Apple Just Can't Quit Samsung

Ahead of every Apple (NASDAQ: AAPL  ) product launch, there's always been some rumor here, some claim there that Apple would be building its next-generation A-series chip at Taiwan Semiconductor (NYSE: TSM  ) rather than at its longtime manufacturing partner, Samsung (NASDAQOTH: SSNLF  ) . There's a very clear conflict of interest with this particular Apple/Samsung partnership, but it seems that despite the bad blood that runs between both companies, Apple just can't quit Samsung.

20-nanometer goes to Apple, but back to Samsung at 14-nanometer?
At the 20-nanometer generation, it seems that Apple has moved more or less to Taiwan Semiconductor. This makes sense, given that Samsung doesn't really appear to be advertising its 20-nanometer process (although whispers of poor yields have made their rounds) and has been making quite the splash with a series of 14-nanometer related announcements. This should provide a pretty substantial boost to TSMC for the next Apple product cycle.

However, given the recent deal between Samsung and Global Foundries to essentially synchronize their 14-nanometer processes (i.e., Global Foundries is licensing Samsung's manufacturing recipe), it seems that Apple may be making a move back to Samsung's process, built at both Samsung's factories and Global Foundries'. It remains unclear if TSMC will remain a source for these Apple chips beyond the 20-nanometer node.

Potentially negative for TSMC; nice win for Samsung
While TSMC will get the boost at 20-nanometer, it is likely to split those volumes across Samsung, Global Foundries, and TSMC at 14/16-nanometer and beyond, which will prove a negative for TSMC by the late 2015-to-early 2016 timeframe. More to the point, as Samsung generally gets stronger as a foundry, it stands a chance of taking some pretty meaningful share from TSMC.

This is actually not all that great for Apple, since as long as Samsung continues to see the influx of foundry dollars required to invest in future development, it will continue to have pretty meaningful power over Apple since the performance of the A-chips is a key differentiator for Apple's iPhone. With Samsung a strong, well-funded foundry, it will bring the same technology to its own in-house apps processors (or to its foundry customers, which may be Apple competitors).

That said, Apple could play the supplier squeeze game ...
The good news, though, is that if Apple has Global Foundries, Samsung, and TSMC to choose from, it can probably negotiate some pretty good wafer prices, which will be especially handy as these wafers become more expensive to build. Also, with multiple suppliers, Apple de-risks moves to leading-edge manufacturing technologies, as there will be multiple sources there to supply them.

Foolish bottom line
With Samsung apparently getting extremely competitive at the 14-nanometer generation and in light of the Samsung/Global Foundries deal, it seems that Apple can't really quit Samsung and that TSMC's top- and bottom-line growth could come under pretty significant pressure as a result of a margin squeeze for leading-edge foundry capacity as well as share loss. Interesting times ahead in the semiconductor industry!

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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.

  • Report this Comment On April 22, 2014, at 1:17 AM, Goinidias wrote:

    Needs more trolls. Don't see any comments.

  • Report this Comment On April 22, 2014, at 11:18 AM, verylargelarry wrote:

    Wow. No mention of Intel. Ashraf must be off his game.

  • Report this Comment On April 22, 2014, at 11:27 AM, GaryDMN wrote:

    Taiwan Semiconductor is not new to this game and is the worlds largest contract fab. Going way back in time, Intel's Pentium 3 was in trouble, potentially losing ground against AMD (basically Global Foundries, which was the fab business spun out of AMD, which is now fabless), because all Intel's fabs were making P3's. In a brilliant move, Intel contracted Taiwan Semiconductor to build the P4's and at the same time, convinced Microsoft to abandon the AMD processors that were designed to be in the first Xbox, for the P3's, which was essentially dumping all their P3's on Microsoft, while Intel upgraded their fabs and Taiwan Semiconductor made the early P4 processors. Taiwan Semiconductor has grown in the decades since that and their is no reason to think they will not do everything in their power to keep Apple as a customer, if simply, as foolish as to think Apple will be forced to go back to using Samsung as a contract fab.

  • Report this Comment On April 22, 2014, at 11:30 AM, jpanspac wrote:

    The trolls are mostly AMD fanbois, so they wouldn't be interested in this article.

  • Report this Comment On April 22, 2014, at 2:00 PM, raghu78 wrote:

    Apple is looking at massive capacity for their first FINFET based mobile SOC- the A9. Given how ambitious Apple has been with the Cyclone core and looking at the massive power efficiency and transistor density gains from 28nm planar to 14 FINFET, Apple can fit 4 improved Cyclone cores at 14 FINFET. With that kind of raw horsepower Apple can also produce a low cost Macbook Air at USD 750 and a higher performing and larger ipad pro. Apple is definitely looking at massive capacity requirements. Apple is the main reason for Samsung to license 14 FINFET to GF.

    http://www.fudzilla.com/home/item/34560-first-globalfoundrie...

    by late 2015 we can expect A9 to be fabbed at Samsung S2 Fab in Austin Texas and GF FAB 8 in Saratoga, New York State. Given Apple's massive volume requirements the H2 2015 14 FINFET shipments at Samsung and GF might be exclusively for Apple.

  • Report this Comment On April 22, 2014, at 2:33 PM, fjv2102 wrote:

    Hi Ashraf,

    Thank you for the article, it provides a nice concise outline of the Apple chip supply chain. I have a few things to add that you should consider.

    1. I'm confident Samsung abandoned 20nm long ago. This gives TSMC the sole lead in this technology, which I expect to be in the Apple A8. Qualcomm and AMD have shown strong interest in 20nm. GF is also developing 20nm, but I have not seen any rumors from QCOM and AMD regarding any partnerships which at this point in the game leads me to believe GF is behind in yields. There are rumors that TSMC is already producing some QCOM chips.

    2. Why would Samsung license their technology to GF? They are essentially giving GF, a competitor, a whole technology node. I agree with raghu78- My educated guess is that they have a capacity issue and need another fab to help produce their 14nm Apple chip for 2H2015. Samsung and GF will compete for other customers eventually once they secure the capacity for Apple.

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