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Samsung currently manufacturers LCD screens for the iPhone (right) and CPUs for the iPad 2. Apple hopes to phase out Samsung as a chip supplier, transitioning production to TMSC.  (Source: Sizzle Core)

Analysts say Apple may have difficulty dropping Samsung, though.  (Source: Samsung)
Rivalry between tech giants grows

As predicted, Apple, Inc. (AAPL) is looking to distance itself from one of its top suppliers -- Samsung Electronics Comp., Ltd. (SEO:005930).  

Samsung is one of three top Android smartphone makers.  Getting outsold two-to-one by Android, Apple has sued all three of the top Android smartphone makers including Samsung.  Apple claims that Samsung and other Android makers both ripped off its technology and its patented thin-black rectangular design.  Samsung responded with countersuits.  

The growing legal war has created a bitter divide between the firms and put Samsung's status as one of Apple's top chips suppliers in jeopardy.  Apple is the largest single buyer of Samsung liquid crystal displays.  It also relies on Samsung for DRAM chips (iPad) and CPUs (iPad/iPhone).

According to a Reuters report, the Taiwan Semiconductor Manufacturing Company (TPE:2330) has begun trial production of the A5 CPU found in the iPad 2, in a move that clearly signals Apple's desire to drop Samsung.

However, according to the report, Apple may find doing so difficult.  Samsung helped design the A5, reportedly, and holds key patents on some of its technology.  Also, TMSC may have difficulty replicating the design without defects.  Lastly, despite the companies' awkward relationship, Samsung is actually trying to convince Apple to keep it as a supplier.

Fubon Securities analyst William Wang is quoted as saying, "Apple is trying to diversify its orders but it will still maintain some kind of relationship with Samsung. I think TSMC will get the new chip orders, the issue however is allocation. Apple won't give the whole 100 percent to TSMC. Maybe it'll allocate only 20-30 percent." 

TMSC is an attractive replacement, though.  The company is the world's top contract chipmaker.  It also has extensive experience working with British architecture firm ARM Holdings Plc. (LON:ARM), which makes the underlying architecture for virtually all smart phones and tablets on the market.  TMSC has also just completed a $7.8B USD expansion of its production facilities, including developing new process technologies.

Apple reportedly hopes to go exclusively with TMSC for its next generation CPU.  While the last two generations were named the A4 and A5, respectively, Reuters reports that the next gen CPU will bear a different a non "Ax" branding.

Seo Won-seok, an analyst at NH Investment and Securities in Seoul, South Korea is doubtful that TMSC will earn the majority of the chip production contract, though.  He states, "It won't be easy for Apple to dramatically change its chip provider from Samsung. It has to redesign the chipset, which Samsung has been deeply involved from the beginning and has some intellectual property. Apple could try various suppliers but they (Samsung and Apple) need each other and the relationship will continue."

Nobody knows for sure what will happen, but the unfolding drama is fascinating to watch.  Even as Apple and Samsung directly vie for the top spot in global phone sales, the pair will continue their tug and pull behind the scenes with regards to their customer-supplier relationship.  Apple may try to ditch Samsung, but the Asian chipmaker will seek to make America's largest single phone maker an offer too compelling to refuse.

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So much misinformation..
By vision33r on 7/17/2011 11:45:00 PM , Rating: 2
Right now, Apple does not need Samsung. Remember the customer is always right. Samsung is providing Apple only the SOC production.

If you guys look at ifixit, clearly they don't need Samsung. Very few components actually are made by Samsung.

IF you look at the Teardown and parts list, where exactly does Samsung show up here?

The SSD NAND memory is made by Toshiba, various parts are all sourced directly from other chip providers.

LG makes the nice IPS display.

Foxconn does the whole assembly and packaging.

The conclusion is that Samsung needs Apple more than Apple needs Samsung. Apple is their biggest customer. Samsung will take a huge hit losing Apple. The Samsung Galaxy Tab is only 7% of the marketshare. Apple has 79%

The only difficult position is Apple needs Samsung for various patents covering the manufacturing of the A5 SOC which they will have to redesign some areas to get around the patents.

Samsung didn't play fair, it's not right when the company that produces the chip for the customer competes with the customer in the same markets. It's an unfair practice that is prohibited in the U.S.

You don't see Intel makes a laptop or PC to compete with Dell and Gateway.

RE: So much misinformation..
By tng on 7/18/2011 10:19:30 AM , Rating: 2
Samsung didn't play fair, it's not right when the company that produces the chip for the customer competes with the customer in the same markets. It's an unfair practice that is prohibited in the U.S.
What? LOL... Apple is not making the chip and does not even hold the patent on the Arm, they are just a licensee for it. Samsung and them hold some patents on the design currently used in Apples devices. Samsung is not using the processors in Samsung branded phones.

I have to wonder about exactly what you are thinking. Samsung manufactured various devices from semiconductor chips of all kinds to cellphones and washers and has been in the business of this long before Apple came to them. The touch screens they use (despite Apples advertising) are really quite ordinary and they could get them from half a dozen other manufacturers and do for other products.

RE: So much misinformation..
By bob1029384 on 7/18/2011 10:32:06 AM , Rating: 2
Speaking of misinformation... Guess where Toshiba gets a large portion of their flash memory wafers from.

"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch

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