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Here’s Why This Apple Inc. Supplier Might Not Lose Business After All

By Ashraf Eassa – Jul 22, 2017 at 11:00AM

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Innovation in chip packaging technology might allow TSMC to stave off Samsung in the competition for Apple's A-series chip orders.

A report recently claimed that Apple (AAPL -1.26%) had decided to dual source the A12 Fusion chip that'll almost certainly power the 2018 iPhone lineup. If that report were to be true, it would be a negative for Taiwan Semiconductor Manufacturing Company (TSM -1.23%), which currently builds all of Apple's A10 Fusion chips and is expected to manufacture all its upcoming A11 Fusion chips.

Apple's A10 chip.

Image source: Apple.

The second source in this case would be Samsung (NASDAQOTH: SSNLF), which currently builds a portion of Apple's A9 processors. Those chips power Apple's iPhone 6s, 6s Plus, iPhone SE, and low-cost iPad.

I've already explained why, based on (admittedly dated) statements from TSMC management that I'm skeptical of this report. Digitimes recently published an article in which it cites industry sources that are also skeptical of that report.

TSMC has the InFO that Apple wants

Digitimes says that TSMC is about to rollout a second generation of its integrated fan-out (InFO) wafer-level packaging technology. TSMC rolled out the first generation of this technology last year, and the Apple A10 Fusion chip is believed to utilize it. Last year, TSMC management explained the benefits of this technology compared to "conventional" packaging technologies.

"Compared to the conventional package, TSMC InFO has advantage[s] in form factor, such as smaller area and a similar thickness," TSMC co-CEO C.C. Wei said previously. The executive also claimed that this packaging technology had the potential to bring down overall power consumption by "as much as 20%."

The second generation of this InFO technology will reportedly "bring more competitiveness to [TSMC's] 7nm FinFET process technology," Digitimes says, citing "industry observers."

Those same observers, Digitimes explains, think that TSMC's InFO technology will give its 7-nanometer technology a leg up on Samsung's competing technology. They also reportedly said that TSMC's "innovation in backend packaging plays a key role in securing exclusive orders for Apple's processors in this year's iPhone models.

"TSMC, which is already the sole supplier of Apple's 10nm A11 chips for the upcoming iPhones, will still likely obtain all of the next-generation A-series chip orders for Apple's 2018 series of iPhones with its 7nm FinFET process," the "industry observers" reportedly said.

TSMC needs to be cautious!

At this point, I'd be inclined to believe that TSMC will win all the A12 Fusion orders, but TSMC and its investors should be careful not to underestimate Samsung. Samsung has supplied Apple's A-series chips before, and if the company is able to get its 7-nanometer technology up and running in the time frame required to hit Apple's next-generation iPhone launch, then it's not out of the realm of possibility that Samsung -- with aggressive enough pricing -- could very well win some of the business.

Apple likes to dual source critical components, after all.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.84 (-1.26%) $-1.92
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
TSM
$72.13 (-1.23%) $0.90

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