Apple Inc. (AAPL) Loses, Samsung Wins on Moore Stress Thesis: JEF

Apple Inc. (AAPL) Loses, Samsung Wins on Moore Stress Thesis: JEF
<a href="">ElisaRiva</a> / Pixabay

Apple Inc. (NASDAQ:AAPL) Delaying Foundry Transition to TSMC? Reports from The Wall Street Journal, Digitimes, and other publications over the last few days, citing Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) (TPE:2330) executives, suggest that after much debate, technical difficulties, and speculation, Apple Inc. (NASDAQ:AAPL) has finally signed a foundry agreement with TSMC. Media reports also suggest Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) would continue to be the primary foundry supplier to Apple in CY14. Jefferies analyst Sundeep Bajikar states that conversations with investors globally indicate most were expecting Apple to materially transition its foundry business from Samsung to TSMC by 1Q14. Jefferies’ and they also believe the Street’s Samsung models assume Samsung loses ~50% of its Apple foundry business in CY14. Further details from the report below:

Apple Inc. (AAPL) Loses, Samsung Wins on Moore Stress Thesis: JEF

See Apple, BlackBerry, Nokia Compete For Numbers In Europe, US, and Mexico

14FF Manufacturing Roadmap Better than TSMC’s 16FF.

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14FF Manufacturing Roadmap Better than TSMC’s 16FF. Our recent foundry and EDA checks increase our conviction that Samsung’s 14nm FinFET (14FF) will deliver a cost structure (chip area) similar to Intel’s industry-leading 14nm, and ~15% better than TSMC’s 16FF and Globalfoundries’ 14XM. We think this should translate into a cost advantage in high-end Smartphone vs. Apple Inc. (NASDAQ:AAPL) at TSMC, and a more competitive lower end product stack vs. Chinese whitebox handsets. Additionally, we would not be surprised if Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) raised AP manufacturing prices to Apple, or if Apple delayed its transition to TSMC.

Why Koreans Like Apple Inc. (NASDAQ:AAPL) Over Samsung

Apple Inc. (NASDAQ:AAPL): DRAM and NAND Cost Advantage.

Moore Stress has led to market DRAM prices ~2X higher and NAND prices ~40% higher from their 2H12 troughs, bucking seasonal 1H demand weakness. As the availability of DRAM and NAND remains supply constrained through CY14, we expect to see a continued upward bias on market prices. We expect a combination of Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s scale and in-house manufacturing to continue to translate into a unique Smartphone cost advantage, while competition struggles to secure component supply.

See Apple Inc. (NASDAQ:AAPL) iPhone 6 Or iPhone 5S: The Great Debate Continues

Samsung is a Moore Stress Winner, Apple is Challenged.

For the first time in 40 years, semiconductor transistor costs are no longer modeled to decline – we call this dynamic “Moore Stress”. We think that declining transistor costs have underpinned growth in technology for 40 years, and dictated a set of specific investing patterns that are changing drastically. In the Moore Stress paradigm, we think benefits accrue to those who have the critical mass to maintain a leading edge transistor manufacturing capability – we view Samsung as one of only two who do, the other being Intel.

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