM). Sources cited by The Wall Street Journal last week predicted that Taiwan Semiconductor Manufacturing Co. would be supplying some of the processors that will be used in Apple’s next-generation iPhones and iPads. The news was considered a blow to longtime exclusive A-series chip supplier Samsung (SSNLF.PK) and helped drive Taiwan Semiconductor Manufacturing Co.’s stock to close as high as $22.95 last week, more than 30 percent higher than it was at the beginning of the year.

However, uncertainty about Taiwan Semiconductor Manufacturing Co.’s long-term relationship with Apple has helped diminish some of the optimism surrounding the company. According to a research note from KGI Securities analyst Michael Liu obtained by Reuters, Apple will be turning away from Taiwan Semiconductor Manufacturing Co. and increasing orders to Samsung for the production of 14-nanometer process smartphone chips starting in the second half of 2015. Meanwhile, several Taiwanese news sites cited by Reuters reported that Qualcomm (NASDAQ:QCOM) has already partnered with Samsung to begin working on the so-called A9 chip that will power next year’s iOS-based mobile devices.

Taiwan Semiconductor Manufacturing Co.’s shares slipped more than 6 percent on Wednesday after Liu’s note and the Taiwanese media reports. The drop came despite the company’s second-quarter earnings report that surpassed the company’s own guidance and beat analysts’ expectations.

While the KGI Securities analyst did not cite a specific source for his claim that Samsung would take over the 14-nanometer process chip orders from Taiwan Semiconductor Manufacturing Co., the claim appeared to be supported by comments made by the company’s chairman during the recent quarterly earnings report. According to DigiTimes, Taiwan Semiconductor Manufacturing Co. Chairman Morris Chang stated that “16nm products will account for a single-digit ratio to TSMC’s overall revenues in the third quarter of 2015” as the company loses business to competitors next year.

However, despite surrendering market share in the 14- and 16-nanometer process segment in 2015, Chang also predicted that Taiwan Semiconductor Manufacturing Co. will regain its market position in 2016 and 2017. While Chang did not specify which competitors Taiwan Semiconductor Manufacturing Co. lost business to in 2015, DigiTimes cited industry sources that pointed to Samsung.

Other analysts warned against making premature predictions about the production of the A9 chip. “This is still just a lot of speculation,” Yuanta Securities analyst George Chang told Reuters. “We haven’t even seen the iPhone 6 yet, so it’s too early to say anything about future products.”

Although Taiwan Semiconductor Manufacturing Co. may have lost business to Samsung in 2015, it is still believed to be supplying some of the 20-nanometer process chips that will be used in Apple’s upcoming mobile products this year. Rumors about Taiwan Semiconductor Manufacturing Co. taking on more of Apple’s chip orders have been circulating for years as the smartphone market competition and patent-infringement court battles between the iPhone maker and Samsung have intensified. However, if the latest rumors are true, it appears that Apple will continue to rely heavily on Samsung as its primary chip supplier at least through 2015.

More From Wall St. Cheat Sheet: