Apple Is Taiwan Semiconductor’s Real Test

Taiwan Semiconductor didn't win Apple's A7 foundry business, so watch and see if it wins the A8 business from Apple to verity its claims of superiority.

Jan 21, 2014 at 3:00PM

During and following its most recent earnings report, Taiwan Semiconductor (NYSE:TSM) talked up a fairly big game with respect to both its semiconductor technology and its superiority as a contract chip manufacturer. In particular, TSMC has been outright bad-mouthing both Samsung (NASDAQOTH:SSNLF) and Intel (NASDAQ:INTC), claiming that its technology is superior, the products built within its factories are superior, and that its service is unmatched. How can investors know if this is legitimate, or it's just marketing?

It's all about Apple, baby
(NASDAQ:AAPL) is arguably the world's most important smartphone/tablet vendor, and this behemoth requires a lot of chips. In particular, the company designs its own applications processors for its iPhone/iPad products in a bid to marry hardware and software in a way that very few can match. However, while Apple is all about great chip designs, it does not own or operate its own chip-building factories.

This means that Apple needs to have these supplied. Apple's choices for leading-edge technology are the following:

  • Samsung
  • Taiwan Semiconductor
  • Intel
  • Global Foundries

Since the beginning of the iPhone, Apple has relied on Samsung exclusively to build its A-series chips. However, it's important to note that Samsung has also arisen as Apple's most aggressive competitor in the smartphone market by a fairly substantial margin. Enabling Samsung financially and giving it access to Apple's unique silicon designs seems like a pretty bad plan. Apple is very likely to want a neutral, independent foundry.

If TSMC doesn't win this contract, it will discredit TSMC
Many were shocked to find that in the iPhone 5s, Samsung had, yet again, won the Apple foundry work. This is particularly interesting given that the rumors had been swirling for quite some time that Apple was going to move to TSMC as quickly as possible.

The real test of TSMC's claims of foundry superiority will be with Apple's next-generation A8 chip. If TSMC is really true to its word of being superior to its competition, then Apple will have chosen TSMC for the manufacture of its next-generation chips. This will be a critical thing to watch. If TSMC again finds itself not having built the applications processor for Apple, and if Samsung -- Apple's arch-enemy -- wins this business again, then investors will need to ask some serious questions.

What about Intel?
Intel has talked up its prospects as a foundry a lot lately. While Intel's manufacturing technology is superior to TSMC's, it's difficult to escape the fact that Intel is a classic "frenemy." On one hand, Intel is a great supplier of chips to Apple for its Mac products, but on the other, Intel is working to actively enable Apple's Android competitors with its own Atom products. There are rumors that Apple is actively looking to boot Intel out of the Mac -- although, you should take these with a grain of salt.

While Intel's manufacturing technology is impressive, there are some real hurdles to this kind of a deal. First, Intel is still new to foundry. Next, Apple could leverage Intel's manufacturing technology to make chips for the Mac that could be even better than Intel's for that particular purpose. Finally, Intel's pricing is likely to be at a premium to TSMC's, suggesting that Apple would take a gross-margin hit in the name of performance/power improvements.

Foolish bottom line
Watch the Chipworks teardowns that follow once the next-generation iPhone is released. If these products are built on TSMC's process, then there may very well be something to the chipmaker's claims of foundry superiority. If they're still built on Samsung, or if -- gasp! -- they're built at Intel, then investors should take the company's future claims with a healthy dose of skepticism. 

Want a better way to get in on the smartphone phenomenon?
Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information