This must be precisely what Texas Instruments (NASDAQ:TXN) was talking about. Earlier this year, the chip maker announced it was ditching the high-flying mobile chip sector because the ground was shrinking beneath its feet and competition is brutal. TI said it was moving away from the space "where large customers are increasingly developing their own custom chips."

That most notably refers to heavyweights Apple (NASDAQ:AAPL) and Samsung, who design their own respective A-chips and Exynos processors in-house. Those two companies comprised 46.5% of the global smartphone market in the third quarter. More recent figures released by comScore similarly showed that the dueling duo also control the U.S. market.

Top 5 Mobile OEM

Market Share of Subscribers
(October 2012)











Source: comScore.

With the top two players not in the market for third-party silicon, TI has a point. The No. 3 player, LG, is now walking down the same path. Good call, TI.

Me three
The Korea Times reports that LG is looking to transition itself into becoming a prominent fabless chip maker, much like the rest of the ARM Holdings army. LG has been an ARM licensee for almost two decades, but last year the South Korean conglomerate said it was licensing ARM Cortex A9 and ARM Cortex A15 CPU cores as well as Mali GPU cores from the British chip designer.

Since then, the company has continued to bolster its ranks of chip engineers tasked with crafting in-house processors. The first fruit of these labors is now expected to make an appearance at the Consumer Electronics Show next month in Vegas, starting in smart TVs but inevitably making their way into LG smartphones.

LG is reportedly tapping Taiwan Semiconductor (NYSE:TSM) for fabrication on its 28-nanometer manufacturing process. There's also a distinct possibility that Apple might even switch its A7 chip to TSMC's 20-nanometer node next year.

Less to go around
The news is more evidence of the growing trend of in-house chip design, which has negative long-term implications for chip makers like Qualcomm (NASDAQ:QCOM), NVIDIA, and even Intel (NASDAQ:INTC).

LG's current Optimus G flagship phone runs a Qualcomm Snapdragon S4 Pro, as does Google's flagship Nexus 4 since it's based on that device. LG also uses NVIDIA Tegra 3 chips in other smartphones, like the Optimus 4X HD. It's foreseeable that LG will switch to in-house designs down the road and ditch suppliers like Qualcomm or NVIDIA in favor of its own processors.

Right now, Intel has no meaningful presence in smartphones, but that doesn't mean that Chipzilla isn't trying its darnedest to crash the mobile ARM party. However, if the market for third-party chips continues to shrink as more OEMs bring design in-house, that translates into less opportunity for Intel also.

If you build it
The net result for contract manufacturers like market leader TSMC is a little less clear. There are plenty of fabless semiconductor companies tapping TSMC, and if it's not Qualcomm or NVIDIA buying up wafer capacity, that business could simply shift to the likes of LG or Apple. To the extent that OEMs shift away from vertically integrated companies like Samsung or Intel, which operate their own chip foundries, the trend could be positive for TSMC.

Qualcomm has even contemplated building its own chip plants, too, in order to wean off its reliance on its suppliers, since TSMC was the source of 28-nanomter supply constraints all year. Still, that's a massive multibillion-dollar commitment in capital expenditures that the company isn't anxious to make unless it has to.

For now, there's still plenty of business to go around, as most OEMs like Nokia and Research In Motion continue to buy third-party processors with no indication of in-house aspirations. Nokia is a big Qualcomm customer since the company has an exclusive lock on Microsoft  Windows Phone devices, and RIM is rumored to also be switching to Snapdragons.

Those are the smaller players, though, and the heavyweights continue to express a clear interest in in-house chip design and outsourced production. Touche, TI.

Fool contributor Evan Niu, CFA, owns shares of Qualcomm and Apple. The Motley Fool owns shares of Apple, Google, Intel, Microsoft, and Qualcomm. Motley Fool newsletter services recommend Apple, ARM Holdings, Google, Intel, Microsoft, and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.