In the throes of December, the Apple (NASDAQ:AAPL) iPhone 6 and 6 Plus are the toast of the town.
Apple's latest smartphone is a virtual lock to propel the company to new records for revenue, profits, and device shipments when it reports earnings after the all-important holiday quarter late next month.
However, as the saying goes, time waits for no man, and the same could be said about Apple's iPhone. Rumors recently swirled that Apple had already begun the production of the A9 semiconductor that is supposed to power next year's editions of the iPhone and iPad. This story not only affects Apple and the smartphone OEMs Apple influences. It also holds significant financial implications for the downstream companies like Samsung and Taiwan Semiconductor (NYSE:TSM) that produce the innards of Apple's iDevices.
Apple A9: How early is too early?
To be clear, I'm raising an eyebrow at these reports, and I think you should too. Originally broken by a publication called ETNews, a South Korean tech news site, the story gained more traction when AppleInsider also reported it late last week.
Although I have little personal experience with ETNews or knowledge of its journalistic standards, the publication cites unspecified "industry insiders" as the source. We've seen this kind of unsubstantiated industry gossip come from other, more established rumor mills like the Taiwanese DigiTimes as well. More often than not, these reports prove false, so the sourcing alone makes me inclined to dismiss the storyline. However, the sourcing isn't the only problem.
The companies most likely to build the Apple A9 probably don't even have all the necessary equipment on hand to fabricate the chip right now. In a recent research note, boutique semiconductor research firm, Semiwatch Advisors, created a reverse production timeline for the Apple A9.
The idea was to connect two things: 1) when Apple will likely need to have the A9 under production to meet its own iPhone release schedule and 2) Apple's downstream partners and their suppliers to get a sense of the likely revenue cycle for those downstream companies. This allows us to understand not only how the next 12 months' sales might unfold at Apple fabrication partners, Samsung and Taiwan Semiconductor, but also how the upcoming financial performance of the fab companies might unfold, including lesser-known names like KLA Tencor and ASML Holdings. Take a look.
If we work backwards from the fall of 2015 . . . We would imagine that Apple wants to roll out the A9 processor in the fall of 2015 to keep up the momentum of the iPhone 6 . . . That means that Samsung/TSMC must be building devices in the summer of 2015. You can't be installing equipment in Q2 of 2015 with hopes of high volume manufacturing in the summer. So it makes sense that tool ordering [...] has to start now so tools start hitting the fab loading docks in Q1 . . .
According to this timeline, Apple's fabrication partners for the A9, be they Samsung or Taiwan Semiconductor, will only begin taking delivery for some of the advanced equipment they'll need to manufacture the A9 around the beginning of the first quarter. So even if you moved the possible delivery date up by a month, Apple's chipmakers would only have just recently received their newest equipment -- having Apple's A9 well into production is so unlikely as to be virtually impossible. I'm calling this rumor patently false.
Critical months for Samsung and Taiwan Semiconductor
However, this does bring attention to anther important aspect of Apple's upcoming chip cycle. Which company will fabricate them?
Apple's utter disdain for Samsung is well documented by now. As the two compete head-to-head in the smartphone market, Apple has shifted much of its component production away from Samsung over the past several years. Taiwan Semiconductor has been a notable beneficiary from Apple's corporate hardball, so much so that it was estimated to have produced roughly 60% of the A8 chips for the iPhone 6 and 6 Plus.
Rest assured, Apple will once again keep as much of its A9 business away from Samsung as possible in the upcoming production cycle. That being said, Samsung will likely receive some portion of Apple's A9 fab business for one key reason: Apple is widely expected to incorporate a cutting-edge semiconductor technology into the A9 known as FinFET. Without delving too deeply into the technical side of things, this new design and manufacturing process will hopefully enable Apple and other leading smartphone chipmakers to continue to pack more performance into increasingly smaller chipsets. Sounds pretty good, right?
Things grow more opaque, though, when taking into account recent rumors that the FinFET production process yields (an important measure of quality) have been abysmal at virtually all major chipmakers, including Taiwan Semiconductor, Samsung, and even Intel. This has led many to argue that Apple will likely take a more "hedged" approach than it might prefer in awarding its A9 production business. The company will likely spread its bets among several large fabrication partners, Taiwan Semiconductor and Samsung in this case, in order to maximize its ability to procure enough A9 chips for its late-2015 iPhone and iPad refresh cycle. So although I'm confident Apple's A9 has not yet entered production, the exact details regarding the rollout are far from certain as we head into the New Year.