Taiwan-based contract chipmaker TSMC (NYSE:TSM) scored big during Apple's (NASDAQ:AAPL) iPhone 6/6 Plus cycle, winning the entirety of the manufacturing contract for the A8 processor. For the A9 processor inside of the iPhone 6s/6s Plus, Apple split the contract between TSMC and Samsung (NASDAQOTH:SSNLF), with Samsung apparently getting the majority of the orders.
Interestingly, even though TSMC didn't win the majority of the A9 chip orders, it is believed to be the sole manufacturer of the Qualcomm (NASDAQ:QCOM)-designed modem that powers the iPhone 6s/6s Plus.
For the A10, it is said that TSMC will be the sole manufacturer of the chip, which -- if true -- should provide TSMC with a nice year-over-year revenue boost. The iPhone 7/7 Plus are also likely to pack Qualcomm's MDM9x45 LTE modem, which is also built on TSMC's 20-nanometer process.
The iPhone 7/7 Plus ought to be good in terms of Apple content for TSMC. Where things have the potential to get more challenging for the chipmaker is during the iPhone 7s/7s Plus cycle.
Snapdragon X16 appears to be a Samsung-built device
Qualcomm's X16 modem, which I would expect to show up in the iPhone 7s/7s Plus, is built on Samsung's 14-nanometer manufacturing technology. Although Qualcomm has multi-sourced its modems in the past, it's not clear whether Qualcomm will do so with the X16.
At any rate, whether the X16 is dual sources or sourced solely at Samsung, both scenarios are negative (though not devastating) for TSMC as the company goes from sole source to either out of the loop or sharing the Qualcomm baseband win.
Who will build the A11?
Although the A10 appears to be "in the bag" for TSMC, it's not yet clear who will be building the A11. The follow-on to the 14-nanometer Snapdragon 820 is said to be built on Samsung's 10-nanometer process. At the same time, TSMC executives are on-record in claiming that the company will start the 10-nanometer generation off with "very high" (foundry) market share and "intend[s] not to lose it."
Given the dynamics around major customer Qualcomm, I am inclined to believe that TSMC has already won the majority, if not the entirety, of Apple's A11 chip orders.
In this case, TSMC should still be well positioned as the applications processor spot inside of the iPhone is much higher profile (and likely of higher dollar value) than the modem spot as far as foundry work goes.
If TSMC winds up being forced to split the A11 with Samsung, and this split is close to 50/50, then that'd actually be a negative for the Taiwan-based chipmaker. In this case, Samsung would have the "upper hand" as far as 10-nanometer foundry work/volume goes.
We'll see how it all plays out
I am generally positive on TSMC's long-term prospects; I believe that it has a number of key competitive advantages in the world of semiconductor foundries, including best-in-class technology and minimal conflicts of interest with respect to its customers.
However, the relationship between Samsung and Qualcomm is quite deep (one user on Seeking Alpha claims that Samsung will only use Samsung-built processors in its flagship phones, incentivizing Qualcomm to build its chips in Samsung's foundries), so this is something that potential and current TSMC investors need to keep an eye on.