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Apple Taps Samsung to Manufacture Next iPhone Chip

Samsung isn't pumping $21.4 billion into its semiconductor and display business for nothing.

Apple is discovering it’s harder to split from Samsung than it would like.

The company has used Samsung for all manner of components, though it has been working to reduce reliance on its chief rival. With the iPhone 6, Apple found an alternative supplier for many of the A8 chips that lend the smarts to its smartphones.

While Apple had hoped to rely more heavily on Taiwan Semiconductor Manufacturing Co. to fabricate the Ax family of processors used in its iOS devices, the company has turned to Samsung for its next-generation A9 chip, according to people with knowledge of the situation.

That’s because Samsung holds a technological edge over TSMC when it comes to the latest manufacturing process. Samsung has managed to shrink the size of the transistors on its chips to 14 nanometers — effectively packing more processing power into a smaller space and consuming less power. TSMC is still at 20 nanometers.

Neither Samsung nor Apple would comment. The arrangement between the two companies was first reported by South Korea’s Maeil Business Newspaper.

Apple had used Samsung Semiconductor to fabricate its main processor on earlier generations of phones. The Cupertino technology giant designs the chip, but it relies on partners for production.

The relationship between the two companies became increasingly fraught after Apple sued its component supplier in 2011, alleging Samsung’s mobile electronics unit had copied its phones and tablets. Apple has been awarded more than $1 billion in damages from juries in a pair of related cases.

With the iPhone 6’s processor, the A8, Apple split the work between TSMC and Samsung. TSMC, which is a pure foundry and the world’s largest contract chip maker, received the bulk of the business, analysts say.

Now, the balance of power has shifted back to Samsung, thanks to its advanced fabrication technology. That same advantage is said to be putting pressure on Qualcomm, which has been the biggest maker of chips in high-end phones. Owing in part to its own manufacturing edge, Samsung is expected to use its Exynos processors in forthcoming handsets instead of Qualcomm’s Snapdragon 810, which is made in TSMC’s factories.

Samsung has invested a staggering sum — $21.4 billion — to ramp up capacity in its semiconductor and display businesses over the last year, and plans to spend even more in 2015. The company has foundries in South Korea and in Austin, Texas. Samsung also partnered last year with GlobalFoundries to bring its 14-nanometer process to its facility in Saratoga Springs, N.Y.

Though Samsung refuses to identify chip customers, sources say the company is working to ensure an adequate supply of application processors for the next-generation iPhone.

In October, Dr. Kinam Kim, president and general manager of the semiconductor business of Samsung, told reporters he expects Samsung’s profits to improve as it starts supplying Apple with chips that come from its 14-nanometer line.

“Samsung LSI hasn’t directly confirmed Apple as its 14nm customer. But the company sounded confident about 14nm FinFET ramp in the second half of this year during its Q4 2014 earnings call,” said Strategy Analytics analyst Sravan Kundojjala. “Samsung LSI is looking to regain share in applications processors with the help of 14nm FinFET chips after seeing a steady share decline in its AP shipments over the past few years.”

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