Apple Excludes Samsung from A7 Chip Manufacturing

| Analysis

Now With Less Samsung™Apple has given Samsung the boot on the next generation of AX processors, according to a report from The Korea Times. Citing Samsung suppliers, the newspaper reported that Apple has begun sharing proprietary information for a new generation chip with Taiwan Semiconductor Manufacturing Company (TSMC), excluding Samsung in the process.

The report specified the chip as the Apple A7 and said that it would ship in the first half of 2014. Note that Apple hasn't actually announced an A7 processor, though such nomenclature would be consistent with Apple's past processor naming conventions. In January, TSMC was rumored to have gotten the gig to make an A6X processor for Apple.

"Apple is sharing confidential data for its next A7 system-on-chip (SoC) with the Taiwan Semiconductor Manufacturing Company (TSMC). TSMC has begun ordering its contractors to supply equipment to produce Apple’s next processors using a finer 20-nanometer level processing technology," an unnamed executive at one of Samsung’s local partners in Korea told the newspaper.

Rumors have swirled for the last 12-18 months that Apple was looking for a new manufacturing partner for its AX line of processors, which are used in iPhones, iPads, and iPod touches. Samsung has been Apple's fab partner from the get-go, but Apple became tense with the Korean company after Samsung began copying Apple's industrial design and interface innovations in the smartphone and tablet markets.

The two companies have embarked in massive lawsuits and trade regulatory fights around the globe. In the most significant event in that battle, Apple won a $1.05 billion damage award from a U.S. jury in August, and Samsung was officially name a copycat. That case is still wending its way through the post-trial and appeals phases.

Despite the lawsuits, however, Apple and Samsung have remained business partners, with Samsung supplying many components to Apple. One of the most significant aspects of that relationship has been Apple's AX processors.

Apple designs its own processors, but contracts with Samsung to have them produced. It's a multibillion dollar business for Samsung—or it has been up to now—and Apple was a major customer for Samsung's semiconductor operations.

The processors are made in a major facility outside of Austin, TX, and the loss of Apple's business will not only effect Samsung, it will have a negative impact on the local Austin economy. The Korea Times said that Samsung was trying to expand its contract work with Nvidia to fill the gap that Apple will be leaving.

Computerworld's Jonny Evans noted that TSMC has been looking to expand operations into the U.S., but it remains unclear where the A7 processor would be manufactured.

Comments

Lee Dronick

Well, this could get interesting.

nealg

As a supplier, Samsung does a great job. Unfortunately, they also copy when they see the opportunity. They have done a pretty good job of it with the help that Apple didn’t really mean to give them. As Apple moves more of their supply chain away from Samsung, I think it will be interesting to see what they come up with and if they can sustain their position in the mobile world.

Paul Goodwin

I wonder if this would have happened if Samsung had settled with Apple on the infringement suits. This penalty will probably be higher in the long run than the settlement would have been. Way to think things through Samsung. Now they’ll have to send spies into Taiwan Semiconductor.

wab95

Bryan:

I have half a moment, so let me indulge.

I have little doubt that in their quiet moments, either in counsel or in solitude, Samsung’s top execs feel angst in their guts, a growing anxiety over their need to perform and deliver without the Apple template sitting in their lathes, and, following their release of the Galaxy S 4, a gathering unease that is festering into foreboding over their business plan to transition into a soup-to-nuts whole widget company on par with Apple. (I really think they should drop the denial, adopt that Jungle Book song, ‘I Wanna Be Like You’ and play it as a cathartic at all staff and exec meetings). 

Samsung will no doubt put on a brave face and tell the world, and even themselves (although their accountants won’t let them get away with it) that the loss of Apple’s business means nothing to them, a mere rounding error on their balance sheets at year’s end. ‘Who? Apple? Took their business where? Huh! We hadn’t noticed. We’re too busy making profit’.

And while Samsung sing that song about the future being so bright they have to wear shades (except those aren’t shades, they’re blinders if they think this isn’t going to hurt), consumers will be looking for deliverables, as will investors. Increasingly, consumers will be looking for that whole widget experience, if that’s the image Samsung want to project.

In the end, it really isn’t about the loss of Apple’s chip manufacturing or other business that is the biggest threat to Samsung; in fairness, they can absorb it as the mega-corporation that they are. Rather, it’s their own hubris and presumption that, without Apple’s guidance (or whomever else they have imitated in the past - and there are companies aplenty) they can independently be, not simply on the cutting edge, but the driving force of innovation and industry leadership, as well as the evidence-based and undisputed champion of end-user experience that defines Apple. (Do other companies even admire Samsung? If so, then why don’t they top the ‘most admired company’ list, like Apple?)

Any entity at the top of its game, at the pinnacle of its proficiency, performs at such a level that they make what they do look easy. A professional pilot makes landing a commercial airliner look like child’s play. A surgeon zipping through an appendectomy makes every first year resident ask, ‘What could be simpler?’, that is, until they hold the scalpel for the first time. Apple is not only at the top of its game, it has redefined the game and is the game’s undisputed grand master. Samsung has been a quick study in imitating set pieces of that game, but never thus far, the whole board. Their efforts of late even suggest that they are skating, with firm determination, to where the puck already is, and almost ridiculing Apple for appearing to be skating off-course. I predict the ridicule will stop when Apple, seemingly out of nowhere, scores again, and shows Samsung and others how the game is really played when you know where the puck (in this case, best in class user experience) was heading, even if not there yet when you moved to intercept.

In the meantime, Samsung have the opportunity, and the peril, of showing the world what they can do in re-defining the user experience and leading the way in the post-PC era, alone and without Apple.

Abbers

Let’s go back and read this article:

“The processors are made in a major facility outside of Austin, TX, and the loss of Apple’s business will not only effect Samsung, it will have a negative impact on the local Austin economy. “

See the problem right there?

The Austin economy is going to lose out.

Do any of you care?

Have any of posted about that in your comments?

Will any of you be taking that up with your elected representatives?

I doubt it.

I’m aware this an Apple fanboy site, but I’m still surprised that none of you seem to be bothered about the potential for job loses, as long as glorious Apple is seen to succeed and evil Samsung is seen to lose.

If Apple do ditch Samsung as a supplier, then Apple will be cutting off there nose to spite their face as no other fab plant can match Samsung in terms of output and quality.

Remember when Apple contracted LG to build Retina Macbook displays as well as Samsung?  How many dodgy burned-in screens did LG turn out?
You’d have thought that Apple would have learned from the Maps disaster, to treat their suppliers with a little more respect and courtesy.

wab95

Abbers said: See the problem right there?

The Austin economy is going to lose out.

Abbers, you’re correct, it has not been mentioned, at least not in this discussion thread, although a number of regulars have discussed the effect of Apple’s business on the US jobs market.

However, not everyone who posts here is an American or lives in the USA, so not everyone who posts here will share your level of concern about Austin, TX or US jobs more broadly. Indeed, many more Koreans are likely to be hurt by the loss of Apple’s sizeable chip business than are Americans. Samsung, as a company, will absorb that loss and move on, with or without those Korean workers. Who mourns for them, or the adverse impact on the Korean economy (and their purchase of US goods)?

Not only Apple, but most corporation do not base the creation and termination of contracts on the basis of the impact on a single job market, nor would the Boards or investors of a public company expect them to; neither can they allow the baleful behaviour of one partner company to hold them hostage to such consideration. No major corporation is held to this standard, nor, at least in my opinion, should an exception be made for Apple.

As for alternative suppliers, a competitive market insists that they up their game if they intend to stay on contract. Samsung have their own chequered history of dodgy products (remember the exploding batteries?). With opportunity comes growth or relegation.

buddhistMonkey

@Abbers: ((( “The Austin economy is going to lose out. Do any of you care?” )))

I care. It is indeed unfortunate that Samsung’s slavish copying of Apple’s products and designs has forced Apple to take its business elsewhere. Tech workers in Austin deserve better than the corrupt corporate culture that Samsung perpetuates. Perhaps this and other similar moves by Apple to divest itself of Samsung’s services will be the impetus that eventually causes Samsung to evolve into a company with some modicum of honor and integrity.

Abbers

@buddhistmonkey:

Your emotinal use of language indicates this is unlikely to an objective debate, but here goes:

(((“It is indeed unfortunate that Samsung’s slavish copying of Apple’s products and designs has forced Apple to take its business elsewhere. “)))

That may have been the judgement at the court case held close to Apple HQ in Cupertino, but in other territories including Europe, Samsung was judged not to have ‘slavishly copied’ Apple, who instead were ordered to publish public apologies to Samsung.


(((“Tech workers in Austin deserve better than the corrupt corporate culture that Samsung perpetuates. “)))

Well I’m sure that in today’s economic climate, the tech workers would rather still work for Samsung than be unemployed just so that Samsung can be taught a ‘lesson’.


(((“Perhaps this and other similar moves by Apple to divest itself of Samsung’s services… “)))

Nobody is ‘forcing’ Apple to ditch Samsung.  Unfortunately, Apple’s rush to ditch their former suppliers means it’s their reputation for quality products nd ultimately the user experience that suffers.
Recently Apple ditched Google from iOS 6 and gave their users a poorer Maps and Youtube application.  Apple switched some of the Macbook Retina display manufacture from Samsung to LG with the end result that Apple customers are suffering from burn-in and ghosting issues.

I don’t think that job losses, poorer quality iOS applications and hardware issues are a price worth paying for Apple to achieve its corporate goals.

Abbers

@wab95

(((”...neither can they allow the baleful behaviour of one partner company to hold them hostage to such consideration. No major corporation is held to this standard, nor, at least in my opinion, should an exception be made for Apple.”)))

Yes, I agree Apple can not and should not rely too heavily on a single partner in case they have a falling out, are unable to deliver on a contract or go out of business, but it seems that Apple cut off their former suppliers far too quickly and rushed off to seek alternative competitors without enough diligence!

It takes a substantial amount of effort to prepare a fabrication plant and Samsung build components as quickly and to as high a standard (if not better) than anybody else out there.

If you’re going to ditch your first choice component supplier and manufacturer, you’d better make sure that your second and third choices are up to standard if you want to maintain your reputation for build quality.

Lee Dronick

Perhaps Governor Perry can go to Taiwan and entice businesses to relocate to the Republic of Texas.

wab95

Lee Dronick said: Perhaps Governor Perry can go to Taiwan and entice businesses to relocate to the Republic of Texas.

Well done, Lee.

Lee Dronick

Thank you Doctor. Governor Perry comes here to California to poach our businesses and workers so I am supposed care about the economy of Texas? Actually I do because it the economic health of the Nation is just as important as a part of it, but his actions still tick me off. 

Colorado also tries to take our workers, of course both States come to where are the best people. smile

ibuck

Sure, Nvidia and other tech companies are eager to partner with a company that steals your secrets and then sues you in courts all around the world.

It’s unfortunate for workers, whether in Austin or elsewhere, but it’s not just employers who are at risk in an employer-employee relationship. It can be devastating to give up one job to take another, only to find the new position has been misrepresented, or that the new employer lacks integrity. And that happens too often. It’s rare to be able to go back to your old job, so workers really need to do their own due diligence before changing jobs. And it can be hard to find good info on companies, especially when a company like Samsung has so many willing apologists, whether in media, stock/business analysts, and Samsung’s own fans.

greatgazoo

There are a couple of misguided thoughts being tossed around on this thread:
1) “Samsung is a stronger semiconductor manufacturer than TSMC”.  Although Samsung is a world leader in many industries and has worked hard to cultivate it’s brand recognition, TSMC built the foundry semiconductor industry and is the recognized leader in foundry semiconductor manufacturing.  TSMC accounts for about 50% of all foundry semiconductor business worldwide.  Samsung is way down the list of Foundry suppliers.  There is no reason to suspect Apple processors coming out of TSMC will be in any way inferior to those manufactured by Samsung.  There is every reason to suspect Apple processors out of TSMC will at (or probably above) the quality of processors built at Samsung.
2) Samsung somehow has a lock on semiconductor technology.  Although Samsung has been a dominant player in memories for a long time, they are a relative newcomer in the foundry/processor business.  They were successful in breaking into foundry/processor manufacturing because they joined in with a couple of other semiconductor companies (IBM & Chartered/Global Foundries) to form a common manufacturing process platform.  IBM definitely contributed a lot of the technology know-how to this group.  The common platform was developed specifically as a means for these companies to try and keep up with TSMC.
    a) As recently as March 31, 2013 the rumor in the semiconductor trade websites is that Samsung has yet to yield at 28nm in their fab.  In fact, the Galaxy S4 is said to be using a QCOM (not Samsung) Snapdragon 600, a processor manufactured at TSMC on their qualified 28nm process!
3) The example of displays from LG vs Samsung is a fallacious example.  TSMC is to Samsung in semiconductors as Samsung is to LG in displays.
4) Job impact on Austin.  Samsung and Apple are both big employers in the Austin area.  Losses in jobs at Samsung will be at least partially offset by increased employment opportunities at Apple.

The marriage of Apple and Samsung was originally one of convenience for both companies.  Apple needed a partner that was willing to work with them as they developed their (Apple’s) processor design expertise.  Samsung got a high volume customer to help them defray the costs of breaking into the foundry business.  Apple’s processor design expertise has matured well and moving to TSMC (a foundry proven to be at the leading edge) is a wise move for them.  The question is what will Samsung do without Apple?

wab95

greatgazoo said: 4) Job impact on Austin.  Samsung and Apple are both big employers in the Austin area.  Losses in jobs at Samsung will be at least partially offset by increased employment opportunities at Apple.

Excellent point, greatgazoo, and thanks for making it. I meant to mention this as well, not just in Texas but elsewhere in the USA, as Apple transfer increasingly more of their business to America. In my haste, I left it out. I suspect that over the coming years, it will more than offset whatever losses may accrue from Apple’s severing ties with Samsung.

@ibuck: I think you nicely describe the precarious situation of workers in this sector worldwide. Many technically qualified labourers in other countries have had to grapple with the vagaries of a transient job market in their home countries and the disruption it creates, often driving them, as their final solution, to job markets abroad, whether as legal or illegal migrants. I have often wondered if such technical labourers in the USA are not to join the wave of physicists who have migrated to Europe (CERN) as part of that first generation of US technical and skilled workforce who migrate to foreign countries, as this is where their better longterm prospects lie.

There is already a global community of expat professionals who move freely between countries, often working in the NGO sector in health and science. We may be about to witness the expansion of that same phenomenon in the technical labour sector, seeing the inclusion of European and American workers.

Dave

“That may have been the judgement at the court case held close to Apple HQ in Cupertino, but in other territories including Europe, Samsung was judged not to have ‘slavishly copied’ Apple, who instead were ordered to publish public apologies to Samsung.”

Yes but Abbers you forgot to mention that the Appeal Judge then went to work for Samsung - how neutral of that Judge.

Also you forgot to mention that Samsung are having problems with 3G patents in the German and UK courts..

Log-in to comment