Samsung’s US share of the smartphone market may be closing in on Apple, but recent updates from the supply chain could see Apple knock the financial wind out of the South Korean sails for the rest of this year.
A number of sources in the supply chain have confirmed that Apple’s next major chip, the A10, will be manufactured exclusively by TSMC (reports Jack Purcher on Patently Apple). TSMC shared manufacturing duties on the A9 chip with Samsung, which had a positive impact on Samsung’s bottom line for the last year (and arguably offset the poor performance of the mobile division). Those will now be lost to the South Korean company
Apple iPhone 6S (image: Ewan Spence)
The loss of the A10 business is going to have a notable effect on Samsung’s income and profit over the next few years. Samsung has been here before with the A8 chip which shipped with the iPhone 6 and 6 Plus. TSMC also took all of the inventory orders and Samsung saw this have a negative impact on its bottom line before Apple split the order for the A9 between the two companies (a choice which led to some iPhones having more performance and better batter life than others).
Samsung has some options to replace this presumably lost business during 2016. It is working with Qualcomm to manufacture the SnapDragon 820 system on chip which will be found in many of the 2016 Android handsets, including Samsung’s international releases of the Galaxy S7 and S7 Edge. It is pushing hard for Apple to adopt it as the manufacturer of an OLED display for a future iPhone. And of course the A9 is not suddenly going to go out of fashion – the ongoing sales of the iPhone 6s and iPhone 6S Plus still needing parts. That’s a solid business, but it’s not going to deliver the sort of income Samsung needs to grow the company.
TSMC’s latest manufacturing processes have some clear technological advantages, such as INFO (Integrated Fan Out), which reduces the vertical height required to stack chips and components. That means Apple can create a thinner design for the next iPhone, and of course the INFO process is TSMC’s, which locks out Samsung until it can design a similar process.
It also leaves Samsung as a company in a tricky place. The mobile division is already dragging results down, and 2015 has seen a reliance on shipping higher volumes of mid-range models with lower margins to try to arrest the financial decline. Other departments have to carry that weaker performance, and that leads less money for research and development. If Samsung is going to pitch itself as a leader in the smartphone space through technology, innovation, and features, anything that affects the money available will weaken the product offered.
Strip out the lost sales of the A10 chip, and Samsung’s resources are reduced even more. While TSMC is the choice that allows Apple to continue its lust for designing thinner devices, the fallout could have some beneficial side effects for Apple.
It starves Samsung of financial resources, reducing its ability to develop desirable high-end handsets. That in turn creates a bigger gap between the iPhone and the competition. Samsung is going to have to work harder to stay where it is, while Apple can continue to work on the return of the four-inched iPhone and prepare the ground to make its own technological leap forward with the iPhone 7 later this year. An iPhone with the A10 chip that Samsung desired lying at its heart.
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