Apple puts chips on TSMC from Samsung: It's just good business

Apple puts chips on TSMC from Samsung: It's just good business

Summary: Apple partners with TSMC on chip production, hurts rival Samsung and has a relationship with a manufacturer that has no skin in the tablet game. The Apple-TSMC partnership is just good business.

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Apple is reportedly teaming up with Taiwan Semiconductor Manufacturing Co. (TSMC) to make the A5 chip for the iPad and that poses a big risk for Samsung's processor business.

The EE Times reported how Apple and TSMC have entered an expanded chip manufacturing agreement. It's a bit unclear what this TSMC deal means for Samsung's chip business, but the diversification adds up. In fact, analysts have been talking about an Apple-TSMC partnership throughout February.

In late January, TSMC executives outlined plans to ramp capital expenses in 2011 on an earnings call. That spending meant that TSMC was allocating foundry capacity to a big customer. Rumors quickly turned into reports in the Asian press.

Stifel Nicolaus analyst Patrick Ho said in a February research report:

According to media reports coming out of Asia, TSMC is ready to become a supplier of Apple processors for its iPad and iPhone products. In our view, this is not a major surprise and if anything supports some of the capex TSMC is projected to spend in 2011.

Our checks indicated that TSMC had already been a small second source supplier of the A4 as Samsung was strapped for capacity for all of 2010 and remains constrained today (although much less so). While some have stated that Apple was wary of giving additional business to Samsung (given Samsung’s own release of its tablet and smartphone products), our checks suggest some of Apple’s concerns were more related to TSMC process technology (which had some significant issues at the 40/45nm node) and TSMC’s ability to qualify for Apple. We believe many of these issues have been resolved as TSMC begins to migrate to 28nm.

Ho said that TSMC has been chasing the Apple processor business for at least 18 months. TSMC's move to add capacity is for Apple primarily.

TSMC CEO Dr. Morris Chang said on TSMC's fourth quarter conference call in January that the company was going to double its R&D spending for 2011 in a bid to take mobile market share.

Chang said:

As Fabless companies tend to participate more in the fast-growing new markets and designs and new products, such as the mobile computing devices, their faster growth fuels TSMC's growth. The development and popularity of the mobile computing devices will speed up the technology migration of the leading nodes, such as 40, 28, 20 nanometers, in order to meet the processing speed and low power requirements.

If you go by Apple CEO Steve Jobs' recent press conferences, it's obvious that the company isn't too keen on being Samsung's largest customer.

During Apple’s antennagate press conference, Jobs said:

“I guess it’s just human nature, when you see someone get successful you just want to tear it down. I see it happening with Google. Google is a great company. Look at everything they’ve created. Would you prefer if we were Korean companies? Do you not like the fact that we’re an American company leading the world right here?

And then Jobs openly mocked Samsung during the iPad 2 launch.

Theoretically, Samsung could decide that it wants to squeeze Apple on chips to supply its own tablet components. Given the dollars at stake, Samsung wouldn't send Apple packing, but there's a remote risk there.

Now consider the case for TSMC. Apple partners with TSMC, hurts rival Samsung and has a relationship with a manufacturer that has no skin in the tablet game. The Apple-TSMC partnership is just good business.

Topics: Hardware, Apple, Laptops, Mobility, Networking, Processors, Samsung, Tablets

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27 comments
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  • RE: Apple puts chips on TSMC from Samsung: It's just good business

    Maybe this is to add capacity? I see nothing wrong with Apple getting the A5 (or subsequent updated chips) from two different vendors. IT promotes competition. I am sure Apple still has contracts with Samsung for other parts, and that probably wont change.


    In other News iOS update showed up today, you can get iOS 4.3.
    Rick_K
    • But Apple has a history of screwing it's supporters

      @Rick_K and I'm really surprised that Samsung even decided to deal with them given there past.
      Will Farrell
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @Will Farrell
        And yet Samsung still deals with Microsoft? Everyone knows what happens to Microsoft?s ?partners? (they get screwed). So your point is?
        Rick_K
      • My point is that Apple screws it's partners

        @Rick_K
        and nothing you say changes that fact, so what does MS have to do with this?

        Ooops! - I must have forgotten -
        it's OK for Apple to screw people as long as somebody else screws people, too!
        Will Farrell
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @Will Farrell
        You have links to prove your assertions? All you have to do is look at the history of the industry for the last 30 years to prove what I said. So maybe you need to provide proof?
        Rick_K
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @Will Farrell

        Samsung is a supplier, not a 'supporter.' Besides, does it say anywhere that Apple is breaking a contract? It's normal for business to enter into new contracts when the old one expires.
        msalzberg
    • RE: Apple puts chips on TSMC from Samsung: It's just good business

      @Rick_K

      I doubt it's to add capacity. TSMC seems to be better at making 40nm chips, and get a higher yield. They're apparently going to make 25nm chips for Apple.
      msalzberg
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @msalzberg
        That very well could be. Either way these companies are competing for the business. There is nothing wrong with competition.
        Rick_K
    • RE: Apple puts chips on TSMC from Samsung: It's just good business

      @Rick_K - how does it promote competition? It's the same chip design. In this case, it's about finding the vendor that will replicate it at lowest cost. How little are you willing to work for?
      HypnoToad72
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @HypnoToad72
        It could be which vendor was willing to commit to a specific volume. If Samsung would only commit to a volume of say 38 million units, and TSMC is willing to commit to a volume of 60 million units, I would go with TSMC.
        Rick_K
  • RE: Apple puts chips on TSMC from Samsung: It's just good business

    Would it kill Apple to have these chips made right here in the good old USA? I'm sick of reading about some foreign Company getting picked over hard working unemployed Americans. I don't just want to buy a product from an American company, I want to be able to buy an electronic device actually made in America. Am I the only one who feels this way? Am I being naive? Does anyone else care about potential salaries for Americans going to someone that doesn't give a rats behind about America on the other side of the planet?
    gtdworak
    • Yes it really would

      @gtdworak

      Until labor and transport costs make local production "cost-competitive" this will continue. It may change with oil up over $100 again. But, when/if we see it, we'll see it first in items that costs a bundle to ship relative to their price (think steel, not tiny processors).
      oncall
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @oncall - and yet Steve Jobs claims to take in $1/yr as salary. Strange that his products' prices don't seem to go down as well.
        HypnoToad72
    • RE: Apple puts chips on TSMC from Samsung: It's just good business

      @gtdworak

      If they did build them entirely in the USA, the cost would be much higher per system. Probably at least double.

      Everyone likes to blame corporations for using non-US labor, but it goes something like this: If you have 5 major companies in an industry, all using american labor and ONE of them switches, then the other 4 can either choose to follow suit, or stick to their guns and die slowly because they cannot compete on cost. Under the present laws of our economy, companies really don't have a choice.

      Until some rule of that game changes, there is really no point blaming corporations for choosing survival.
      SlithyTove
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @SlithyTove Hopefully the people that now build their product will earn enough to buy it since their former employees are unemployed and not buying much of anything beside bare necessities! Enough companies do that and there goes your market! People that work in sweatshop don't drive Cadillacs or buy top of the line computers!
        leopards
      • No doubt

        @leopards

        However the American consumer has spoken. Cheap goods, that's what they want. Every company has learned this the hard way, slapping "Made in America" counts for nothing if the "Made in China" product sitting next to it costs $10 less or is deemed "superior". It will only reverse when making something here and selling it here "costs less" than making it across the world and shipping it here.
        oncall
      • Never happen oncall

        @oncall
        at least not with electronics. Other things, sure it happens right now, but Apple building here and lose profit margins -forget about that, it'll never happen!?!
        Will Farrell
      • RE: Apple puts chips on TSMC from Samsung: It's just good business

        @Will Farrell
        IT is not only Apple, but just about every electronics vendor. Name one vendor that make all of it?s products in America?
        Rick_K
    • RE: Apple puts chips on TSMC from Samsung: It's just good business

      @gtdworak
      That would happen only in a perfect world. In the world we currently live in, manufacturing the chips in the US would not increase jobs significantly. Most of the production would be done in an automated process. So you would have robots (most likely built in a foreign country) and the actual jobs created would be minimal. If the government made it harder to offshore jobs, rather than easier (you can thank Clinton for that), the situation would be different. But as it stands right now it is easier for large corporations to ship jobs overseas, rather than pay Americans. THis started with NAFTA, and has spread to just about every facet of the consumer industry. Why do you thin you talk to someone in India, when you call the customer hotline? It is not because it is easier to understand them. Do not get me wrong, there is nothing wrong with the people in India (I know a few that are quite hard working), but the Unions that have outlived their usefulness.
      Rick_K
  • "I see plans within plans"

    One more way in which Apple is doing what it has to in the effort to maintain complete control of it's own destiny. Which is really the underlying reason for everything they do. I think more than anything, that will be Jobs' legacy for a Post-Steve Apple.
    matthew_maurice