Apple's Plan to Dump Samsung for TSMC Makes Watchers Nervous

Apple has been rumored to be moving its chip production from Samsung to Taiwan Semiconductor Manufacturing Company (TSMC) is raising concerns in the industry over TSMC's ability to handle the load. Apple's chip needs are "expected to be huge," according to DigiTimes, and industry watchers are concerned about how TSMC will balance Apple's orders with the orders of its existing customers.

That list of existing customers includes Altera, Qualcomm and Nvidia, as TSMC is a major manufacturer for fabless chip designers. Chips from those companies are used in all manner of cell phones, smartphones, tablets, and computers, and a disruption in those supplies would be felt in multiple industries.

Like those three companies, Apple is also a fabless chip designer with one very important customer, Apple itself. The company uses its own Ax line of ARM processors in its iPhones and iPads, and until now Apple has relied solely on Samsung to produce the chips it designs.

Until Now...

That's supposedly changing, however; Apple cut Samsung out of the loop when it designed the A6 processor that powers the iPhone 5. In October, rumors kicked up in earnest that Apple was also planning to cut Samsung out of the manufacturing loop, too, and move production to TSMC.

This comes in the midst of an epic patent battle between Apple and Samsung, where Apple is a huge customer of the South Korean giant and a competitor, too. The late Steve Jobs reportedly felt betrayed that Samsung would take his company's money and then rip off iOS when making Android smartphones.

The two firms have been fighting tooth and nail in court rooms around the world since then, but Apple has been doing what it can to stop feeding Samsung manufacturing profits. For its part, Samsung has reportedly fired Apple as a customer of battery components.

Back to TSMC: this is a major company in the world of electronics today, and the company's existing contracts feed millions of products. At the same time, TSMC doesn't want to become a one-customer company due to the risk of that one customer, Apple, changing its mind in the future.

AppleInsider Via noted that TSMC reportedly turned down U$1 billion to become an Apple-only company, but with Apple needing some 200 million processors per year—give or take—what Apple wants Apple is likely to get.

According to DigiTimes, "While being capable of providing sufficient capacity to Apple, TSMC also does not want to upset its existing major clients, the observers noted. Allocating efficiently its production capacity will be a focus for the foundry in 2013, the observers believe."

To meet Apple's demand, TSMC would have to produce at least 200,000 Apple wafers per year. Earlier this year, TSMC's chairman said that it could conceivably dedicate one or even two of its fabs to "one customer," code for Apple.

TSMC broke ground on its sixth fab in February, suggesting that the company has enough capacity to handle the influx of Apple orders. The reality, however, is that if it can't handle it all, Samsung is going to have some extra capacity on its hand.