Apple Moves to Taiwan

Where there's smoke, there's fire.

Taiwanese tech publication Digitimes was out last week with a report that Apple (Nasdaq: AAPL  ) has indeed inked a foundry partnership agreement with Taiwan Semiconductor Manufacturing (NYSE: TSM  ) to produce Cupertino-designed A6 and A7 processors, as previously rumored. Presumably, the A6 would be next year's iteration and power the iPhone 6 and iPad 3, although tight-lipped Apple always keeps mum until the last minute.

Taiwan Semi would be displacing current manufacturer Samsung. Apple and Sammy have always had a love-hate relationship, with the hate primarily manifesting itself in current events. The companies' patent-driven bickering has been escalating even as reports earlier this year pegged Apple as Samsung's biggest customer, with roughly $7.8 billion in supply contracts for the year. Roughly 26% of the component cost of the iPhone 4 goes to Samsung alone, when you include ingredients like the flash memory, DRAM, and current A5 processor.

This hasn't stopped the companies from suing each other. By potentially moving the production of its ARM Holdings (Nasdaq: ARMH  ) -based custom processors out of South Korea, Apple's looking to take out some of the love while cranking up the hate.

The report claims that TSMC negotiated a decent price on the contract in line with its overall gross margins, which have hovered around 46% throughout the first half of the year. Winning two generations of processors would still be a nice score for the company, which already fabricates ARM-based chips for Qualcomm (Nasdaq: QCOM  ) and NVIDIA (Nasdaq: NVDA  ) .

Samsung will still probably remain an important supplier for iDevices in the foreseeable future. Supposedly the conglomerate is one of three primary display panel suppliers lined up for the iPad 3's Retina Display, alongside LG Display (NYSE: LPL  ) and Sharp.

Taiwan Semiconductor stands to win more business as more chip companies transition to fab-lite or fabless models and outsource manufacturing. Add it to your Watchlist to keep an eye on it for possible buying opportunities.

Fool contributor Evan Niu owns shares of Apple and ARM Holdings, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Qualcomm and Apple. Motley Fool newsletter services have recommended buying shares of NVIDIA and Apple, creating a bull call spread position in Apple, and writing puts in NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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