According to Economic Daily News (via DIGITIMES), Apple (AAPL -1.38%) has chosen Taiwan-based contract chip manufacturer Taiwan Semiconductor Manufacturing Co. (TSM -0.40%) to produce its next-generation iPhone applications processor dubbed the A11. More to the point, Taiwan Semiconductor is said to be the exclusive manufacturer of the A11, meaning that Samsung (NASDAQOTH: SSNLF) is out of the loop yet again.
Implications for Taiwan Semiconductor
It had been widely reported that Apple had chosen Taiwan Semiconductor exclusively for the A10 that will be inside of this year's iPhone 7, something that DIGITIMES reiterated in summarizing the Economic Daily News report. However, it appeared that there was the possibility that the A11 would be split between Samsung and Taiwan Semiconductor, as had been the case with the A9 processor found inside of the iPhone 6s/6s Plus.
Taiwan Semiconductor, it would seem, was successful in getting all of Apple's A11 orders.
This actually isn't too surprising in light of comments from TSMC on the company's recent earnings call. Management said that it expected to have "more than 70%" market share at the 10-nanometer node in 2017, something that implied at least majority share of the A11 orders, if not outright exclusivity.
At any rate, if TSMC has won the A11 in its entirety, then the chip manufacturer won't have to worry about tough year-over-year comparisons from late 2017 through late 2018. In fact, since both A10 and A11 are said to be TSMC-exclusive, TSMC should actually benefit during the iPhone 8 cycle as it will have the orders for the chips that go into both the flagship iPhone as well as the discounted prior-generation model.
Implications for Samsung foundry
Samsung managed to grab a lot of headlines earlier this year as it began talking up its own 10-nanometer technology. Although I expect Samsung's foundry to have a fairly large captive customer in the form of Samsung's own chip design teams, I'm not all that optimistic about its chances as a third-party contract logic chip manufacturer going forward.
Apple's choice of TSMC at the 10-nanometer node seems to suggest that TSMC's technology is superior. I say this because there were reports in the past (like this one) claiming that Samsung "attempted to offer low quotes to obtain 14nm FinFET foundry orders from Apple in 2015."
I have little doubt that Samsung would also be willing to offer attractive pricing on 10-nanometer wafers. That said, if the technology doesn't perform as well as Taiwan Semiconductors', or if Samsung's manufacturing yields simply aren't up to snuff (which would diminish the value of lower wafer prices), I'd expect Apple to pass.
Samsung has also signaled that 10-nanometer will be a fairly long node, with multiple iterations. Taiwan Semiconductor, in contrast, has signaled that its 10-nanometer technology will be a short node as it aims to transition to a superior 7-nanometer technology in 2018.
In light of this, I doubt that Samsung will even be in the running for Apple's A12, which I expect to be manufactured on Taiwan Semiconductors' upcoming 7-nanometer technology.
Implications for Apple
It's no secret that Apple tends to like having multiple sources for critical components. With TSMC seemingly so ahead of its main rival, Samsung, Apple is really down to one viable choice to manufacture A-series chips.
Apple's sheer scale should still allow it to get good wafer pricing from TSMC, but its ability to use Samsung as a negotiating tool to gain pricing concessions is likely to diminish substantially in the coming generations.