How Apple Inc. Can Benefit From This New Chipmaker Partnership

Samsung and Global Foundries have agreed to use the same manufacturing process for some chips, allowing Apple to diversify manufacturers.

Chris Neiger
Chris Neiger
Apr 21, 2014 at 12:45PM
Technology and Telecom

The manufacturing process of mobile processors can be, well, a little bit boring. But understanding all aspects of a company's business is paramount in making good investment decisions, which is why Apple (NASDAQ:AAPL) investors should know at least a little bit about Samsung's (NASDAQOTH:SSNLF) and Global Foundries' latest agreement to use a new, advanced chip making process.

The latest news may not be as sexy as a bigger screen for the iPhone 6, but it could help Apple achieve better diversification with its chip suppliers.

Why the new agreement is important
Global Foundries is the No. 2 chipmaker -- behind Taiwan Semiconductors -- and Samsung comes in fourth place. The two are teaming up to use Samsung's new manufacturing process to make 14-nanometer processors, which will be used in future smartphones and tablets.

The 14-nanometer chips Samsung and Global Foundries will produce will be 20% faster and use 35% less power than their 20-nanometer predecessors.

Right now, if mobile device makers want a chip made they can design it themselves and then hire Taiwan Semiconductors, Samsung, Global Foundries or another company to make it for them. Apple does this with its iPad and iPhone processors, and mobile processor leaders like Qualcomm do it as well.

Apple is very dependent on Samsung's foundry right now, which produces most of the company's mobile processors. Apple is constantly rumored to be switching away from Samsung to Taiwan Semiconductor, but so far has kept the majority of its chip manufacturing with Samsung.

It's no secret the two are huge competitors, and it would make a lot of sense for Apple not to send so much chip business to the company. Once the new manufacturing process is up and running -- which is expected by the end of this year -- Apple could diversify its processor orders between the two.

Aside from Apple's wanting to move business away from one of its biggest competitors, the iPhone maker traditionally likes to diversify component orders anyway. With the manufacturing processing for 14-nanometer chips soon becoming being identical at Samsung and Global Foundries, Apple could spread out its chip orders between the two companies, without experience much delay in manufacturing.

Foolish final thoughts
If Apple's able to diversify its mobile chip manufacturing between Samsung and Global Foundries, it could possibly help prevent hiccups in production times.

But because the new manufacturing process won't go into effect until later this year, we won't see chips from this new agreement until at least mid-2015. So don't expect any major manufacturer changes from Apple for the iPhone 6 or the next iPad iteration, at least not related to this latest partnership.