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Will Samsung Make the Next iPhone Chip?

Will Samsung Make the Next iPhone Chip?
By Barry Levine

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Samsung had previously provided the iPhone processor to Apple, but last year, as the patent war raged, Samsung lost to TSMC its Apple contract to supply A8 processor chips. The A8 processor incorporates a 20 nm manufacturing process, while the A9 utilizes 14 nm. Samsung's development of state-of-the-art 14 nm technology is seen as being a key factor in it regaining Apple's business.
 


The Apple and Samsung legal departments may be engaged in a worldwide legal war, but apparently their chipmaking departments have other priorities. According to a recent report, Samsung will manufacture Apple's new A9 processor chips -- although there are some contradictory reports about whether the companies are actually ready to do business again.

The report, in Monday's edition of The Korea Economic Daily, said that Samsung Electronics has signed a contract to supply Apple's A9 mobile application processor, beginning in 2015. The processor, which is used in Apple's iPhone, is destined for version 7 of that popular device. The Korea Herald has recently reported that Samsung and Apple may have agreed on a three-year deal.

But there are contradictory rumors floating around. The DigiTimes of Taiwan has reported that Apple will receive its A8, A9, and A9x chips from the Taiwan Semi-Conductor Manufacturing Company (TSMC), the largest chip foundry in the world by revenue. Some news reports have indicated that Apple and TSMC have been negotiating since 2010, but Apple reportedly wanted to include investment in TSMC or the designation of a facility specifically for its uses. TSMC is said to have resisted that approach. It's not clear from the most recent reports how these issues may have been resolved.

8 Percent to 15 Percent of TSMC's Business

Some analysts have estimated that Apple's orders would account for around 8 percent of TSMC's total business, if Apple outsources about a third of its chip orders to TSMC. This could increase to 15 percent of TSMC's business within two years, if Apple's orders increased to 60 percent of its needs.

Samsung had previously provided the iPhone processor to Apple, but last year, as the patent war raged, Samsung lost to TSMC its Apple contract to supply A8 processor chips. The A8 processor incorporates a 20 nm manufacturing process, while the A9 utilizes 14 nm. Samsung's development of state-of-the-art 14 nm technology is seen as being a key factor in it regaining Apple's processor chip business, assuming that has happened.

Samsung's war with Apple has apparently cost the South Korean company in a variety of ways, including the loss of a contract to provide memory chips for the iPhone 5. Samsung had been supplying chips for Apple's iPhones going back to the first one in 2007. Analysts have estimated that Samsung makes more money on memory chips than on processors.

Expensive R&D

Credit Suisse analyst Randy Abrams told The Wall Street Journal that an Apple-TSMC deal would "represent an important new leading-edge customer for TSMC to help support the expensive R&D" that the foundry needs to maintain its advanced-technology position.

TSMC, based in Taiwan, also has plants in Singapore, Shanghai and the state of Washington in the United States. Another plant is reportedly being built in the U.S., and TSMC's American presence could mesh with Apple's stated intention to construct at least some products in its home country. In December, Apple Chief Executive Tim Cook said his company planned to manufacture some Mac computers in the U.S., which would be the first time in about 10 years.
 

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