Apple Inches Closer to Shifting Foundries

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The long, drawn-out drama between Samsung and Apple (NASDAQ: AAPL  ) is reportedly getting closer to winding down. According to reports, Apple has begun using Taiwan Semiconductor (NYSE: TSM  ) for its fabrication needs this quarter. If all goes to plan, Apple will begin the difficult transition away from Samsung for its chip needs, which should take anywhere between 12 and 18 months. TSMC will begin with a trial run of Apple's A6X, the chip currently found in Apple's fourth-generation iPad.

The good
TSMC is the largest pure-play semiconductor foundry in the world. High-profile customers include Qualcomm (NASDAQ: QCOM  ) and NVIDIA (NASDAQ: NVDA  ) , giving TSMC plenty of experience in dealing with manufacturing challenges. However, both of these companies have expressed frustration regarding TSMC's capacity constraints when new processes come available. Last year, when TSMC's 28-nanometer fabrication process debuted, both companies experienced shortages for their newest product lines. At the height of the shortage, Qualcomm was forced to lower short-term guidance.

By throwing an Apple-sized wrench into the mix, TSMC will have no choice but to build out more capacity to help alleviate the issue. This aligns with rumors that TSMC is in the market for building a new, single-customer foundry, and lines up with the TSMC CEO's statement saying how this move "makes sense" in today's market. If that's the case, everyone competing for capacity will likely feel some relief.

However, it's highly likely Samsung will be on the prowl for new customers. If customers end up migrating to Samsung, which has Apple-sized capacity, industrywide supply constraints may become a thing of a past. It's a win-win for all parties involved, expect TSMC, which would likely see revenue stagnate under this scenario.

The bad
Apple is taking a big risk migrating over to TSMC, and the transition could be costly given the potential for supply shortages, delays, and negative publicity. Samsung has been well-groomed to handle Apple's uptight tendencies, and has the capacity to handle the iPhone being sold in 87 countries. TSMC has yet to prove itself, and the next major step in the right direction will be if it's given the green light for Apple's upcoming chip, the A7, which will allegedly take advantage of TSMC's 20-nanometer process. Bear in mind, there are a lot of "ifs" in that last sentence. While I don't doubt Apple knows what's best for its business, mistakes for the king of Cupertino could come at an inopportune time, given the fact that practically every smartphone company is currently after the iThrone.

What's inside Supernova?
Apple has been a longtime selection of Motley Fool co-founder David Gardner, helping lead his stock picks to gains of more than 120% in our Stock Advisor service since it launched in 2002. David has managed to trounce the market by always being on the lookout for revolutionary stocks and recommending them before Wall Street catches on to their disruptive potential. If you're interested in how David discovers his winners, click here to get instant access to a personal tour behind David's Supernova service.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2182694, ~/Articles/ArticleHandler.aspx, 9/28/2016 6:46:35 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 4:00 PM
AAPL $113.09 Up +0.21 +0.19%
Apple CAPS Rating: ****
TSM $30.40 Up +0.56 +1.88%
Taiwan Semiconduct… CAPS Rating: ****
NVDA $66.54 Up +2.20 +3.42%
Nvidia CAPS Rating: ****
QCOM $63.31 Up +1.00 +1.60%
Qualcomm CAPS Rating: ****