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Taiwan Semiconductor May Be Doubling Chip Production for the iPhone 7

By Chris Neiger – Mar 8, 2016 at 10:18AM

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Rumors are swirling that the chipmaker will exclusively make the iPhone's A10 processor.

Source: Taiwan Semiconductor.

Consumers aren't the only ones anticipating the next iPhone (which I'll just call the iPhone 7 for simplicity's sake). The next iteration of Apple's (AAPL -2.54%) flagship device is also reportedly spurring an increase in 16-nanometer chips from Taiwan Semiconductor Manufacturing Company (TSM -2.52%)

According to reports from Economic Daily News (later republished on DIGITIMES), Taiwan Semiconductor is increasing production from 40,000 12-inch chip wafers last month to 80,000 this month.  

Taiwan Semiconductor isn't an Apple-only supplier of course, so part of the increase in production could be for one of the company's other clients. But the timing makes sense, as Apple usually releases new versions of its iPhone in September. The current ramp up would give Taiwan Semiconductor ample time to produce processors in time for the iPhone 7 release date.

Such a huge increase in production also matches up with rumors that Taiwan Semiconductor might be the only supplier of iPhone's A10 processor.

For now, the news of Taiwan Semiconductor's production ramp-up and position as the exclusive supplier of the iPhone's next processor have yet to be confirmed. But if they prove true, it could be great news for the semiconductor maker. 

Splitting chip production
Apple typically splits up its iPhone processor production between different companies. Most recently, the iPhone 6s and 6s Plus sport processors that were made by both Taiwan Semiconductor and Samsung

Apple likes to balance out its suppliers so that it doesn't lean too heavily on one company, and so it can keep the upper hand in negotiating for supply costs. 

But China Times noted recently that Apple liked the cost-effective processes Taiwan Semiconductor uses, and is interested in working exclusively with the company. That would match up with longtime rumors that Apple is looking to part ways with Samsung's chips production. 

We won't find out for sure whether or not Taiwan Semiconductor earned the only spot in the iPhone 7 until the eventual teardown shows exactly what's inside, so investors will have to wait until at least mid-September to know for sure. 

Apple needs a major win, too
While Taiwan Semiconductor is looking to the iPhone 7 to boost its business, Apple is aiming for the same thing as well.

Apple forecast its first revenue drop in about decade for the first three months of the year, in part because of weakening iPhone sales growth. That's sparked a lot of worry among Apple investors because the company earns about 68% of its total revenue from the device, so any sales slowdown weighs heavily on the company.  

The next iPhone is expected to have a faster processor, a possible sapphire display, a dual-lens camera, wireless headphones (with no physical headphone jack), dual speakers, and could be waterproof.

And while consumers will look for upgrades like this in the next iPhone, Apple will be crossing its fingers for improved sales, and Taiwan Semiconductor will be looking for the same. Let's hope all of them won't be disappointed this coming fall.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Apple Stock Quote
$142.91 (-2.54%) $-3.72
Taiwan Semiconductor Manufacturing Stock Quote
Taiwan Semiconductor Manufacturing
$79.56 (-2.52%) $-2.06

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