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Inside Apple's Newest iPhone Lurks a Familiar Foe

By Jamal Carnette, CFA - Sep 29, 2015 at 7:09PM

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Apple can't quit this chip supplier.

Apple's A9 chip has two suppliers ... again. Image source: Apple.

Although Apple ( AAPL -1.17% ) and Samsung (NASDAQOTH: SSNLF) are fierce competitors in high-end consumer electronics, with the latter's Galaxy line of gadgets competing with Apple's iPhones and iPads, the two have a symbiotic, mutually beneficial relationship of sorts as it relates to Apple's host of iDevices.

Specifically, when it comes to Apple's devices, Samsung has a long-standing tradition of supplying the processing chips that Apple needs to be successful. Although the relationship between Seoul and Cupertino has become acrimonious at times, Samsung's supplied or had a hand in supplying all of Apple's Ax-series chip variants and even the predecessor chips used in the original iPhone and the iPhone 3GS.

And it appears this year is no different: According to engineering consultants Chipworks, Samsung is still profiting off Apple's current-gen iPhone 6s and iPhone 6s Plus phones, as the site confirms Apple is still using Samsung to fab the beastly Apple A9 chip.

Dual sourcing ... again
According to the site, Chipworks' teardown of the newest iPhone units uncovered two different A9 processors, one from Samsung and one from Taiwan Semiconductor Manufacturing Co. ( TSM -1.95% ) And this makes sense: During the last variant, the A8, Apple turned to chipmaker Taiwan Semiconductor Manufacturing Co. to be the lead supplier of the chip in a bid to diversify away from its biggest rival. And while we don't know Apple's desired intent or sourcing percentages when it signed the deal with TSMC, it was later reported Samsung sourced 40% of Apple A8 system on a chip.

For Samsung, it was to be expected it would have space in Apple's newest iPhone. Earlier reports were Samsung was able to source the A9 chip at 14 nanometers, whereas it was reported at that time that TSMC's manufacturing process was only capable of producing on 20 nanometers. For those not familiar with chip-speak, lower nanometer chips take up less space and are more efficient. For consumers who are hyper-focused on thinner form factors and longer battery life, 14 nanometers is clearly a better choice.

And this technological supremacy appears to be on display in Chipworks' teardown. The Samsung chip comes in at a smaller 96 mm square, versus TSMC's 104.5 mm square measurement. For those not cued in, those measurements correspond to node sizes of 14-nanometer and 16-nanometer, respectively, as it seems TSMC was able to shrink its node size since those early reports.

Still, an odd choice for Apple
It was rumored that both would fab Apple's chip, but two different sized chips was a shocker for many, myself included. Considering Samsung was able to create the chip using superior technology, and the idea of using two different-sized chips in one phone -- both teardowns were of the iPhone 6s, not the larger-sized iPhone 6s Plus -- seems odd...if you didn't know the background between Apple and Samsung.

Chipworks goes as far as to say this hints at "major sourcing problems," and this line of thought makes sense when you consider how compact the iPhone is designed. Or this could signify the level of disruption Apple's willing to go to to ensure that Samsung, its high-end competitor, is no longer the only source for its all-important chip. Apple uses multiple suppliers for RAM and other assorted internal hardware, and it seems to want to do that with its processor as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Apple Inc. Stock Quote
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Taiwan Semiconductor Manufacturing Company Limited Stock Quote
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