Apple’s shift to TSMC for A8 chip fab hurts Samsung profits

“Over the past week, investors, analysts, journalists and the like have all been focusing on Samsung’s less-than-stellar performance from its smartphone business in the second quarter,” Min-Jeong Lee reports The Wall Street Journal. “But the outlook is also looking murky for its other, lesser-known business – making the microprocessors that are widely used in Apple’s iPhones and tablets. Samsung up until last year had a monopoly on Apple’s supply but earlier this year, Taiwan Semiconductor Manufacturing began shipping them to Apple, according to people familiar with the matter.”

“Samsung’s microprocessor business is largely divided into two parts—making its own microprocessors called the Exynos series and supply chips to others by competing with the likes of TSMC and Globalfoundries,” Lee reports. “Samsung executives admitted on a recent conference call that the outlook isn’t so bright for this business. ‘Sales and profitability from System LSI (logic chip business) worsened as demand from main customers continued to decline,’ Robert Yi, Samsung’s head of investor relations said last week. His comments confirmed, albeit indirectly, how Apple’s gradual shift away from Samsung as a customer of microprocessors was eating into its profits.'”

MacDailyNews Take: DYK? “Exynos” is Korean for “inferior silicon.”

“As TSMC ramps up production, analysts say such a move will continue to hurt the company’s logic chip business this year and early next year,” Lee reports. “Demand for its Exynos chips also remain weak. Even for Galaxy smartphones, the Exynos chips aren’t a very popular choice, analysts say. Looking into the third quarter, Yi acknowledged the difficulties the company was seeing in this area, saying that the ‘System LSI business is expected to remain weak due to continued low demand from customers.’ He didn’t elaborate on the company’s customer base.”

Read more in the full article here.

MacDailyNews Take: Kick ’em in the chops, Tim!

Of course, we’ve been saying Apple should dump Samsung across-the-board for years and years, now. It makes no logical sense to send billions of dollars in business to a company that’s been ripping you off for over half a decade. It’s good to finally see some pain being doled out by Apple.

[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]


    1. Ps, Apple’s foot was pulled well back before it was released to deliver an almighty kick at Samsung’s gonads.
      Samsung thought that they had Apple inc. unbalanced on one leg with their copying, litigating and obfuscating little realising that Apple was well and truly balanced on one foot whilst intending to perform a painful delivery with the other!

    2. Perhaps Apple’s legal actions were just a strategy to divert Samsung’s attention and make them think that Apple was desperate? Who knows…

      I like the fact that Apple remains willing to reassess its situation, adapt appropriately, and change course when necessary. In order for a company to remain vibrant and relevant, it has to be open to change, even when it is uncomfortable. Apple finds a way to embrace the discomfort and make it the next big thing (killing floppies, killing mobile keyboards, etc.).

  1. Gee, MDN, we are so happy that you’ve been “asking for years” for Apple to dump Samsung as a supplier. We’re sure that your uninformed and often juvenile commentaries on this subject were embraced by Tim Cook and his team.

    I never cease to be amazed by MDN’s willingness to lecture Apple on subjects that it knows nothing about. Exactly what experience do you have, MDN, on global sourcing and logistics at a multibillion dollar scale? What insider knowledge do you have of Apple’s supply contracts and their legal obligations that likely stretch forward for many years? How many chip foundries have you built and how many production lines have you validated? Have you ever bothered to considered the strategic business effects of recklessly freeing Samsung’s production capacity to create cheap but good quality parts for competitors?

    There is an excellent chance that Tim Cook and his team know about a billion times more about these and many other relevant subjects than MDN. The unwinding of Apple’s relationship with Samsung is taking place at exactly the speed the team believes is prudent and protects Apple’s interests. MDN’s repeated calls for Apple to summarily dump Samsung as a supplier belie not only a complete ignorance of the complexities of the situation, but a juvenile need for corporate vengeance only occurs in tv shows and bad movies. And I suspect that is the only “knowledge” of the subject that MDN has.

    1. Well noted. Also, Tim Cook and Co. have also done a masterful job of cloaking Apple future plans and R&D from Samsung. I believe Samsung was getting much earlier looks at what Apple’s future needs were allowing them to invest (intellectual capital as well as manufacturing capabilities) appropriately. With this road map cut off, Samsung is becoming a lot less cutting edge.

      1. What I really find amazing is either the sheer hubris or sheer obtuseness of the top Samsung leadership. Did they really believe Apple would keep on doing business with them while they blatantly ripped off Apple’s IPs? Anyway: this couldn’t have happened to a bunch of ‘nicer’ folks 🙂

      2. “…Samsung is becoming a lot less cutting edge”

        Most people never considered Samsung as ‘cutting edge’. It is more accurate to say Samsung is becoming a lot less TRAILING edge !

  2. Maybe they will have to start eating cockroaches and spiders like their friends up north. Cats and dogs will be too expensive. Ha, ha, ha, ha. Payback has only just begun.

  3. It is obvious that Apple needed to extricate itself for dependency on Samsung but it is not that easy. The manufacturing prowess and volume capabilities take a long time to achieve.
    The last thing Apple needs is to have component shortages for its key product launch. That would be disastrous.
    I’m sure Apple has been helping TMSC and GF build up their capacity and capabilities for the last few years.

    1. My hope is they end foreign (and domestic) dependence on CPU’s altogether and become the master of their own chip destiny. You can’t tell me Apple doesn’t have the billions needed to do this here in the U.S.. You just need the engineering talent and infrastructure. I know that will take time so let’s get started!!

      1. Problem is, there are two components to the chip business. The design, and the fab. The design with where the intellectual property is. The fab is an expensive, gruelling business, trying to spend the billions to get down to the next size, and getting a yield that makes sense.

        Apple has correctly chosen the IP side of the fence, and lets the groups that have already put in the time an money for fab to do thier thing. Apple doesn’t need to own a fab company any more than Ford needs to own a tire company.

        1. Except for the advantages of keeping secrets away from a part of the world where they are morally bankrupt about copying. Therein lie my primary concerns and keeping new developments secret. So the South Koreans might be kept in the dark now but the Chinese, not exactly trustworthy either, will know. Not a great trade off except for contributing to a lesser of fortunes for Samsung.

          I don’t underestimate the difficulties of doing this but underline the positive advantages. BTW I believe Ford DID own the manufacturing here in the States for the whole car, tires notwithstanding.

    1. I think the article was implying TSMC could not get to the 16nm and 14nm processing scales and that Apple was heading that direction. TSMC’s current fab process is sufficient for current models.

      If TSMC can evolve, Apple won’t need to leave.

  4. I don’t think people, even now, realize just how paradigm shifting the 64 bit chip in the iPhone has been. They can’t copy it without a long development time. The exynos doesn’t even begin to compete. Add to that the idea put forth here – loss of Apple as a customer.

    Double Whammy!

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