It had been widely reported for quite some time that Samsung (OTC:SSNLF) was slated to get much, if not most, of the Apple (NASDAQ:AAPL) A9 business. However, according to multiple new reports from the sell-side, the tables may have turned in Taiwan Semiconductor's (NYSE:TSM) favor.
Indeed, Daiwa Securities' analysts were out with a report earlier this month claiming that TSMC would get about 70% of the Apple A9 orders. Analysts at Cowen also said essentially the same thing. And, now, analysts at Bernstein Research claim that Samsung has experienced "yield difficulty" and that they estimate that 40% of the A9 business will go to TSMC.
What? Yield difficulties at Samsung?
The reports all seem to have a common theme: low yields. Daiwa Securities' and Cowen's analysts seem to imply that the A9 chip is yielding better on the TSMC process than on the Samsung process. Bernstein Research cites "yield difficulty" at Samsung.
This might come as a surprise given that Samsung is actually shipping an internally designed Exynos chip inside of the Samsung Galaxy S6 built on this 14-nanometer process. Indeed, TSMC isn't "officially" in mass production on its 16-nanometer FinFET+ technology and isn't expected to be until July (per the company's press release back in November).
So, what could be going on here?
Chip margins and $700 phones
The primary reason that chip companies care about yields so much is that it directly impacts cost. If it costs a certain number of dollars to produce a wafer of chips, then the cost per chip essentially comes down to that cost divided by the number of good chips per wafer. The more good chips, the lower the effective cost per chip is.
The reason that Samsung can ship 14-nanometer silicon into its Galaxy S6, despite what seem to be relatively poor yields (and thus high cost per chip), is simple: that chip is being sold wrapped inside of a phone that's selling for about $700. Whether the chip inside cost Samsung $15 or $30 to make isn't a huge deal in that context, particularly considering that Samsung needs any and all marketing points that it can get to try to gain back share in high-end smartphones.
If true, this is good news for Taiwan Semiconductor
One of the big fears within the investment community with respect to Taiwan Semiconductor is that Samsung would take much of the Apple business, negatively impacting the company's revenue. While none of these reports suggest that TSMC will get all of the A9 orders, there was probably an expectation that it would get far less than the 70% that the Daiwa Securities analysts or "most" as the Cowen analysts suggest.
However, the "good news" doesn't end with the Apple-related revenue. Bernstein Research says that Samsung will be Qualcomm's (NASDAQ:QCOM) primary supplier at the 14/16-nanometer technology node. However, if TSMC still has superior yields by the time Qualcomm needs to go into volume production, then I wouldn't be surprised if Qualcomm shifted to TSMC as the primary supplier for those products.