Will Apple Finally Quit Samsung With the iPhone 6?

Samsung (NASDAQOTH: SSNLF  ) might be Apple's (NASDAQ: AAPL  ) worst enemy. After all, the South Korean electronics conglomerate is arguably the most powerful of the numerous companies vying for a piece of Apple's smartphone and tablet market share.

Interestingly enough, Apple relies on Samsung for a number of components critical to its highly successful product lines. However, as Digitimes reported, Apple has been trying to shift away as much business as possible from its powerful rival. Can it eliminate Samsung completely from its supply chain?

The state of things so far
While CNET said Samsung isn't among the list of display vendors for Apple's iPhone 5 and 5s, it, along with LG Display, provides 9.7-inch high-resolution displays for Apple's iPad Air.

Samsung also manufactures some of the key chips found in most, if not all, of Apple's iDevices. For example, Chipworks reported that Samsung built the latest A7 processor found in the iPhone 5s and current-generation iPad models.

Furthermore, yet again according to Chipworks, the Qualcomm MDM9615 cellular modem found inside the iPhone 5s (as well as the latest cellular-enabled iPad models) is built by Samsung, as is the memory that comes paired with the modem.

That's a lot of Samsung inside Apple's products.

The iPhone 6 sees a shift away from Samsung
According to various rumors and leaks, Taiwan Semiconductor (NYSE: TSM  ) is likely to build the applications processor found in this year's latest iPhone and iPad models. Also, according to a recent leak from GeekBar (via Weibo), the iPhone 6 will use Qualcomm's MDM9625 LTE-Advanced baseband.

AnandTech's Brian Klug reported that this baseband is built on Taiwan Semiconductor's 28-nanometer HPm process, which would suggest a further diversification away from Samsung. However, this doesn't necessarily mean Samsung will not provide the DRAM for this particular baseband.

Two steps forward, one step back?
Though Apple appears to be moving away from a Samsung-built applications processor and cellular baseband, the Digitimes report stated that Apple would add Samsung as a DRAM supplier for products this fall.

This appears to be a choice made reluctantly, with Digitimes claiming that SK Hynix and Micron have been "reluctant to increase their shipments as chip prices offered by Apple are less than desired."

However, the incremental DRAM business that Samsung should see from Apple is unlikely to offset the alleged loss of revenue from the manufacture of both the applications processor and the baseband. 

Apple, on balance, appears to be doing a good job of decreasing its reliance on Samsung.

But what about the 14/16-nanometer fiasco?
During Taiwan Semiconductor's most recent earnings call, management reported that during 2015 it will "have a lower 16 [nanometer] share than a major competitor."

This led many (including yours truly) to believe that Apple would shift back to Samsung to manufacture the applications processor for the follow-on to the iPhone 6.

However, a recent report from Digitimes stated that Taiwan Semiconductor "will advance volume production on its 16nm process to the first quarter of 2015 with monthly output of 50,000 wafers in order to meet demand for Apple's A9 processors."

If true, then Samsung's foundry business could continue to struggle as it loses more Apple business over time. However, the Yonhap News Agency, reported that Samsung is going to build more chips for Qualcomm., which could offset the loss of Apple business.

Foolish takeaway
It appears that Apple is, indeed, doing a good job of removing Samsung from its supply chain -- at least if the rumors about the iPhone 6 and the recent Digitimes report about Taiwan Semiconductor's 16-nanometer progress hold true.

While this is strategically important to Apple for obvious reasons, it also has interesting longer-term business implications on Samsung. In particular, as Samsung's mobile device unit continues to see increased margin pressure, the company will likely rely further on its components business in order to stabilize and grow its profit base.

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  • Report this Comment On August 29, 2014, at 12:36 AM, bearvalleydave wrote:

    Ashraf, I'm a big fan of your writing, good article! I would respectfully disagree with you. At this point Google is probably Apple's number one enemy.

    On a side note, I miss reading your stuff on seeking alpha. I find this website much more difficult to use.

    best regards,

    bearvalleydave

  • Report this Comment On August 29, 2014, at 4:28 PM, TMFAeassa wrote:

    bearvalleydave,

    Thanks for reading, and thank you for the kind words!

    Regards,

    --AE

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