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Apple Inc. Supplier Rumored to Lose Some Business in 2018

By Ashraf Eassa – Jul 18, 2017 at 8:30PM

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This top Apple supplier could be set to split chip orders with its bitter rival in 2018.

In 2014, contract chip manufacturer Taiwan Semiconductor Manufacturing Company (TSM -1.04%) won the entirety of the A-series orders for Apple's (AAPL -3.00%) blockbuster iPhone 6 and iPhone 6 Plus smartphones.

This was the first time that TSMC was tasked with manufacturing Apple's crown jewel A-series applications processors, and the company delivered -- the iPhone 6 cycle was a huge success and Apple seemed to be able to get its hands on all the A8 chips that it could sell.

An individual using Apple's latest iPad Pro

Image source: Apple.

Then, in the following year, Apple split the A9 orders between TSMC and Samsung (NASDAQOTH: SSNLF) which, until the A8, had been Apple's only A-series chip manufacturer. The exact allocation at each chip maker wasn't officially revealed.

After that, Apple appeared to have chosen TSMC as the exclusive manufacturer of the A10 Fusion chip. It's also believed that TSMC will be the sole manufacturer of the A11 Fusion chip that'll debut in this year's iPhone models.

That might be set to change next year.

Samsung may be back in 2018

A new report from The Korea Herald claims that Samsung "recently purchased extreme ultra violet lithography machines, the most advanced chip manufacturing equipment, to produce seven-nanometer mobile processors solely for iPhone."

"Samsung plans to complete its own tests for the chip-making machines soon and seek final approval from Apple for the chip production," the report claims.

Impact on Samsung and TSMC

If this report is legitimate, then that's clearly good news for Samsung and bad news for TSMC.

Although Samsung has been out of the A-series chip loop for quite some time, it has been steadily gaining market share at Qualcomm (QCOM -1.62%), the top merchant vendor of mobile applications processors.

Qualcomm seems to be using Samsung's 14-nanometer and 10-nanometer manufacturing processes exclusively, and both of those technologies have become a larger part of Qualcomm's product mix. That's to Samsung's benefit and to TSMC's detriment.

Qualcomm is reportedly planning to shift its stand-alone modem orders back to TSMC at the 7-nanometer technology generation, but that's relatively small business compared to the fully integrated applications processor and modem chips that Qualcomm seems to be building entirely at Samsung at this time.

Grabbing some of the A12 Fusion orders would allow Samsung to capture more of the high-end mobile applications processor market via its contract chip-manufacturing arm, and it could hurt TSMC, which seems to rely on Apple as its anchor customer for new manufacturing technology.

Is this report legit?

At this point, it's hard to tell how credible this report is.

Back on TSMC's October 2016 earnings call (which, admittedly, may not reflect current reality), co-CEO Mark Liu was confident that the company's market share at the 7-nanometer technology node would be "high" and "higher than 10-nanometer."

"We want to do every node [as] higher than the previous node," the executive said.

Unless there has been a dramatic change in the industry, I can't see how TSMC can achieve such "high" share (note that on that call, TSMC said that it expected to have more than 70% share at the 10-nanometer node) without winning the entirety of Apple's A12 Fusion (as well as A13 Fusion) orders.

Ashraf Eassa owns shares of Qualcomm. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$138.20 (-3.00%) $-4.28
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
$112.98 (-1.62%) $-1.86
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
$68.56 (-1.04%) $0.72

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