Many stories have been written about the new iPhone and iPad models, which are expected to be released this fall, just in time for the holiday shopping season. Usually, the banter revolves around technical specs like processing speed and battery life, and physical characteristics such as screen size and color. One of the least-discussed threads could actually have more of an implication for the mobile industry.
Since the current versions of the iPhone and iPad were released last year, several reports have indicated that Apple (NASDAQ:AAPL) will boot arch-rival Samsung Electronics (NASDAQOTH:SSNLF) from the approved supplier list for the A8 processor that will be used in the next generation of phones and tablets. The South Korean giant has been the supplier for previous versions of the system-on-a-chip, including the A7, fabricated at its plant in Austin, Texas.
Other reports claim that Samsung will actually split the order with another longtime Apple supplier, Taiwan Semiconductor Manufacturing (NYSE:TSM). Apple may have wanted a backup in case Samsung had trouble solving its early yield issues, which may not yet be fixed.
For its part, Apple has never officially confirmed or denied any of the rumors. How might this affect investors?
Why Samsung can lose
Unless a third scenario plays out, in which Samsung retains exclusive rights to produce the A8 (the design is actually owned by Apple), the South Korean company, famous for its own Android-powered smartphones, might be affected as its chip business is one of the few bright spots at the company right now, making up for weakness in mobile.
Every successive iPhone model has outsold previous versions, and the new iPhone will likely follow the trend. Samsung might lose out on some of that success.
Why TSMC can win
Taiwan Semiconductor already supplies some chips to Apple, so the companies are familiar with each other. Winning the business for the brain of Apple's new devices would be a coup for the Taiwanese company, which has been growing revenue and earnings at a brisk pace.
Additional gains from selling a component that might comprise about 10% of the material cost for the next iPhone would be icing on the cake and could lead to even better things down the road, like winning the battle for the next version of the device. Winning, then, could lead to more winning.
Why Apple will probably win either way
Due to the fact that Samsung is its main rival in smartphones, Apple would probably rather not see its frequent courtroom adversary fab the A8 and make anything from the iPhone. Why give comfort and aid to the enemy right? However, if TSMC can't meet strict technical and yield requirements, Apple might have to stick with Samsung again for at least some of the production.
Either way, the processor is likely to be important for the success of the next iPhone, and to a lesser extent, the new iPads. Apple is betting that the A8 will increase battery life and boost performance. Loyal customers, which Apple has based upon its 76% user retention rate, will likely come back to buy even more devices and services later. So again, winning could lead to more winning.
According to some reports, Apple will no longer consider its primary adversary, Samsung, as the sole source for the updated processor that will used for the new iPhone and iPad models due out this fall. The rumor is that Apple has picked Taiwan Semiconductor to take over manufacturing.
Other rumors indicate that TSMC will share the glory with Samsung in a split order.
Either way, Samsung could be hurt if it loses even some of the production and cannot participate in the expected iPhone glory, which is likely to again benefit Apple shareholders.
Investors should pay attention to the teardown that occurs in the fall to see who's fingerprints are on the silicon inside the A8.