The long, drawn-out drama between Samsung and Apple (AAPL 5.98%) is reportedly getting closer to winding down. According to reports, Apple has begun using Taiwan Semiconductor (TSM 3.91%) 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 (QCOM -0.26%) and NVIDIA (NVDA 3.46%), 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.
