Apple (Nasdaq: AAPL ) and Samsung have long been BFFs -- best frenemies forever. Despite the escalating global patent war and major legal victory that the iPhone maker scored two months ago, the pair has maintained a supply relationship all along. Apple was one of Samsung's biggest component customers last year, with an estimated $7.8 billion in contracts.
Samsung maintains an internal firewall between its gadget division and component operations, so theoretically the supplier relationship could potentially be maintained despite the ongoing competitive battles. The South Korean conglomerate doesn't want to risk its lucrative supplier relationship with Cupertino.
However, you can't help but wonder if Apple feels the same way.
All that and a bag of chips
A year ago, Samsung said it was investing about $10 billion in a new mass production line for flash memory chips, which have soared in popularity in recent years, to improve production costs and bolster its position in the memory market. Now Apple has reportedly been dramatically reducing its memory chip orders for both DRAM and NAND chips in an attempt to broaden its supplier base and presumably to reduce its reliance on one of its biggest competitors, firewall notwithstanding.
Apple is the largest buyer of flash memory chips in the world, but this component is highly commoditized and Apple is now increasingly ordering from Elpida and SK Hynix. Elpida now sells over half of its DRAM flash chips to Apple. Reuters said the move wasn't related to hostilities between the two, but instead relates to a general desire from Apple to broaden its supplier base.
Still, this isn't the key component I'm talking about.
The real deal
Samsung is currently the sole supplier of Apple's A-series of custom-designed processors, manufacturing the chips for use in iDevices. The A6 found in the iPhone 5 is built at Samsung using its 32-nanometer manufacturing process. Apple has long been rumored to be eyeing a relationship with Taiwan Semiconductor Manufacturing (NYSE: TSM ) for its foundry needs, but still no direct relationship has materialized to date.
On the contrary, TSMC reportedly turned down billion-dollar exclusivity deals from Apple and Qualcomm (Nasdaq: QCOM ) recently, preferring not to concentrate so much of its business among a limited number of customers. However, Bernstein Research analysts are out with a report today with the belief that Apple is "actively moving its application processor business away from Samsung," although we're talking about a multi-year transition given the complexity of manufacturing technologies.
The analysts believe that the shift could potentially happen when both Samsung and TSMC converge manufacturing technologies around the 22-nanometer and 20-nanometer node, but TSMC's 20-nanometer production isn't set to ramp up until late next year, meaning it would be too late for the A7 and next iPhone. We could be talking about Apple switching over to TSMC sometime in 2014.
Another interesting possibility is the idea that Apple could tap Intel (Nasdaq: INTC ) for chips, but purely for manufacturing services and not for the chip giant's own processors. This is much less likely, since that would entail Intel producing chips that are designed based on ARM Holdings (Nasdaq: ARMH ) architecture. That's a strategic conundrum, especially as Intel continues to try and crack into the mobile processor space with its Atom chips.
There's virtually no chance that Apple would switch to Intel's x86 processors, considering its newest A6 chip has really taken Apple's chip design prowess to the next level, utilizing the instruction set it licenses from ARM instead of packing in standard cores.
Speculation of Apple hooking up with Intel for foundry services has also persisted for years, given Intel's unparalleled focus on cutting-edge manufacturing processes. This possibility is remote, and likely wouldn't happen until at least 2015, if at all.
Apple may not be ready to switch this key component supplier quite yet, but there are plenty of reasons for it to want to and it seems like just a matter of time.
Being an Apple supplier is a double-edged sword, as the company commands incredible volumes and it's willing to put down billions in advance to lock down what it needs. At the end of June, its third-party manufacturing and component purchase commitments totaled $13.6 billion.
A large chunk of that figure is undoubtedly going to Samsung, but that chunk might be shrinking.
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