Image source: TSMC.
Back in 2015, it was revealed that Apple (AAPL +1.18%) had decided to source the A9 applications processor that powered the iPhone 6s and iPhone 6s Plus from both Taiwan Semiconductor Manufacturing Company (TSM +6.30%) and Samsung (NASDAQOTH: SSNLF).
This was viewed as something of a blow to TSMC, as the company was previously the exclusive manufacturer of Apple's A8 chip.
Since then, TSMC's execution appears to have improved. It is widely believed to be the sole manufacturer of Apple's A10 Fusion chip inside of the recently released iPhone 7 and iPhone 7 Plus. It is also expected to be the sole manufacturer of next year's A11 processor, particularly in light of management's comments that it will have in excess of 70% foundry market share at the 10-nanometer node.
Based on commentary from TSMC's third-quarter earnings call, it looks as though it might have won the entirety of Apple's A12 orders as well.
TSMC expecting substantial share at 7 nanometers
When an analyst asked TSMC's executives about what kind of share the chipmaker expects to have during the 7-nanometer technology generation, co-CEO Mark Liu had the following to say, according to a transcript from Seeking Alpha [sign-in required]:
High. We'd say high. Higher than 10-nanometer. We want to do every node higher than the previous node.
Based on this comment, and assuming that the A12 chip will be manufactured in a 7-nanometer process rather than a 10-nanometer one (and I believe this is a safe assumption to make), it stands to reason that TSMC has won the entirety of the Apple A12 contract.
Additionally, since the 7-nanometer node is expected to be TSMC's leading edge technology until around 2020 (when it rolls out its 5-nanometer technology), Apple will likely build the A13 on TSMC's 7-nanometer technology as well.
And, given that Apple is responsible for a substantial amount of revenue and unit shipments on a given technology node, it would be very hard for TSMC to have "higher than 10-nanometer" share if it weren't the exclusive manufacturer of the A13.
Impacted businesses
For TSMC, this is likely good news for a couple of reasons. First of all, Apple doesn't tend to reduce the sizes of its chips much, instead opting to use the additional chip area that new manufacturing technologies bring to add features/performance. Given that 7-nanometer wafers will almost certainly be more expensive than 10-nanometer wafers (which in turn are likely to be more expensive than 16-nanometer wafers), I expect TSMC's dollar content from the applications processor within future iPhones to continue to move upward.
Beyond that, though, to the extent that Apple's iPhone unit shipments grow, so too should TSMC's revenue from Apple.
The main loser here is Samsung (NASDAQOTH: SSNLF), which is a competitor to TSMC in contract chip manufacturing. Apple used to be a major anchor customer for Samsung's contract chip manufacturing business, but it would appear that this business is gone in the near-to-medium term -- and potentially for good.
Further, if TSMC's share projections are accurate, Samsung foundry customers like Qualcomm (QCOM +3.23%) might be planning to jump ship -- in whole, or in part -- to TSMC at the 7-nanometer node.
Fortunately for Samsung, contract chip manufacturing is a very small part of its nearly $40 billion chip business (IC Insights estimated Samsung's contract chip business at less than $3 billion in revenue during 2015), let alone its total business, so losing out to TSMC isn't really a "game changer" for Samsung's business or its stock price.
